Senate OK's college loan legislation

The US Senate approved legislation designed to ensure that students will have access to federally guaranteed college loans amid a tightening global credit market.

Under the measure, the Department of Education could buy federally guaranteed student loans that lenders can't sell to investors to inject liquidity into the market.

The measure is almost identical to legislation passed by the House earlier this month. The Bush administration has backed most provisions of the legislation while requesting some changes.

The legislation is intended to address 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.

"The bill expands federal grant and loan assistance and reduces the reliance of students on high-cost private loans," Senator Edward M. Kennedy, a Massachusetts Democrat, said.

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 House approved its measure April 17 in a 383-to-27 vote. The bill will now return to the House, which must approve the minor changes made by the Senate. The House vote would send the legislation to the White House for President Bush's signature.

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