Bush Signs Legislation to Boost Availability of Student Loans

May 7 (Bloomberg) -- President George W. Bush signed legislation designed to ensure that turmoil in the credit markets doesn't cause a shortage in student loans.

The measure is intended to inject liquidity into the student loan market by allowing the U.S. Department of Education to buy federally guaranteed student loans that lenders haven't been able to sell to investors.

The legislation addresses a crisis in the market that has forced Citigroup Inc.'s Student Loan Corp., SLM Corp. and about 50 other lenders to stop writing some forms of student loans. The companies cite increased borrowing costs, cuts in government subsidies for education loans and a lack of investor interest in securities backed by loans.

Without government action, demand for federally backed student loans would outstrip supply, industry officials said. About 7 million borrowers will need more than $68 billion in federal loans this academic year, according to Education Department estimates.

The global credit crunch has raised lenders' financing costs, and they are unable to raise the rates they charge for federally guaranteed loans because they are locked in by the government.

To contact the reporter on this story: Christopher Stern in Washington at cstern3@bloomberg.net .

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