Yesterday, the U.S. Senate rejected a House-sponsored amendment in a bicameral conference committee on the Restoring American Financial Stability Act of 2010 (S.3217) that would have mandated institutional certification on all private student loans.

This is a blow to many stakeholders in the private education loan world, of which most supported full school certification.

As shared in this blog in mid-May, the House-sponsored amendment would require providers of non-federal student loans to get colleges’ approval before they make such loans to students. The intention being to assure that borrowers turn to more-expensive private loans only after they have exhausted federal, state, and institutional grants or at least less costly federal student loans.

The Chairman, Senator Chris Dodd (D-CT), of the U.S. Senate Banking Committee stated, “the Senate cannot accept this provision..the Senate cannot agree to mandatory certification. I authored self-certification with Senator (Richard) Shelby (R-AL)…and it’s far too early in our view to make a judgment if we need something more.”

Dodd did note that the bill includes other “strong protections” for private student loan borrowers, including new Consumer Financial Protection Bureau (CFPB) oversight of private education loans and a new private student loan ombudsman to assist students who need help with their private loans.

Conferees are expected to continue to meet this week in hopes of finalizing negotiations so that the bill can be passed by Congress prior to the July 4 recess.