Op-Eds :: May 2, 2008

We must maintain loan system solvency [Gordon]

By Rep. Bart Gordon (D-TN)

All across the state, high school seniors are counting down the days to graduation. Classes are winding down, summer jobs are waiting, and college choices are being finalized. But those prospective college students and their parents now face the challenge of paying for college at a time when costs are skyrocketing and some lenders are closing their doors.

Tuition at public four-year colleges in Tennessee has increased by 50 percent since the 1999-2000 academic year — well above the national average of 36.3 percent. That increase has hit Tennesseans hard and made it more difficult for families to afford to send their children to college without burying themselves in debt.

For years, Middle Tennessee students have counted on the steady availability of low-interest student loans to help realize the dream of earning a college degree. But in the wake of the subprime mortgage crisis, about 50 lenders have stepped out of the student loan business altogether. This has given rise to fears that promising students across the country will be accepted by the colleges of their choice but be rejected by lenders who don't have the capital they need to advance tuition and fees.

As more private lenders leave the market, the federal government is forced to step in and offer more loans to students. Last year, loans backed by the government covered 25 percent of the student loan market, but private lenders leaving the market have already left a gap of another 10 percent.

Preventive action necessary

Fortunately, no students have been denied access to federally guaranteed student loans to date. But action is needed to ensure students have continued access to student loans.

In April, the U.S. House of Representatives passed the Ensuring Continued Access to Student Loans Act of 2008, which protects access to loans by allowing the Department of Education to act as a backstop for lenders. The bill gives families more flexibility in how they choose to repay their loans and expands the amount students are allowed to borrow. In addition, Tennessee's congressional delegation came together to ask Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson to work with banks to preserve liquidity for lenders and loan availability for students.

Access to student loans will help students get to campus, but the battle with college costs does not end there. Last year, Congress passed the College Cost Reduction and Access Act to halve interest rates on subsidized student loans, and the president signed the bill into law. Once the lower interest rates are fully phased in, Tennessee students who need student loans can expect to save about $4,000 over the life of a loan. Nationally, more than 6.8 million students take out need-based federal student loans each year.

America's federal student loan programs are in place to help students and parents cope with the skyrocketing costs of attending college. Tennessee's students will reap the benefits if we ensure these programs, as well as private student loans, run more efficiently and remain solvent.