Since 1966, the federal government has provided guarantees and subsidies to approved private lenders or state government entities that make student loans. Because college graduates' enhanced human capital is generally not viewed as collateral, without federal subsidies and guarantees, lenders would probably charge interest rates more in line with other unsecured loans, such as credit card debt, that could push the financial costs of higher education beyond the reach of many students. Overview of the Student Loan Market
Two major student loan programs exist federally: the Federal Family Education Loan (FFEL) program and the William D. Ford Federal Direct Loan (FDLP) program. 110-84 ), enacted in September 2007, cut interest rate subsidies to lenders and increased the proportion of default costs borne by lenders. Lender Withdrawal Announcements
In early 2008, some student lenders announced plans to restrict loans in response to tightening credit conditions and cuts in federal subsidies put in place by the College Cost Reduction and Access Act. Some observers contend that student lenders have overstated their recent troubles and that loans remain available through the Federal Direct Lending Program (FDLP). The Ensuring Continued Access to Student Loans Act of 2008 ( P.L. Most student lenders transform many of the loans they originate into student loan asset-backed securities (SLABS), which can be sold to investors or financial institutions. In particular, many student lenders have raised funds through the auction-rate securities market, which has been strongly affected by the credit crunch. 5715 , the Ensuring Continued Access to Student Loans Act of 2008 which would raise loan limits for Stafford loans, provide new options for parent borrowers, expand certain lender-of-last-resort options for borrowers and schools, and would allow the Secretary of Education to purchase FFEL student loan assets from lenders. H.R. 110-227 ) on May 7. On May 21, 2008, the Secretary of Education Margaret Spellings, using authority granted by the Ensuring Continued Access to Student Loans Act of 2008, announced plans to offer FFEL lenders the option of selling loans originated for the 2008-2009 academic year to the government. Other Federal Responses and Congressional Proposals

Several Members of Congress and major student lenders have called for consideration of measures that might provide additional liquidity to the student loan market. The Federal Financing Bank Act of 1973 ( P.L. Since early 2008, several dozen lenders have announced plans to leave the student loan market in part or in full, raising concerns that inadequate supply of student loans could disrupt financial aid arrangements in the 2008-2009 academic year. The cost of higher education also may have an ambiguous effect on demand for student loans.
Since 1966, the federal government has provided guarantees and subsidies to approved private lenders or certain state government entities that make student loans. College graduates' enhanced human capital is generally not viewed as collateral. Lenders, without federal subsidies and guarantees, would charge interest rates more in line with other unsecured loans, such as credit card debt, that could push the financial costs of higher education beyond the reach of many students and their families. Although federal subsidies for student lenders have probably expanded access to higher education, some observers have contended that subsidy rates were higher than necessary to ensure students' access to educational loans.
The College Cost Reduction and Access Act (P.L. 110-84), enacted in September 2007, was motivated, in part, by the impression that lender subsidies within the Federal Family Education Loan (FFEL) program had been higher than necessary. The act cut interest rate subsidies to lenders and increased the proportion of default costs borne by lenders.
Starting in February 2008, some student lenders encountered difficulties in the secondary loan market—a market in which securities backed by bundles of student loans, often called SLABS (student loan asset-backed securities), are sold to investors. Turmoil in world capital markets in late 2007 and 2008 appears to have raised interest costs to some student lenders. Specifically, widespread failures of auction-rate securities markets beginning in mid-February 2008 have raised costs of funds for some student lenders.
In early 2008, some FFEL program lenders announced plans to make fewer student loans within certain market segments in response to a tightened credit market and recent legislation. In particular, some lenders have announced plans to reduce the number of loans to students attending certain institutions, such as two-year and proprietary schools. Some observers contend that student lenders have overstated their recent troubles. Nonetheless, loans remain available through the William D. Ford Federal Direct Lending Program (FDLP).
In response to growing concerns about the availability of student loans for the 2008-2009 academic year, Congress passed Ensuring Continued Access to Student Loans Act of 2008 (H.R. 5715; P.L. 110-227), which was signed into law on May 7, 2008. The act raises loan limits for Stafford loans (which some claim would reduce demand for private student loans), provides new options for parent borrowers, expands the lender-of-last-resort program, and allows the Secretary of Education to purchase FFEL student loan assets from lenders. The Secretary has announced plans to purchase student loans originated for the 2008-2009 school year.
Some Members of Congress and participants in the student lending market have called for consideration of additional measures that might introduce liquidity into the market for securitized student loans using the Federal Financing Bank or other federal entities. This report will be updated as warranted.