Student loan bill advances, Bush will sign

By Kevin Drawbaugh

WASHINGTON (Reuters) - The U.S. Senate on Wednesday unanimously approved legislation aimed at stabilizing the student loan market and heading off what lenders warn could be a shortage of loans in coming months as millions of college students lock in their finances before heading to school.

The bill would temporarily allow the U.S. Education Department to inject liquidity into the secondary market for student loans, which seized up recently after investors were spooked by the subprime mortgage crisis.

The department would be empowered until mid-2009 to buy federally guaranteed loans that lenders are unable to sell as securitized debt. Many lenders depend on selling such debt to raise money for new loans.

The bill would also let the Education Department funnel capital for loans to state guaranty agencies under a "lender of last resort" program -- not only for students, but for entire colleges, if they face loan shortages from other sources.

The House of Representatives was expected to vote in favor of the bill, possibly as soon as Thursday. The White House said on Wednesday that President George W. Bush supports the legislation and will sign it.

Loan providers such as Sallie Mae, Bank of America Corp, Citigroup, JPMorgan Chase & Co and many others in the $85-billion industry would be affected.

Sallie Mae said the bill would give the Education Department "at no cost to taxpayers, the flexibility to implement a comprehensive, equitable solution to the credit crunch in the student loan capital markets."

The company urged the Education Department to move as quickly to write regulations to implement the bill as Congress had in adopting it. Sallie Mae, known formally as SLM Corp, is the nation's largest student loans provider.