The new legislation introduced by democratic candidates bans college loan lenders to pick and choose among institutions. Under the regulations of this law, college loan lenders will have to extend credit to any eligible student, regardless of family income and the number of years of education.

The New York Times reports that the government already guarantees the loans at nearly full value.

Lenders have said they were responding to the small number of borrowers and the small amounts borrowed at certain institutions. Financial aid administrators countered that selective lending could make it harder for poorer students to pay for higher education. They argued that lenders participating in the program should not be allowed to cherry-pick.

According to Yahoo! Finance, student lending has become a volatile business over the last year, however, as credit has tightened across the country, investors have shunned securities backed by student loans, which has created a problem for those companies dependent on sales of their loans to raise capital.

Senators Patty Murray, Democrat of Washington, and Christopher J. Dodd, Democrat of Connecticut, introduced the proposal after an article in The New York Times identified several lenders that had stopped offering federally guaranteed loans at community colleges and some four-year institutions.

The letter of Edward Kennedy addressed to the president of the American Association of Community Colleges supports this bill. Here what it says.

“Colleges participating in the direct loan program have not and will not face the possibility that their lender will pull out”

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