October 1, 2007
New law comes 10/1/07, Lenders layoff staff and slash benefits
The new student loan law that President Bush signed last week comes into effect today. The Chronicle of Higher Education has a great article covering the backlash that’s already occuring. Here is an excerpt from the article:
As President Bush Signs Bill Increasing Student Aid, Several Lenders Announce Cuts in Staff or Benefits
By KELLY FIELD
Supporters say the law will make college more accessible to low-income students and will ease the debt
burden for college graduates.
“Today, the president signed a bill that strengthens America’s future by providing much-needed help in
paying for college,” said Gabriel Pendas, president of the United States Student Association.
But critics warn that the cuts in subsidies paid to lenders will drive smaller companies out of the federal
student-loan program and force the remaining loan providers to eliminate borrower benefits, such as
lender-paid origination fees and rate reductions for on-time repayments. Even before Bush signed the
bill, a handful of lenders had announced plans to lay off workers and scale back borrower benefits.
Nelnet, a major national student-loan company based in Nebraska, was one of the first to react. Three
weeks ago, it announced it would lay off 400 employees and close five small loan-origination offices to
make up for lost revenue. Then, on Thursday, it confirmed rumors that it will no longer pay loan
origination fees for students who take out Stafford Loans, which are need-based federal loans. The
change means that, starting Monday, borrowers will have to pay up to 2.5 percent of their loan balance
in origination fees.
Another lender, U.S. Education Finance Group, said on Wednesday that it had laid off 25 of its 45 employees and would stop offering borrower benefits on new Stafford Loans starting October 1. The
combined cuts will shrink the lender’s annual budget from $8-million to $3.5-million.
The Pennsylvania Higher Education Assistance Agency, which stands to lose $44-million under the bill,
is also weighing cutbacks. Scott E. Miller, a lobbyist for the agency, said it had imposed a freeze on
hiring and on new contracts, but was not planning layoffs and will maintain its loan-forgiveness
programs for public servants. All other borrower benefits, he said “are being looked at with a very
“We need to figure out how to protect those benefits,” he said.
And earlier this week, the GCO Education Loan Funding Corporation announced that it would
temporarily stop purchasing federal consolidation loans. In a statement, GCO’s chief executive, Ron
Page, said that “given current market conditions and legislative changes … we cannot offer a price for
consolidation loans that is high enough for clients to recover their origination costs.”
At a lending-industry conference on Thursday, Dallas Martin, the retiring president of the National
Association of Student Financial Aid Administrators, suggested that Congress may have gone too far in
scaling back subsidies — its second such cut in the past two years.
“We’ve spent a lot of time debating what is the breaking point — how much can you cut” before lenders
leave the guaranteed-loan program, he said at the annual legislative conference of the National Council
of Higher Education Loan Programs. “I think with the new cuts we’ve put through, we are getting pretty
close to the bone.”
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