April 15, 2008

• Congressional/Legislative Update

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Congressional Update

Recent activity has focused on the FFELP/capital markets/funding liquidity issue.

In March and April, Senator Kennedy and Representatives Hinojosa and Miller filed legislation (S 2815-Strengthening Student Aid For All Act/HR 5715-Ensuring Continued Access to Student Loans Act) in the congress that would address this issue by:

• reducing students' reliance on loans by increasing the annual Pell grant award for the lowest-income Pell grant recipients up to $750 above the current maximum award of $4,371 (S 2815);
• reducing borrowers' reliance on costlier private college loans and encourage responsible borrowing by increasing dependent undergraduate students annual borrowing limit to $3,500 in unsubsidized federal loans during their first year of college, $4,500 in unsubsidized loans during their second year, and $5,500 in unsubsidized loans during their final two years of college. Over the course of their education, dependent undergraduate students can currently borrow up to $23,000 in total federal student loans (both subsidized and unsubsidized) and independent undergraduates can borrow up to $46,000 in total loans;
• increasing the annual loan limits on federal unsubsidized student loans by $2,000 for all students, and increasing the aggregate loan limits (the total loan limit over the course of a student's education) to $31,000 for dependent undergraduates and to $57,500 for independent undergraduates (S 2815 increases this aggregate limit to $29,500);
• increasing the annual loan limit for unsubsidized loans for graduate and professional students from $12,000 to $14,000 (HR 5715);
• giving parent borrowers of Parent Loans for Undergraduate Students (PLUS) more time to begin paying off their federal PLUS college loans by allowing parent borrowers the option to defer repayment on their PLUS loans until up to six months after their children leave school, giving families more flexibility in hard economic times (S 2815 defers until graduation);
• helping struggling homeowners pay for college by allowing parents with an adverse credit history who are ineligible to receive a parent PLUS loan, except under extenuating circumstances to temporarily classify as an extenuating circumstance delinquencies on home mortgages of up to 180 days, therefore making it possible for parents feeling strained by the current housing market to secure loans for their children (HR 5715);
• providing the U.S. Secretary of Education additional tools to safeguard access to student loans by clarifying existing law that gives the U.S. Education Secretary the mandatory authority to advance federal funds to guaranty agencies operating as lenders of last resort in the event that they do not have sufficient capital to originate new loans. The bill would also allow guaranty agencies to carry out the functions of lender of last resort on a school-wide basis, and providing the Secretary the temporary authority to purchase loans from lenders in the federal guaranteed loan program, if there is a determination that lenders and other existing policy options are unable to meet the demand for loans. This would ensure that lenders continue to have access to capital to originate new loans. The Education Department would only be authorized to purchase loans in such a manner that would carry no cost for the federal government. HR 5715 refers only to subsidized loans for LLR purposes.

In addition, Congressman Paul Kanjorski and Senator John Kerry have filed legislation (HR 5723/S 2847-The Emergency Student Loan Market Liquidity Act proposing to allow the 12 Federal Home Loan Banks to assist student loan lenders by enabling the Banks to:

• temporarily (for two years)invest in student loan-related securities with their surplus funds;
• accept student loans and student loan-related securities as collateral; and,
• provide secured advances of funds to its members (savings and loan associations, cooperative banks, and mortgage lenders)to originate student loans or finance student loan-related securities.

It is also important to note that the Texas Legislature has taken an interest in this issue as well. The following letters were exchanged between State Senator Judith Zaffirini, Chair of the Senate Subcommittee on Higher Education and Vice Chair of the Senate Finance Committee and Congressman Ruben Hinojosa following a committee hearing on higher education funding that included testimony on this issue.

Additional state legislative hearings are now scheduled.

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April 7, 2008

The Honorable
Rubén Hinojosa, Chair
Subcommittee on Higher Education, Lifelong learning, & Competitiveness
U.S. House of Representatives
2463 Rayburn HOB
Washington, DC 20515

Dear Chair Hinojosa:

Thank you for your leadership in addressing higher education. I am writing to you in my capacity as Chair of the Senate Higher Education Subcommittee, Chair of the Senate Finance Higher Education Subcommittee, and Vice Chair of the Senate Finance Committee about issues affecting higher education in Texas and to express my support for a viable Federal Family Education Loan Program (FFELP). This is in response to the current turmoil in the capital markets, which appears to be affecting all areas of credit, including student loans.

The FFELP participants provide nearly two-thirds of the student financial aid awarded annually to Texas' postsecondary education students and parents (contrasted with 56 percent nationally). Last year alone, for example, the Texas Guaranteed Student Loan Corporation (TG) guaranteed more than $3.2 billion in FFELP loans in Texas. The Federal Direct Loan Program (FDLP) accounts for approximately five percent of the state's federal student loan volume.

These FFELP providers also have supplied essential resources to assist students and families obtain information about postsecondary education: how to apply for college, how to choose a college or university to attend, financial aid availability, and how to apply for financial aid. In addition to working with the Texas student financial aid community through regional workshops on various postsecondary education issues, FFELP providers assist the State of Texas with our Closing the Gaps initiative and provide grants and scholarships to organizations to enhance access to college.

In Texas more than 300 lenders, including the four private non-profit higher education authorities organized under Chapter 53B of the Texas Education Code, compete with one another on the basis of providing the best customer service to borrowers. This has produced more than a 90 percent repayment rate through excellent loan servicing and generous borrower benefits in a state that, unfortunately, relies heavily on student debt as the primary financial vehicle to a finance postsecondary education.

The non-profit lenders and secondary markets organized under the state education code have played a key role within the FFELP delivery system by providing a continuous source of liquidity for FFELP loan originations in Texas as well as support for efforts to enroll more students in higher education from underrepresented populations.

Colleges and universities should continue to have a choice of student lenders and student loan programs. The alternatives to a weakened FFELP most often mentioned-the FDLP and Lender of Last-Resort program-are not viable options in Texas. FDLP has been rejected by Texas institutions, and LLR is untested and has been used only sporadically.

I strongly urge you, as Chair of the Subcommittee on Higher Education, and the Texas Congressional delegation to support efforts to provide financial liquidity that will enable non-profit FFELP providers to continue to finance their programs facilitating reliable, efficient, low-cost secondary market programs that meet the needs of Texas lenders and students.

Feel free to contact me if I can be of further assistance. May God bless you.

Very truly yours,
Judith Zaffirini, PhD

JZ/wve
XC: Lieutenant Governor David Dewhurst
Members, Texas Congressional Delegation
Members, Texas Senate

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April 9, 2008

The Honorable Judith Zaffirini
Chair, Senate Higher Education Subcommittee
The Senate of Texas
P.O. Box 12068
Austin, Texas 78711

Dear Chair Zaffirini:

Thank you for your letter dated April 7, 2008 sharing your concerns about the potential impact of the current credit crisis on the availability of financing for federal student loans. I am grateful for your leadership on higher education and student financial aid in our state and value your input on these issues. I, too, am deeply concerned about the potential impact of the turmoil in the capital markets on the availability of federal student loans.

Your letter could not have come at a more opportune time. Today, in the Education and Labor Committee, we were considering H.R. 5715, the Ensuring Continued Access to Student Loan Act of 2008, legislation that I had recently introduced with Chairman George Miller of California to tackle the liquidity crisis in the student loan marketplace.

During our markup, a member of our committee asked the chairman what evidence we had that access to student loans was becoming a problem and why action was necessary. In response, I shared with the committee members your letter to me. I told them to multiply the concerns that you so forcefully articulated by 50 states. That seemed to settle all of the questions, and the bill passed unanimously on a voice vote. For your information, I am including a summary and my statement regarding this legislation.

Additionally, I am working with the my colleagues on the Financial Services Committee to ensure that the Department of Treasury and our Federal Financial Institutions stand ready to do their part to avert a crisis in the student loan programs. I am also including with this letter information on legislation that I am cosponsoring, which will provide liquidity to the student loan marketplace through the Federal Home Loan Banks.

I would like to assure you and all of our Texas students and families that student loans will be available through the Federal Family Education Loan Program. We will not allow this crisis in the credit markets to cause a college access crisis for our students.

I look forward to continuing to work with you to ensure that Texas can and does achieve all of the goals of the Closing the Gaps Initiative. Thank you for being a champion for Texas students.

With best regards, I remain,
Sincerely,

Rubén Hinojosa
Member of Congress
Cc: Lieutenant Governor David Dewhurst
Members, Texas Congressional Delegation
Members, Texas Senate

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For more information, contact:

TG Congressional and Legislative Relations
(512) 219-4503
P.O. Box 83100
Round Rock, TX 78683-3100