Bush Passed Bill to Increase Student Loan Funding.
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President Bush to Sign Student Lending Bill

Any day now, President Bush is expected to sign a student lending bill that has been quickly approved by Congress. The legislation strengthens the federal government's student loan program and will raise the lending limits for some college students.

The bill was necessary to prevent what lenders said could have been a dramatic shortage of student loans for students returning to college this fall.

After the subprime mortgage crisis got into full swing, the credit market virtually seized up as investors became nervous.

The student lending bill will allow the U.S. Education Department to prop up the secondary market for student loans until mid-2009. The department will be allowed to buy the federally guaranteed loans that lenders are not able to sell as secured debt.

Lenders generally depend on selling these debts in order to secure the funding to make new loans. The U.S. Education Department will essentially be pumping money into the system to allow the lenders to make the necessary student loans.

The bill will also let the U.S. Education Department provide capital for loans to state guaranty agencies under a "lender of last resort" program for both colleges and students if there are loan shortages, according to Yahoo News.

In addition to making more money available for student loans, the bill gives parents more time to repay the loans and will allow parents who have been caught up in the mortgage crisis to still qualify for student loans to send their kids to college. The Senate also added an amendment to the bill that would benefit about 100,000 students by making more federal grant money available.

However, the bill does not address student loans and bankruptcy. Currently, student loans may not be included in a bankruptcy - usually.

The White House announced last week that President Bush supports the legislation and will sign the bill into law.

Sallie Mae, the largest student lender in the country, will be affected by the bill and has urged the U.S. Education Department to run with it and to write the regulations to implement the bill as quickly as possible.

Student loans are an $85 billion industry, but business has recently been wobbly due to the exit of a number of lenders from the federally guaranteed student loan program after the subsidies paid to them were cut by the government.

The reductions decreased the profitability of student loans substantially and caused dozens of lenders to completely back out, resulting in a 14 percent decrease of the number of federally guaranteed student loans.

Lawmakers admit that they are not sure what the actual scope of the problem would be in the absence of the student lending bill.

Some people are skeptical that there would be a severe crisis, but everyone agrees that lenders that make student loans are facing problems and the legislators agreed that it is better safe than sorry in this situation.

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