WASHINGTON – Just as the Federal Reserve was moving to bail out the mortgage backed securities market, a group of House members was calling on the Fed to pump liquidity into the student loan market to help avert a crisis.
The group on Monday called on Federal Reserve Chairman Ben Bernanke to provide liquidity to student loan originators, including bank and credit union lenders and non-bank lenders, in the same way the Fed is providing low-cost funds to mortgage lenders. “In these difficult times, we believe the Federal Reserve System should work to provide liquidity to all types of student loan originators in order to restore a smooth functioning of this market sector and to avoid negative economic outcomes,” said the lawmakers in a letter to the Fed Chairman.
The House members asked the Fed Chairman to use the central bank’s emergency authority to lend against collateral to student lenders and/or extend its new lending facility for mortgage-backed securities to non-bank lenders participating in the Federal Family Education Loan Program.
The request is the first direct call on the Fed Chairman by the lawmakers, who in recent weeks made similar pleas to Treasury Secretary Henry Paulson and Education Secretary Margaret Spellings.
The request comes as the market for student loans is starting to seize up, as is the case with the markets for mortgages and other debt. The seizure is being signaled by failures last week to sell student-loan backed debt on the secondary market and by the decision of several major players to either exit or temporarily halt making any student loans. State agencies in Pennsylvania and Iowa–which provide funding for student loans through credit unions–are among those halting their lending.
