WASHINGTON – The Bush administration last week refused to engineer a rescue of the troubled student loan market, even as major lenders continued to exit the market.
Treasury Secretary Henry Paulson told lawmakers they have no plans to add liquidity to the troubled market, via the Federal Reserve or other lending mechanisms, and believe the market remains vibrant with over 2,000 participants in the Federal Family Education Loan Program. Paulson’s letter to Rep. Paul Kanjorski, chairman of the House Financial Services Subcommittee on Capital Markets, came as Kanjorski and other members of the committee, both Democrats and Republicans, stepped up their calls for government assistance because of growing liquidity problems in the student loan market and the continued exodus of lenders.
Paulson’s letter came as two more major participants in the guaranteed loan program, Zions Bank and M&T Bank, announced they were leaving the program, joining several other banks and state lenders in Michigan, Iowa and Pennsylvania who all announced cutbacks in student loans in recent weeks.
"I find it unfortunate that the Administration is not taking greater action at this time to fix the problem," said Kanjorski on Friday. "How many more lenders must drop out of the Federal Family Education Loan Program before the Administration will take action? Students and their families preparing to go to college this fall need to know that they will have access to affordable higher education loans."
He noted that 37 lenders have either suspended or ended their participation in the federal loan program in recent weeks.
"We need proactive, swift action now to provide stability in the student loan marketplace. The Administration is in the best position to provide such leadership," said Kanjorski. "In the weeks ahead, I will continue to push for action on this critical issue."
