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  Government Extends Its Power in Student Lending
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ContributorArmyDem 
Last EditedArmyDem  May 21, 2008 09:36am
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CategoryNews
MediaNewspaper - Washington Post
News DateWednesday, May 21, 2008 03:00:00 PM UTC0:0
DescriptionBy David Cho
Washington Post Staff Writer
Wednesday, May 21, 2008; Page D01

With scores of lenders unable to come up with money to provide student loans, the Department of Education is preparing to exercise broad new powers in the coming weeks that could fundamentally recast how millions of students pay for college.

This initiative could transform the federal government from a guarantor of student loans into the dominant provider, replacing the outside lenders to whom students and their families have long turned. Though the Education Department has been making a portion of these federally backed loans, it is now aiming to dramatically expand its role as a direct lender to fill the void created by an exodus of private-sector lenders, due primarily to the credit crisis.

Beyond that, the Education Department, using new authority granted by Congress this spring, is also preparing to wade for the first time into the complex world of finance in an urgent bid to keep some private lenders afloat. The profitability of the student loan industry has taken a pounding in recent years, first by cuts in subsidies from the federal government, then by turmoil in the credit markets that has raised the cost for a wide variety of lending. Now, the Education Department is hoping to offer a lifeline to troubled firms by buying their student loans and thus providing them with capital to keep on lending.
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