Senate's Dodd urges fast student loan intervention
WASHINGTON, April 15 (Reuters) - The $85-billion student loan market is in disarray and the Bush administration needs to move fast to avert a crisis, the chairman of the U.S. Senate Banking Committee said on Tuesday.
"This may not be a crisis now," said Sen. Christopher Dodd, a Connecticut Democrat, at a hearing before his committee.
"But I don't want to make the mistake we did a year ago" when the administration offered assurances concerns about subprime mortgages were "contained" and unlikely to spread.
In an instance of fallout from the widening mortgage debacle, funding for student loans is drying up and dozens of lenders have dropped out of segments of the market, raising concerns about student loan availability this summer.
In coming weeks, millions of U.S. students will be admitted to universities and then have to arrange financing.
Dodd said he will write letters this week asking Treasury Secretary Henry Paulson to consider using the Federal Financing Bank to pump some liquidity into the student loan market.
The FFB, set up in 1973 under the Treasury Department, can buy obligations issued, sold or guaranteed by a U.S. agency.
In addition, Dodd said, he will ask Federal Reserve Board Chairman Ben Bernanke "to use existing tools to avert a breakdown in the market for student loans."
Dodd said he would eye legislation if the administration did not move promptly. But the senator questioned proposals already being offered by Massachusetts Democratic Sen. Edward Kennedy and California Democratic Rep. George Miller.
Kennedy and Miller are proposing letting the U.S. Education Department buy up student loans that lenders are unable to securitize and sell on the secondary market, which is locked up due to general credit anxieties caused by the mortgage crisis.
"I don't see that happening ... Where we are right now, we've got an immediate problem on our hands that needs to be addressed," Dodd told reporters after the hearing.
The House of Representatives education committee last week approved Miller's version of the plan, partially sparking a rally in education company stocks -- such as ITT Educational Services Inc (ESI.N) and Corinthian Colleges Inc (COCO.O). A House floor vote on the Miller bill was expected on Thursday.
Loans play a role in the financial packages of most U.S. students, who can obtain federally guaranteed loans from banks, or private loans with no government backing, or borrow through their colleges from the government's direct loan program.
The federally guaranteed student loan program is the biggest, involving major lenders such as Sallie Mae (SLM.N), Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N) and Citigroup Inc (C.N).
Sallie Mae Chief Financial Office John Remondi, testifying at the hearing, said getting the Federal Financing Bank involved in the market would be "the simplest and fastest solution to this problem ... This is not meant to be a permanent solution, it's temporary." Continued...
