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Student Lender Rally May Be Brief

Stocks in this article: SLM NNI STU

Private student lender stocks jumped following the federal government's decision last week to bolster the market, but their longer-term prospects are clouded by fretting among legislators and schools that students rely too heavily on unsubsidized lending.

Policy makers and education advocates have thus far offered lukewarm support thus far for the Term Asset-Backed Securities Loan Facility, or TALF, which will provide up to $200 billion to finance the purchase of asset-backed securities secured by a variety of debt, including student loans. The facility, unveiled by the Federal Reserve and Treasury last week, is intended to provide liquidity for private lenders, so that they are freed up to make more loans, benefitting borrowers.

"We hope that this new program will work as intended: To get credit markets flowing again and make loans more accessible and affordable for students and families," committee Chairman George Miller (D., Calif.) said in a statement last week. "We look forward to learning more details about this proposal so we can be assured that it will operate in the best interests of America's college students, their families and taxpayers."

A committee spokeswoman declined to elaborate on Miller's statement. But schools and legislators want students to borrow more from the government -- and, in turn, less from private sources -- than they are currently doing. The Ensuring Continued Access to Student Loans Act of 2008 increased federal loan limits in order to "reduce borrowers' reliance on costlier private college loans," according to a statement on the Web site of the House Committee of Education and Labor.

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