Op-Ed

Delaware County Daily Times, 6/4/08

Student-loan bill earns Pa. officials kudos

By Don L. Francis

On May 7, President Bush signed the “Ensuring Continued Access to Student Loans Act of 2008,” only a month after the bill was introduced by House Education and Labor Committee Chairman George Miller, D-Calif.

This legislation includes several provisions intended to protect students’ access to loan capital from the turmoil in the financial markets caused by the sub-prime mortgage crisis.  Among other things, this law gives the education secretary the authority to purchase loan portfolios from lenders sp that new dollars are made available for student loans, allows parents to defer repayment of PLUS loans until six months after their child leaves college, and raises the amount of federally subsidized loans students can borrow each year. 

Why did this bill move through Congress in record-setting time?  Why was there strong bipartisan support for this initiative with the Bush administration and the Democratic-controlled Congress supporting the same action?  Certainly, elected officials wanted to make sure students have no problems finding loans this summer to pay for their college education next fall.  But many of these same elected officials were minimizing concerns about student loan availability just a few weeks before they and everyone else agreed to act in unison for the common good.  What happened?

We can actually credit several elected officials (and one state agency CEO) from Pennsylvania for focusing the attention of Congress and the Bush administration on the importance of this problem and potential solutions.

Back in February, state Rep. Bill Adolph, R-165 of Springfield, and state Sen. Sean Logan, D-Allegheny, the chairman and vice chairman of the Pennsylvania Higher Education Assistance Agency (PHEAA), called together political, education, and financial leaders to PHEAA’s headquarters for a Pennsylvania Student Loan Funding Summit.

With the urging of PHEAA CEO Jim Preston, Adolph and Logan recognized that the time to act was this spring – before students and families started to secure their college loans over the summer for the fall semester.

Preston explained to the assembled leaders how the disruptions in the capital markets could result in insufficient student loan availability this summer if Congress, the Federal Reserve, the U.S. Department of Education, and the Treasury Department didn’t take action. 

This summit was the first official warning in the nation about these potential problems. 

Shortly thereafter, Adolph, Logan and Preston took their message to Washington, visiting members of the Pennsylvania congressional delegation and high-ranking officials in the Treasury and Education departments.  The PHEAA delegation was well received. 

Jim Preston is uniquely positioned to speak to these potential problems due to his long career combining experience in investment banking and student loan origination and servicing work.  Well-known by members of the Pennsylvania congressional delegation, Adolph and Logan could communicate the importance of this issue for thousands of Pennsylvania students and families.  Due to PHEAA’s reputation as one of the largest and most successful non-profit loan providers in the nation, the Chronicle of Higher Education reported the next week about the impact of the Washington trip by PHEAA officials. 

The members of our Pennsylvania congressional delegation immediately recognized the seriousness of this situation and urged action by congressional leadership and Bush administration officials.  U.s. Rep. Paul Kanjorski, D-Pa., chairman of the House Financial Services Subcommittee on Capital Markets, was already concerned about the potential fallout from the subprime lending mess on student loan liquidity.  The PHEAA visit reinforced his determination to hold a hearing on the issue and encourage the Federal Reserve and Treasury Department to take action. 

At his urging, the Federal Reserve recently took an additional step to ensure student loan availability this summer by announcing that investment banks can now use student loan debt as collateral when borrowing from the government.

This will encourage investment banks to purchase packages of student loans, thereby making more capital available to banks for making new loans.

I am proud of these Pennsylvanians who took a leadership position and accomplished a difficult feat:  They moved the federal government to take a responsible, thoughtful action in a relatively short time to avert potential problems in securing college financing for millions of Americans.

Don L. Francis is president of the Association of Independent Colleges and Universities of Pennsylvania.