WASHINGTON — House members from both parties are asking the Federal Reserve to intervene and steady the shaken student loan market.
The request Monday came a day after the central bank answered a distress call from the credit market, with a pledge to supply a $30 billion line of credit to back up the assets of Bear Stearns Cos., the investment firm acquired at a fire-sale price by rival JPMorgan Chase & Co.
Rep. Paul Kanjorski, D-Pa., chairman of the House Financial Services subcommittee on capital markets, and 31 other lawmakers asked Fed Chairman Ben Bernanke for the Fed to inject cash into the student loan market by using a special lending operation.
“In these difficult economic times, we believe that the Federal Reserve System should work . . . to restore a smooth functioning of this market sector and to avoid negative economic outcomes,” they told Bernanke in the letter. If students “are unable to secure loans in the fall, we would not only severely impair their long-term earnings capacity, but we would also impair our nation’s economic prospects,” it said.
The central bank’s aggressive and unprecedented actions come as the financial crisis deepens. On Sunday, it scrambled to finish a deal to back up the Bear Stearns takeover. Last week, it pumped $200 billion into the system in a new loan program.
On the education-finance front, the lawmakers want the Fed to allow investment firms and banks to use bonds backed by student loans as collateral for the loans of safe Treasury securities that the Fed agreed to make available for 28 days in that $200 billion infusion plan. The lawmakers also asked the Fed to use its emergency authority to provide loans to student lending companies that would be secured by top-rated student-loan securities.
