September Financial Services Hearing Will Examine Student Loan Problems

WASHINGTON - Today, Congressman Paul E. Kanjorski (D-PA), the Chairman of the House Financial Services Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee, insisted that the Administration work promptly to fix problems in the auction rate securities market, especially for student loan originators.  Since the start of the credit crunch, this market has dried up, making it especially difficult for many student loan lenders, like the Pennsylvania Higher Education Assistance Agency (PHEAA), to get the funding needed to make student loans this fall.  At the press conference, Chairman Kanjorski and the other leaders of the Financial Services Committee also announced plans for a September 18 hearing on providing needed support for student lenders and fixing this frozen market.

"Congress enacted a law in May to help student loan originators affected by the credit crunch, but the Administration has not yet used its full authority to help non-profit lenders like PHEAA.  The school year is beginning.  We can wait no longer.  The Administration must take swift action to implement this law effectively," said Chairman Kanjorski.  "Moreover, the Administration and regulators must step up their efforts to fix the lack of money currently available in the market, which is making it difficult for lenders to finance student loans.  Our September hearing will shine a bright light on this dark corner of our financial markets."

James Preston, the President and CEO of PHEAA who joined Chairman Kanjorski, Financial Services Committee Chairman Barney Frank (D-MA), and Financial Services Committee Ranking Member Spencer Bachus (R-AL) at the press conference, agreed that improved implementation of H.R. 5715, the Ensuring Continued Access to Student Loans Act, would make money more available to the student loan lenders that help to make the dream of a higher education possible.

In his remarks Mr. Preston said, "PHEAA is grateful to Rep. Paul Kanjorski and to his colleagues in the Pennsylvania Congressional delegation who have supported PHEAA's efforts to seek a long-term solution to the collapse of the market for auction rate securities.  ...We need a long-term solution to unlock the billions of dollars of capital trapped in these auction rate securities and allow the marketplace for federal student loans to return to normal."

Chairman Kanjorski was the first Member of Congress to sound the alarm on the crisis facing the student loan market at the beginning of the year.  He is now leading the charge to ensure that H.R. 5715, enacted on May 7, lives up to its full potential.  Implementation problems have prevented many lenders from getting the money needed to make loans to students.  Even though H.R. 5715 provides the explicit authority to purchase student loans going back to the 2003-2004 school year, the Administration has only put in place plans for loans made in the 2008-2009 academic timeframe.

To address this problem, this week Chairman Kanjorski is leading his Pennsylvania Congressional colleagues in writing to Secretary of Education Margaret Spellings and Secretary of the Treasury Henry M. Paulson, Jr. to encourage them to consider new ideas to help thaw the frozen markets for student loan securities.  This letter will highlight a proposal made by PHEAA and other non-profit lenders to make more money available for student loan originators.

"I have reached out to the Administration since February because I have been especially concerned about how a lack of student lender funding could affect higher education opportunities.  Congress has already acted.  It is now time for the Administration to take appropriate action to fix this problem, for the sake of our country's education financial system," added Chairman Kanjorski.  "I am very disappointed at the failure of the Administration to implement H.R. 5715 effectively, and I remain just as concerned about the ability of our federal regulators and the financial industry to fix the broader problems of the auction rate securities marketplace."

The $330 billion auction rate securities sector continues to sputter.  Before February, auction rate securities were considered extremely safe investments, but because of the economic downturn and need for broker-dealers to preserve cash, tens of thousands of investors have found themselves trapped and unable to get their money out of these investments now that new investors refuse to buy these products.  With $80 billion in outstanding notes, student loan originators are the largest participant in this marketplace.

"We have waited patiently for the private sector and financial regulators to solve these problems.  We can wait no longer.  The time, therefore, has come for us to convene a congressional hearing," concluded Chairman Kanjorski.  "At this September 18 hearing I will focus on the Administration's efforts to fix the problems of student lenders.  We will also examine how this problem has affected trapped investors and raised the borrowing costs of municipalities.  Finally, we will explore what regulators and the industry have already done to fix it, what they are currently doing to fix it, and what more they can do to fix it."

###