Passage of the bill 383-27 comes as worries mount that the tightening credit markets, stemming from the subprime mortgage crisis, could limit financial aid for students.
Dozens of lenders, making up an estimated 13 percent of the market, recently stopped making loans under the federal student loan program, in which the government subsidizes and backs low-interest loans. Those lenders include Salt Lake City-based Zions Bank, which stopped accepting applications March 31.
The departure of those lenders hasn't resulted in students being shut out of the program. Other lenders have stepped in, or the students have received loans through a smaller program in which the Education Department makes the loans directly to students.
In Utah, the Utah Higher Education Assistance Authority (UHEAA), which makes student loans, also has sufficient reserves to meet student needs this year, according to the UHEAA.
However, David Feitz, UHEAA executive director, applauds the House's action. "With the lingering credit crisis, decisive action is essential to provide continued funding for student loans," he said.
Some students relying on private loans, which are not federally backed and can carry high interest rates, have had trouble getting those nonfederal loans. Bank of America said Thursday it plans to join lenders that have stopped issuing private loans, though it plans to keep making government-backed loans.
The House bill seeks to address that problem by raising limits on how much borrowers can receive under the federal program.
The bill also would try to encourage parents to take out federal loans for their children's education. The bill would allow parents to defer repayment of those loans until after their children leave school, which is currently not allowed. The bill says short-term delinquencies in mortgage or medical payments should not prevent otherwise eligible parents from borrowing.
The bill passed in the House on Thursday is similar to legislation introduced in the Senate by Sen. Edward Kennedy, D-Mass., chairman of the Senate Education Committee.
Students are just starting to line up financial aid packages for college this fall. Experts say the impact of the credit crunch on the student lending market probably won't be entirely clear until this summer.
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* ROXANA ORELLANA contributed to this story.
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