Bush administration supports student loan plan

The administration's support, expressed Wednesday in a letter to Sen. Christopher Dodd, D-Conn., came after a bipartisan House vote last week backing the bill to give the Education Department authority to buy up loans from student lenders to ensure they have access to capital and can keep issuing loans.

The nation's largest student lender, Sallie Mae, formerly SLM Corp., had aggressively pushed for federal aid. Its chief executive, Albert Lord, warned last week that the company could not lose money on federally backed student loans indefinitely.

Shares of Sallie Mae fell 54 cents, or 3 percent, to $17.10 in midday trading. Wall Street analysts had hoped the Treasury Department would be able to act without legislation to shore up student loan funding

But Bush administration officials concluded that that a Treasury financing agency doesn't have the authority to buy such loans.

Dozens of lenders recently stopped making loans under the federal student loan program, in which the government subsidizes and backs low-interest loans.

Larry Warder, the Education Department's acting chief operating officer for federal student aid, said in a briefing with reporters that Congress needs to pass the bill "in a reasonable time frame."

Demand for securities backed by student loans has plummeted as investors have grown nervous about securities backed by mortgages, student loans and other debt. Meanwhile, a new law passed last year reduced government subsidies for federally backed student loans, whose interest rates are capped at 6.8 percent.

The House bill is similar to legislation introduced in the Senate by Sen. Edward Kennedy, D-Mass., chairman of the Senate Education Committee.

Students are just starting to line up financial aid packages for college this fall. Experts say the impact of the credit crunch on the student lending market probably won't be entirely clear until this summer.