Changes to student loan lenders impact PLUS program
Posted by admin on March 24th, 2009
Changes to federal student loan policy will affect more students than ever as the financial crisis brings them in growing numbers to loan office doors.
“We just have a sense that there will be more than in past years,” said Tom Melecki, director of the Office of Student Financial Services. “That’s based on the fact that we have had a steady stream of new students saying, ‘Gosh, you know my family’s been negatively impacted by the economy, how do I go about applying?’”
This year, federal PLUS loans — which parents borrow to cover undergraduate education costs — will be administered by only two banks per state. Banks placing the two most competitive bids in a statewide auction will get exclusive rights to administer the loans.
Congress voted for the auction system in 2007 to drive down the projected cost of federal subsidies and simplify the loan process.
Melecki said the system may not be completed in time to award PLUS loans for the 2009-2010 school year and that the UT student financial services office was hoping to notify students about their financial aid by April.
“Since the U.S. Department of Education has not yet conducted that PLUS loan auction, any parent borrower who has not yet borrowed a PLUS loan — we have to send them a message and say as soon as the DOE tells us who wins the auction rights, we’ll let you know,” Melecki said. “Until then, we can’t take steps.”
Congress has imposed a July 1 deadline for completing the auction. The FAFSA priority deadline is March 31.
During the 2007-2008 fiscal year, 3,644 UT students’ parents borrowed $44,267,358 in PLUS loans, Melecki said.
President Barack Obama’s budget includes another change in the student loan process: Whereas in previous years private banks administered student loans that were in turn guaranteed by the federal government, the current administration hopes to eliminate the intermediary and administer loans directly to students.
Melecki said that, while this is a drastic change for banks, loan and repayment procedures for students will remain the same.
“I don’t think it’ll have much effect on our students, because the terms and conditions on the loans are virtually identical between the federal direct loan program and the Federal Family Education Loan Program,” Melecki said.
Melecki said the government’s plan to remove private banks from student lending may discourage banks from bidding on PLUS loan contracts since they would likely only administer loans for a year.
Loan giant Sallie Mae, which awards 40 percent of federal PLUS loans, announced last week that it would not participate in the auction. Sallie Mae’s exit may deter smaller lenders from participating in the auction as well.
“It’s one thing to bid in the PLUS auction if you can do it for five, six, seven years,” Melecki said. “It’s totally different if you can only do it for one.”
Provided by: Daily Texas
Tags: college loans, PLUS loans, student loans
This entry was posted on Tuesday, March 24th, 2009 at 2:24 pm and is filed under College Scholarship and Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
