Student Loan Lenders’ Alternative to Obama Plan Rejected
Posted 22 Jul, 2009
President Obama’s plan to overhaul the way the government offers and services student loans has shaken up many private lenders, and 32 of them came together to offer him an alternative.
Hurting the Big Guys
The lender group, which includes national student lending powerhouse Sallie Mae, hoped the Obama administration would reconsider their plan to move the loan program to 100% “Direct Lending”–a program in which students borrow directly from the government itself.
Under the old lending program, students could also borrow federal loans from private lenders such as Sallie Mae, Wells Fargo, Citibank or numerous other banks, credit unions and finance companies. This program, in which the federal government subsidized banks to allow them to offer the loans, often yielded favorable interest rates for students and parents due to competition between the companies.
Over the past few years, however, the government has been seriously reconsidering the benefits of this plan. The Administration believes it can greatly lower the cost of the program by bringing it all “in house.” Eliminating the private lender network option would not only strip these private banks and lending companies of an entire line of business, many families would lose the ability to shop their loans around.
Moving Through the House
The lenders timed their counter proposal to surface as the U.S. House of Representatives prepared to review President Obama’s proposal, claiming their plan would result in both parties emerging with an improved outcome. Unfortunately for them, President Obama’s “Direct Lending only” proposal has gained the support of Representative George Miller, California Democrat and chairman of the House Education Committee. Representative Miller reportedly has plans to introduce legislation next week that draws on the Obama plan.
Changes for Student Borrowers
Whether students will benefit from the new plan remains to be seen. Though non-federal private education loans are generally considered to have less favorable interest rates and borrower terms, federal loans distributed through subsidized private lenders, in the past, often had better interest rates than the loans offered directly from the government. Private lenders sometimes offer lower interest rates or other borrower incentives to entice students to take out federal loans with them. Their competing offers allow parents and students to “shop around” for the best deal on a federal student loans.
However, even without the competition factor, the Direct Lending program may have potential. If the government can use the money that currently funnels into private lender subsidies to lower student loan interest rates, President Obama’s proposal may come out on top after all. Rest assured, I’ll be watching the student loan industry carefully, and will be sure to keep you abreast of the changes that come to pass.
All the best,
Deborah Fox
Deborah Fox is the founder of Fox College Funding®, a nationwide company that helps families find creative ways to reduce their college costs.
photo: ba1969
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President Obama’s plan to overhaul the way the government offers and services student loans has shaken up many private lenders, and 32 of them came together to offer him an alternative.
Hurting the Big Guys
The lender group, which includes national student lending powerhouse Sallie Mae, hoped the Obama administration would reconsider their plan to move the loan program to 100% “Direct Lending”–a program in which students borrow directly from the government itself.
Under the old lending program, students could also borrow federal loans from private lenders such as Sallie Mae, Wells Fargo, Citibank or numerous other banks, credit unions and finance companies. This program, in which the federal government subsidized banks to allow them to offer the loans, often yielded favorable interest rates for students and parents due to competition between the companies.
Over the past few years, however, the government has been seriously reconsidering the benefits of this plan. The Administration believes it can greatly lower the cost of the program by bringing it all “in house.” Eliminating the private lender network option would not only strip these private banks and lending companies of an entire line of business, many families would lose the ability to shop their loans around.
Moving Through the House
The lenders timed their counter proposal to surface as the U.S. House of Representatives prepared to review President Obama’s proposal, claiming their plan would result in both parties emerging with an improved outcome. Unfortunately for them, President Obama’s “Direct Lending only” proposal has gained the support of Representative George Miller, California Democrat and chairman of the House Education Committee. Representative Miller reportedly has plans to introduce legislation next week that draws on the Obama plan.
Changes for Student Borrowers
Whether students will benefit from the new plan remains to be seen. Though non-federal private education loans are generally considered to have less favorable interest rates and borrower terms, federal loans distributed through subsidized private lenders, in the past, often had better interest rates than the loans offered directly from the government. Private lenders sometimes offer lower interest rates or other borrower incentives to entice students to take out federal loans with them. Their competing offers allow parents and students to “shop around” for the best deal on a federal student loans.
However, even without the competition factor, the Direct Lending program may have potential. If the government can use the money that currently funnels into private lender subsidies to lower student loan interest rates, President Obama’s proposal may come out on top after all. Rest assured, I’ll be watching the student loan industry carefully, and will be sure to keep you abreast of the changes that come to pass.
All the best,
Deborah Fox
Deborah Fox is the founder of Fox College Funding®, a nationwide company that helps families find creative ways to reduce their college costs.
photo: ba1969
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Subscribe by Email
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