US: Senate panel proposes no-cost help for lenders

Momentum has been building for the federal government to take increasingly aggressive steps to wade into the student loan markets, even amid continuing disagreement about whether and-or how serious a crisis there really is, reports Inside Higher Ed. At the urging of lenders, lawmakers have moved from merely seeking to ensure that there are alternative providers of loans, so that students do not lose access to college, to calling for outright financial assistance for banks and other loan providers.

Education Secretary Margaret Spellings and Treasury Secretary Henry Paulson are reported to be preparing to announce some joint attempt to restore liquidity to the credit markets on which lenders depend, perhaps by calling for an existing government entity like the Federal Financing Bank to buy student loans that lenders are unable to sell through the traditional credit market.

Aides to other lawmakers are floating another idea that lenders favour but critics deride as an unprecedented, unnecessary and potentially damaging bailout. Under the proposal, which was described in an e-mail message sent by a Senate aide that was shared with Inside Higher Ed, the Education Department would commit to buying "from time to time any or all of such loans originated or purchased by" any lender that so desires, at the face value of the loan. Lenders would be able to repurchase the loans within a year.
Full report on the Inside Higher Ed site