January 29, 2007

Showdown looming in the Senate over loans

Posted in Legislation Affecting Students, Student Loan News at 1:36 PM by Joe From Boston

Anybody looking to take out a student loan in the coming years might find this article interesting. You can read the full article from Reuters at the Washington Post.

College-loan fight looms for banks in Congress

By Kevin Drawbaugh

Friday, January 26, 2007; 10:31 AM

WASHINGTON (Reuters) – Student loan giant Sallie Mae and some of the nation’s biggest banks are bracing for a fight in the Democratic-led Senate over a problem facing many middle-class voters — how to pay for college.

In hearings expected to start early next month, Sen. Edward Kennedy will seek support for legislation he introduced on Monday directly threatening Sallie Mae and big student lenders such as Citigroup, Wells Fargo, Wachovia, Bank of America, JPMorgan and Nelnet.

The Massachusetts Democrat — an old liberal lion brought back to committee leadership power in November’s elections — wants to reward colleges for steering more students to direct government loans instead of the government-guaranteed loans that furnish handsome profits for Sallie Mae and the banks.

The Kennedy proposal hits the lenders “in the pocketbook,” said Mark Kantrowitz, a consultant and author who runs a Web site, FinAid.org, devoted to student financial aid issues.

“Diverting loan volume into direct lending means the banks will have less income … and be forced to compete,” he said.

Direct loans are cheaper, Kennedy said in a statement, citing estimates from President George W. Bush’s 2007 budget.

The lending industry disputes such figures and defends the cost and efficiency of the loans that private-sector lenders make under the Federal Family Education Loan Program (FFEL).

“This is a very successful program. It’s in every congressional district. Students are getting better rates. It just doesn’t make sense to cut the FFEL program,” said Kevin Bruns, head of lender group America’s Student Loan Providers.

Sallie Mae Chief Executive Tim Fitzpatrick put it more bluntly on January 18 in a teleconference with market analysts in which he said direct loans have fallen short of expectations.

“Unfortunately, Sen. Kennedy has attempted to smear the integrity of Sallie Mae, the student loan industry, and the financial aid professionals. I’m certainly personally disappointed in his baseless and insulting attacks,” said the Sallie Mae CEO, according to a teleconference transcript.


The two sides have squared off before over this issue, but in some ways, things look different this time around.

You can read the rest of the article here.