Washington — In a move aimed at increasing the availability of consumer loans, the Federal Reserve Bank announced today that it would lend up to $200-billion to financial institutions that hold securities backed by student loans, auto loans, and credit-card debt.
The Treasury Department will back the loans with $20-billion from a $700-billion financial-rescue fund approved by Congress. The goal, according to a statement from the Treasury Department, is to “enable a broad range of institutions to step up their lending, enabling borrowers to have access to lower-cost consumer finance.”
Details of the plan came less than a week after the treasury secretary, Henry M. Paulson Jr., said the $700-billion program, which was originally aimed at mortage-backed securities, would be expanded to include other types of credit markets.
That news was welcomed by student-loan companies, more than 60 of which have stopped offering private student loans in recent months, but it was opposed by public colleges and student advocacy groups, which sent a letter to Mr. Paulson saying that students “need safe and reliable [financing] options, not more of the same risky private loans.” The new plan is geared toward private loans, but could help providers of federal loans as well.
In an interview today, Lauren J. Asher, associate director of the Project on Student Debt, said her group was “disappointed” by the secretary’s decision to proceed, and hoped Mr. Paulson would at least require recipients of the loans to provide basic protections to student-loan borrowers.
In an e-mail message, Kevin Bruns, executive director of America’s Student Loan Providers, called the program “good news for families who rely on student loans to pay for college.”
“By increasing liquidity, it should further guarantee that federal student loans will continue to be funded — and, therefore, continue to be readily available this academic year and beyond,” he wrote.
Congress and the Education Department have already taken steps to shore up the federal student-loan system, including by buying loan portfolios from student-loan companies. —Kelly Field