Education officials urge calm on student loan fears

By Peter Schworm, Globe Staff

Federal education officials and college administrators reassured students and families today that the current turmoil in the financial markets will not threaten the availability of government student loans, but cautioned that increasingly popular private education loans could become scarcer and more expensive.

Speaking at a public hearing at Northeastern University this morning, US Undersecretary of Education Sara Martinez Tucker said disruptions in the private lending market have not affected federal loan programs and that safeguards are in place to ensure that student loans remain available if economic conditions worsen.

Colleges and universities nationwide have "indicated no difficulty in lining up student loans," she said.

"For the coming school year, federal aid will be available," she said. "Rest assured, the federal government will not allow any interruption of the loan program."

Many private and nonprofit lenders have announced in recent weeks that they will no longer provide student loans and are tightening eligibility because of a growing credit shortage, creating concern among students and parents who rely on government-backed loans such as Stafford and PLUS to pay for college.

Eileen O'Leary, director of student aid and finance at Stonehill College, said she was confident the federal government could absorb a "sudden and significant" increase in loan requests if the trend continues.

"I can state with complete confidence that all eligible students will be able to secure loans now and in the future," she said.

Senator Edward M. Kennedy, who chaired the Senate field hearing, said he wants guarantees that credit market woes will not put student loans at risk, and urged Tucker to take steps to strengthen the system in case more commercial lenders leave the industry.

"We learned today that many of our nation's major financial institutions are nearing collapse," he said, referring to JPMorgan Chase & Co.'s government-backed buyout of the stricken investment bank Bear Stearns Cos. "We must prevent this from happening to student loans."

Kennedy, chairman of the Senate Commitee on Health, Education, Labor, and Pensions, praised Northeastern's decision, announced today, to forego commercial lenders and provide loans exclusively from the federal government. Northeastern said the move was prompted by the growing uncertainty in the student loan industry.

"The direct-loan program is more efficient, effective, and less costly to the American taxpayer," he said. "I think you'll find more and more schools going this way, and we need to be sure the system can handle the additional demand."

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