A bipartisan group of four congressional staffers gave the Department of Education a rhetorical beating Friday over its cumbersome interpretation of a new law meant to help student loan lenders and said that Congress will likely have to act yet again to prevent private lenders that sell federally-guaranteed loans from going out of business.

The staffers, who spoke at a conference held by the Education Finance Council in suburban Washington, all indicated varying degrees of disappointment with a DOE plan to assist lenders who participate in the Federal Family Education Loan, or FFEL, program, including state-level agencies and nonprofits that sell tax-exempt bonds backed by student loans.

"Congress' intent was for the secretary [of education] to ensure that there's enough liquidity in the market," said Michael Yudin, a senior counsel to Sen. Jeff Bingaman, D-N.M., who sits on the Senate Health Education, Labor & Pensions Committee. "The implementation of this law I think defeats that purpose, that intent."

Amy Jones, a Republican staff member on the House Education and Labor Committee who was also a panelist, said the economics of the DOE plan were so adverse they may drive away a number of FFEL lenders.

"We remain very concerned about the long-term stability of the program and want to think of ways to get people reinvested, but it's really difficult to do that when investors are looking at the books and looking at the numbers and are realizing that a lot of these loans could be originated at a net loss," she said.

The staffers' comments come as lenders have also complained that the provisions of the DOE plans are too complex. For instance, department officials have said that they will agree to loan lenders money on a weekly basis, but only if they have already secured access to short-term "bridge loans" elsewhere, which lenders say may be prohibitively expensive because of the credit crunch.

"In determining how to use the authorities granted the Department ... we were guided by three principles - ensuring access to 2008-09 loans, respecting the balance between FFELP and direct lending, and doing so at no net cost to the taxpayer," undersecretary Sara Martinez Tucker said in a statement. "We believe these programs are consistent with authorities provided by Congress."

Under the terms of the so-called participation agreements the DOE finalized last week, lenders will first have to borrow money from banks on a short-term, or bridge, basis. Once they have tapped a line of credit and received bridge financing, the lenders can disburse their student loans, after which they will have to place them into trusts. Only then will they be eligible to borrow funds through the department once a week, via a "custodian."

FFEL lenders had hoped that the DOE would essentially advance them funds through Treasury borrowing, but the department has told lenders in recent weeks that it does not believe the legislation, which was rushed into law in May, gives them the authority to provide money to lenders that haven't already originated loans. The legislation is known as the Ensuring Continued Access to Student Loans Act of 2008, also known as the Miller Act after its chief sponsor, Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee.

Jones said Republican committee staff are "disappointed" with the narrowness of a second component of the department's plan, in which DOE will only purchase newly issued loans through September 2009. Jones said Congress wanted the DOE to purchase loans originated as far back as 2003.

Friday's panelists referenced a separate law that went into effect Oct. 1 that favors direct federal loans over FFEL loans and essentially halved the rated FFEL lenders receive. When factored with the current market turmoil, the lower yields FFEL lenders receive on their loans has left them squeezed.

David Cleary, minority staff director for the Senate Health, Education, Labor & Pensions subcommittee on children and families, said Sen. Lamar Alexander, R-Tenn., the panel's ranking Republican, voted for last year's cuts to FFEL lenders because he thought the market could bear it then. But market conditions have since nose dived and it's clear that Congress must act to do something.

"We don't think the Miller act is enough," he said.

Though he did not offer specifics, Cleary cautioned against simply expanding the direct federal loan program, which the DOE was authorized to do through the Miller act, from $15 billion to $30 billion in annual loans. Though the volume of direct loans is bound to increase this year as FFEL lenders struggle to originate new loans, Cleary said it is unlikely the department can provide direct loans as efficiently as FFEL lenders and said that students prefer the local servicing in the FFEL program.

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