Aid Administrators to Lawmakers: “Don’t Kill Guaranteed Student Loans”
Just as Congress is about to vote on President Obama’s plan to end
the government’s Federal Family Education Loan Program, through
which families get their student loans from private third-party
lenders, a lender advocacy group is urging lawmakers to consider an
alternative to the president’s proposal, reports The Chronicle of
Higher Education (“Student-Aid Administrators Urge Lawmakers to
Reconsider Killing Guaranteed Loans,” March 19, 2009).
Currently, college students can take out student loans through
private lenders using the FFEL program, or directly from the
Department of Education through the government’s Direct Loan
Program, which Obama hopes to establish as the sole provider of
federal student loans.
Instead of doing away with FFELP lenders altogether, the National
Association of Student Financial Aid Administrators proposes
creating a new federal student loan model that would allow FFELP
lenders to continue their participation in the federal student loan
program, but under different roles.
FFEL Program Participants Would Serve New Roles
In a memo sent to Congress, NASFAA president Philip R. Day Jr.
proposes that student loans be financed through the sale of
government subsidized bonds to investors and that the proceeds be
used to disburse student loans to colleges, who will in turn apply
the funds directly to students’ accounts, similar to how direct
lending functions today.
Under the NASFAA’s proposal, private lenders would no longer market
college loans to students but could bid on Education Department
contracts that would allow them to originate, disburse, and service
the loans. Nonprofit agencies and former guarantors would no longer
guarantee student loans, but would instead provide default-
management services to students, including entrance and exit
counseling on their repayment options.
A unique feature of NASFAA’s proposal would allow family members,
friends, and private companies to receive a tax credit in exchange
for paying off a portion or all of a borrower’s debt. State-based
nonprofit lenders would still be allowed to offer loan-forgiveness
programs for students entering in-demand professions.
Congress Urged to Consider Alternatives
Earlier last week, the NASFAA asked lawmakers to go slow when
considering Obama’s plan. Lawmakers were also urged to engage in
“deliberative” discussions regarding the future of student lending,
The Chronicle reported, instead of just “ramming through” the
government’s proposal to end the guaranteed lending program.
Obama’s plan aims to eliminate guaranteed lending for students
through a budget resolution outlining the government’s spending
plan.
If that resolution includes instructions to Congress’ education
committees to consider Obama’s proposal by way of the budget
reconciliation process, Day says it would be the death knell of the
FFEL program and “prevent a full vetting of alternative proposals.”
The NASFAA has asked legislators to convene a stakeholder’s meeting
to consider other viable options to reform the federal student loan
program.