WASHINGTON (Reuters) - The Bush administration will get broad price-setting powers under a student loan market stabilization plan given final approval on Thursday by the U.S. Congress, lifting the stock prices of student loan providers.
The House of Representatives voted 388-21 to approve the bipartisan legislation that next goes to President George W. Bush, who is expected to sign it into law.
Bush said he was pleased Congress had quickly passed the measure he says could potentially help millions of students.
“By granting the Department of Education greater authority to purchase Federal student loans, today’s action should ease the anxiety many students may feel about their ability to finance their education this fall,” Bush said in a statement.
The plan is aimed at helping lenders such as Sallie Mae get through a rough patch in the capital markets.
Hit hard by subprime mortgage crisis fallout, lenders have warned of a potential loan shortage in coming months as millions of students seek financial aid for college.
Under the plan, the U.S. Education Department would temporarily be allowed to pump liquidity into the sluggish secondary market for federally guaranteed student loan debt.
That would assist lenders, such as Sallie Mae, which depend on that market to raise new capital to make 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 for students and for colleges if they faced loan shortages from other sources.
Some college financial aid experts are concerned about the leeway the administration will get under the plan.
“This is an industry that has taken the taxpayers to the cleaners for years,” said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.
Robert Shireman, executive director of the Project on Student Debt, a financial aid research and advocacy group, was more charitable about the widely supported plan.
“I don’t see what Congress has done as a bailout. I see it as securing backstops we already have in existence,” he said.
How the Education Department carries out the plan will largely determine whether or not it begins to look like a bailout for the $85 billion student loan industry, he said.
Sallie Mae shares closed up 7.8 percent. More diversified lenders also rose. In broadly bullish New York Stock Exchange trading, Bank of America Corp rose 4.9 percent; Citigroup Inc, 4.2 percent and JPMorgan Chase & Co 3.4 percent.
Sallie Mae Chief Financial Officer Jack Remondi told Reuters in an interview the legislation “gives the department pretty broad authority to do different things.”
“It could involve everything from buying perhaps participation interest in loans to actually buying whole loans. They will have to decide which direction,” he added.
In a related matter, Federal Reserve Chairman Ben Bernanke told Senate Banking Committee Chairman Christopher Dodd that Congress might want to revisit the issue of government subsidies paid to student loan providers.
Bernanke’s April 25 letter to Dodd, a Connecticut Democrat, was made public on Thursday. In it, Bernanke said recent student loan market problems stem from many causes, including cuts made last year by Congress in lender subsidies.
“Congress may well wish to revisit the question” of whether setting hard subsidy levels for loan providers is the best approach, Bernanke said, suggesting a more flexible policy in which subsidies could adjust according to market conditions.
Editing by Andre Grenon, Phil Berlowitz