Bush signs student loan market stabilization plan

By Kevin Drawbaugh

WASHINGTON (Reuters) - President George W. Bush signed into law on Wednesday a program to stabilize the $85-billion student loan industry, addressing lenders' warnings of a possible loan shortage in coming months.

The program will temporarily allow the U.S. Education Department to pump government money into the sluggish secondary market for securities backed by student loans, where many lenders obtain capital needed for making new loans.

It will also allow the department to provide funds to state guaranty agencies for making loans to students and colleges in case they are unable to get loans from other sources.

Major student loan providers affected by the law include Sallie Mae, JPMorgan Chase, Bank of America, Citigroup and many others.

"With this bill signed into law, students and families now have every assurance that they will continue to have access to all the federal student loans they are eligible for, no matter what happens in the nation's financial markets," said California Democratic Rep. George Miller, chairman of the House education committee and a chief backer of the legislation.

The student loan industry has been hit hard by fallout from the subprime mortgage crisis. Many investors have fled from the secondary market for securitized student loan debt.

College financial aid experts said last week there were still no signs of a shortage of loans for students. But the peak summer lending season is not yet under way.

In addition to greatly expanding the Education Department's role in the student loan market by allowing it to buy up loans until mid-2009, the legislation takes other steps.

It makes more grant and loan money available for students and parents, eases terms of repayment for some borrowers and protects them from being disqualified for student loans if they have had mortgage problems.

(Editing by Tim Dobbyn)