Pressure mounted on the US government to help support the market for student loans on Tuesday, after the head of the influential Senate banking committee called on the Treasury and Federal Reserve to take action to boost liquidity in the market.
Senator Chris Dodd said he would send a letter to Hank Paulson, the Treasury secretary, asking him to consider using the Federal Financing Bank, a Treasury-run bank that consolidates US government borrowing, to alleviate the situation.
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He said he would also write to Ben Bernanke, chairman of the Federal Reserve, asking him to allow student loan-backed securities to be used as collateral for borrowing from its Term Lending Securities Facility. The facility was created last month in order to boost liquidity in capital markets and already accepts some mortgage-backed securities as collateral.
Student loans have become one of the latest victims of the credit crisis, as more than 50 lenders, who provided about 15 per cent of loans last year, have withdrawn from the market for federally-backed loans since August. Their exit has raised fears that students will not be able to access the money they need to pay for college this autumn.
FT
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