November 30, 2007

US heading towards goverment-run, Canadians decide government-run is wasteful

Posted in Student Loan News at 7:08 AM by Joe From Boston


There are many presidential candidates knocking the FFELP program, which subsidies corporations to loan to high-risk students.  The subsidies are specifically designed to make up for the unusually high risk involved in lending to a population with no credit history and a historically high default rate.

Canada did that a few years back, and it seems like our northern neighbors are really unhappy with the situation!

According to NCHelp.org, the American FFELP program has lower interest rates and lower default rates.

“The CSLP was introduced in 1964. In 1995, the Government of Canada stopped guaranteeing new loans meaning that financial institutions became liable when borrowers defaulted. They were paid a “risk premium” equal to 5 percent of the value of loans they consolidated each year. In 2000, financial institutions largely withdrew from the CSLP and the federal government introduced directly financed loans as a result. The administration and management of the new CSLP was outsourced.

In 2003-04, average indebtedness for borrowers in the program was $10,628 and the three-year default rate was forecast at 25.5 percent. The forecasted default rate for 2005-06 is 15.2 percent. The cohort default rate in the U.S. is 4.6 percent.”

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