Aid Administrators to Lawmakers: “Don’t Kill Guaranteed Student Loans”

Student Loan Girl — Wed, 25 Mar 2009 00:02:00 GMT

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.

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Aid Administrators to Lawmakers: “Don’t Kill Guaranteed Student Loans”