October 27, 2007

Candidat’es student loan proposals – a break-down

Posted in Student Loan News at 7:59 AM by Joe From Boston


The Washington Post has an interesting article about the Democratic candidate’s various student loan proposals (I’m trying to find a similar summary of Republicans – if you find one, please post the link in the comments and I’ll devote a post to it.) Read the excerpt below.

Parsing Candidates’ Student-Loan Proposals

Top Democrats Would End Subsidized Commercial Loans; Government as Sole Provider

By ANNE MARIE CHAKER

The front-running Democratic presidential candidates are pushing a simple idea they say will make college loans more affordable: cutting out the middlemen. And the middlemen — primarily, commercial banks and lenders — are none too pleased.

This month, New York Sen. Hillary Clinton issued her plan to make college more affordable through a range of proposals, from creating a new tuition tax credit to simplifying the aid application process. Buried at the bottom of her plan is perhaps the most radical step: A pitch to eliminate the Federal Family Education Loan Program, which gives subsidies to commercial lenders such as Sallie Mae to distribute federal loans to students.

Months earlier, former North Carolina Sen. John Edwards and Illinois Sen. Barack Obama made similar proposals to eliminate the FFEL program.

Such a move would leave the government’s alternative lending option — the William D. Ford Federal Direct Loan program — as the sole provider of federally supported student loans. The Direct Loan program allows students to borrow directly from the federal government through their school’s financial-aid office.

The loans that students get from either program do not differ in terms of interest rates or the amount that can be borrowed. So the argument for eliminating FFEL is that students could get the same amount of financial aid at essentially the same terms, while saving taxpayers money by eliminating the need to subsidize the commercial lenders.

Commercial lenders, however, assert that students benefit from the public subsidies to their industry. For one thing, the FFEL industry says it offers far more incentives than the Direct Loan program does, rewarding borrowers for on-time payments with a slew of rebates and rate reductions. Many lending experts concede that few borrowers wind up qualifying for the incentives. According to student-loan giant SLM Corp., better known as Sallie Mae, less than 10% of borrowers earn all the advertised repayment benefits. But dissolving FFEL would also leave schools and students with no choice in federal loans, the lending industry says. (Students would still be able to go to commercial lenders for private loans that aren’t part of a federal financial-aid package.)

John Dean, special counsel for the Arlington, Va.-based Consumer Bankers Association, a group of student-loan providers, adds: “Not only are you going to eliminate competition, but there’s another factor: What if the system fails?”

For its part, the U.S. Department of Education says it is reticent to take on the added burden. “As the regulator of both FFEL and [Direct Loan], we want to ensure both programs stay healthy to better serve consumers. At a time when families need options, maintaining two viable loan programs is critical,” said Diane Jones, assistant secretary for postsecondary education.

 

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3 Comments »

  1. mortgage said,

    That is very important section. You are possibly that a good broker. Thanks.

  2. Boink Blogs said,

    […] student loan proposals – a break-down moniqueleonard added an interesting post on Candidat’es student loan proposals – a break-downHere’s […]


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