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First Thoughts on Student Loan Reform Bill

At Higher Ed Watch, we have spent most of the day eagerly awaiting the release of legislation that the Democratic leadership of the House Committee on Education and Labor has written to overhaul the federal student loan programs. Based upon news releases and press reports we had read over the last 24 hours, we had very high hopes for the bill.

Unfortunately now that we have begun to read the legislative text, we have decidedly mixed feelings about it. We are very pleased that Rep. George Miller, the California Democrat in charge of the committee, has followed President Obama's lead in proposing to end the Federal Family Education Loan (FFEL) Program and thereby eliminate unnecessary middlemen from the process of originating and guaranteeing federal student loans. Instead, as of July 1, 2001, all new federal loans would be made by the U.S. Department of Education through the Direct Loan Program.

We are also happy to see that a substantial share of the savings produced by shutting down FFELP would be used to significantly increase spending on Pell Grants and other high-need and chronically underfunded education programs.

However, we are sorely disappointed to see that the committee has included a set-aside for nonprofit student loan agencies to service federal student loans that is nearly identical to a proposal that the Education Finance Council (EFC), which represents these lenders, has been quietly shopping to a select group of Congressional offices in recent weeks. The legislation would essentially give each and every one of EFC's members a no-bid contract to service the loans of up to 100,000 student loan borrowers in their home states.

We are having a hard time finding a public policy justification for that provision, given that it doesn't seem to provide any benefit to borrowers or taxpayers. We understand that there are political tradeoffs that have to be made to win support for the bill, as is the case with all legislation. However, the history of the FFEL program is replete with these types of political tradeoffs and set asides, which have only made the program administratively cumbersome, inefficient, and vulnerable to waste and abuse. [And as faithful readers of Higher Ed Watch know, these non-profit loan providers are no stranger to scandal.]

Stay tuned tomorrow for more thoughts and questions as we work our way through the rest of the 181-page bill.

What Did You Expect?

This sounds about what we should expect from Congress--set asides for private interests in order to supposedly fund the public good. I take it there isn't a peep in the legislation regarding returning standard consumer protections to student loans?

Student loan reform.

Eliminating the FFEL, first of all, is not guaranteed to reduce costs to taxpayers on the whole. However, it IS guaranteed to increase costs to individual loan borrowers via the loss of borrower incentive programs (zero-fees, interest rate reductions, etc.)
You know, individual loan borrowers; those of us who don't make enough money to pay for college outright but don't qualify for grants. Those with the lowest income will get their additional grant monies on the backs of the middle class.
Sad thing is, those who will be adversely affected by this change probably don't realize it, since most people know doodly-squat about the financial aid system, how it works, and its propensity to reward bad behavior.
FFEL is in dire need of reform, but eliminating the program is short-sighted and stupid, the result of reactionary dunderheads whose agenda is always to villify business.
And while I'm up here on my soapbox, I'll propose that need-based grants should also be merit-based, and should revert to loans if the recipient drops out of school for any reason other than military service or death.

Doesn't help me. My private

Doesn't help me. My private student loans are now up to over 200k (yes, 200k) and I am out of deferment and forbearance options with Sallie Mae and AES, both who refuse to work with me. My payments for my private loans are well over $1700 a month. I have a baby and no job right now, but the collects for my private loans are relentless, making threats and refusing to help me with forebearance options. The credit card companies are more willing to work with me that the studet loan companies. I would claim bankruptcy, but since I have over 300k in "unsecured" debt I cannot file chapter 13 AND I cannot fle chapter 7 because due to my husband's income, we are over the median income (not by much) and od not pass the means test...so we cannot file bankruptcy at all (you would think that everyone has the right to claim bankruptcy if in financial straights, but we cannot because our student loand debt is too high making us inelligible for chapter 13). We do not know what to do and are thinking about leaving the country just to escape our student loan debt.

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