H.R. 5914 Gives Federal Financing Bank Authority to Provide Student Lenders with Access to Needed Capital

WASHINGTON - Congressman Paul E. Kanjorski (D-PA), the Chairman of the House Financial Services Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee, today introduced emergency legislation to provide a new source of liquidity in the student loan marketplace.  By introducing this bill, Chairman Kanjorski aims to help prevent more originators from departing the industry and maintain stability in the existing student loan distribution system.  H.R. 5914, the Student Loan Access Act, would make it absolutely clear that the Administration can purchase federal student loans using Federal Financing Bank. 

"If action is not taken soon to address the problems in the student loan marketplace, hundreds of thousands of students could find themselves this fall without the resources needed to pursue their higher education dreams," said Chairman Kanjorski.  "Such a result would short-circuit the intellectual capacity of our nation at a time when our economy is more and more dependent on an educated workforce.  H.R. 5914 would help ensure that the anticipated nearly 7 million borrowers will have access to their student loans in the next school year by clarifying that the Federal Financing Bank can provide liquidity for federal student loan originators."

As of April 29, according to the award-winning FinAid.org website, 65 student loan originators have decided to exit or suspend their participation in all or part of the Federal Family Education Loan Program (FFELP) since last August.  These providers account for 13.9 percent of the Stafford and PLUS loan origination volume under the FFELP and 76 percent of the consolidation volume under the FFELP.

On April 15, Democrats and Republicans in the U.S. House of Representatives joined together on a bipartisan basis to pass H.R. 5715 by a vote of 383 to 27.  This bill was introduced by Chairman of the House Committee on Education and Labor, Congressman George Miller (D-CA).  This legislation included a sense of Congress resolution that Federal financial institutions, such as the Federal Financing Bank, in consultation with the Secretary of the Treasury and the Secretary of Education, should use their existing powers to assist in ensuring that students and their families can access federal student loans.

Since the passage of H.R. 5715, the Bush Administration has concluded that the Federal Credit Reform Act prevents the ability of the Federal Financing Bank from helping students and their families obtain federal student loans.  While other experts have reached different legal interpretations in these matters, Chairman Kanjorski's H.R. 5914 will clarify that the Administration has the full authority to use the Federal Financing Bank to provide liquidity to the student loan marketplace.

Specifically, H.R. 5914 would provide the Treasury Department's Federal Financing Bank with the explicit power to purchase loans guaranteed under the Higher Education Act or participation interests in such loans.  The bill also explicitly states that the Federal Credit Reform Act, which amended the Congressional Budget Act, does not apply to using the Federal Financing Bank for these purposes.  These provisions would apply through the 2008-2009 academic year and could be extended by the Secretary in increments of up to 12 months.

As a leader in tackling the current student loan funding problems, Chairman Kanjorski has taken many actions to address these issues.  The introduction of H.R. 5914 is only the latest step.  On April 8, Chairman Kanjorski previously introduced H.R. 5723, the Emergency Student Loan Market Liquidity Act, which would give the Federal Home Loan Banks emergency authority to provide needed student loan lenders with access to capital.

On March 17, Chairman Kanjorski, joined by 31 other bipartisan Members of Congress, sent a letter to Federal Reserve Chairman Ben S. Bernanke urging him to take action to inject liquidity into the student loan marketplace to help all types of originators.  In his response, Chairman Bernanke stated that the Federal Reserve is unable to provide extensions of credit to student loan lenders at this time. 

In addition, Chairman Kanjorski and 20 other Members of Congress received a response on March 28 to their earlier letter in which they urged Secretary of the Treasury Henry M. Paulson, Jr. and Secretary of Education Margaret Spellings to take action to address capital access problems in the student loan marketplace. 

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Editor's Note:  Click here to view a copy of H.R. 5914.