Posted by admin on April 28th, 2009
Change may be coming to the student loan system. President Obama proposed cutting federal subsidies to private student lenders, the Federal Family Education Loan program, in his February budget proposal. The money from the cuts would be used to increase the number of Pell Grants, money given to financially eligible students. This program would not affect federal student loans.
Proponents of the plan to cut subsidies to private lenders expect this to increase the efficiency of student loans. They argue that subsidized private lenders make huge profits off loans while the federal government is left paying for loan defaults. President Obama describes the new plan as “putting students ahead of lenders by eliminating wasteful student loan subsidies that cost taxpayers billions each year.”
Opponents have responded that private lenders are needed to give students options. During an NPR interview, Jack Remondi, the Chief Financial Officer for lender Sallie Mae, said “choice is an important component of this program.” By eliminating choices, the opposition fears that competition would also be eliminated between lenders, causing an increase in rates and a less efficient system overall.
In spite of the poor economic environment, loan providers have explained that the cuts would not cause significant job loss throughout the loan industry. Earlier this year Sallie Mae recently brought 2,000 overseas jobs back to America. The official justification was support for the American worker but some have drawn a connection to the return of jobs with threats of federal cuts.
Sallie Mae has begun promoting for a mix between federal and private loans. This plan would have private loan providers originally providing loans to students. The federal government would then buy control of these loans from the private companies. A campaign of lobbying has begun to promote this alternative proposal.
Democratic lawmakers have generally supported President Obama’s proposal to cut subsidies to private loan providers. Republicans, however, have been wary of the programs, citing the increased burden placed on the federal government as loans shift to it from private loan services.
Student loans are also being affected by the current economic environment. On Tuesday, April 21, Treasury Secretary Timothy F. Geithner spoke to a Congressional panel saying that despite government intervention, banks are very strict about to whom they give loans. He continued by saying that results of the program have been “mixed” since some types of loans are challenging to come by.
Student loans are one of the areas being affected by the restricted flow of credit. Lending agencies are also wary of lending due to the increasing rate of students defaulting on loans. The current rate of 6.9 percent, as reported by the U.S. Department of Education, is the highest it has been in the last 10 years.
With two out of three college students graduating with debt and tuition continuing to rise, this is an issue that will greatly affect America’s next generation. If change does come, will students be shedding a tear for private loan providers? Justin Eisenstadt, a sophomore at UMBC, will not, since he considers student loans to be the “biggest scam in the nation’s history.” The outcome of private loan providers is undetermined while Congress hashes out a final budget.
Posted by admin on October 14th, 2008
USA Funds(R), the nation’s leading education loan guarantor, announces that it supported $17.2 billion in loans to help students and parents pay for college during the fiscal year that ended Sept. 30, 2008. The figure represents an increase of more than 10 percent in college financing supported by USA Funds compared with the previous fiscal year.
USA Funds guaranteed more than $15 billion in Federal Stafford loans for students, a 15 percent increase over fiscal 2007, and more than $2 billion in Federal PLUS loans to graduate and professional students and to parents of dependent undergraduate students.
“Despite this year’s unprecedented turmoil in the financial markets, USA Funds continued to work with participating lenders, postsecondary institutions and the U.S. Department of Education to ensure eligible students were able to obtain financing through the Federal Family Education Loan Program,” said Carl C. Dalstrom, USA Funds president and CEO. “In the unlikely event eligible students are unable to find a lender willing to make FFELP loans to them, the Education Department has approved USA Funds’ plans to serve as the lender of last resort in the states where USA Funds is the designated student loan guarantor.”
USA Funds is designated by the U.S. secretary of education as the guarantor for Arizona, Hawaii and the Pacific Islands, Indiana, Kansas, Maryland, Mississippi, Nevada and Wyoming.
As a federal student loan guarantor, USA Funds insures private lenders against default. As part of this role, USA Funds supports extensive systems, services and staff who ensure requested loans are delivered to eligible students attending eligible postsecondary institutions; serves schools, lenders, students and parents with answers to their questions about their education loans and supports their compliance with loan program guidelines; helps student- and parent-borrowers successfully repay their loans; provides assistance to borrowers who face difficulties repaying their loans; and recovers on behalf of U.S. taxpayers amounts owed by borrowers who defaulted on their student loans.
Headquartered in Indianapolis, USA Funds is a nonprofit corporation that works to enhance postsecondary education preparedness, access and success by providing and supporting financial and other valued services. For more information about USA Funds, visit
www.usafunds.org .
Posted by admin on October 13th, 2008
KeyBank will no longer offer private loans for students because of the long-term unstable credit market.
Existing loans from KeyBank will still be honored through the rest of this and the Spring 2009 semesters. After Oct. 31, KeyBank will stop taking applications for private student loans.
Students usually apply for private student loans when they cannot get more money from federal loans.
Mark Evans, student financial aid director, said about 2,000 to 3,000 Kent State families have private student loans. Ninety-five percent of those families get them from KeyBank, CitiBank or Sallie Mae. Kent State works with these banks to provide private student loans.
“Over the years, the cost of going to college has increased,” Evans said. “More students and their families turn to private loan programs to gain access to additional funding.”
Laura Mimura, vice president of marketing and communications at KeyBank, said the bank will still participate in the federal loan market.
“We are still making loans to students to go to Kent State through FFELP (Federal Family Education Loan Program),” she said. “Students at Kent State and other Title IV schools can get Stafford Loans and Federal PLUS loans.”
To assist students in minimizing debt, Mimura said a service called BorrowSmart may help. BorrowSmart’s program helps minimize debt by looking at available grants and scholarships, then students can calculate the amount they can pay per month. To access BorrowSmart, students can go to www.key.com/borrowsmart.
Mimura and Evans both said students have to be informed and do research to get the financial aid that works for them.
“You have to do the work,” Mimura said. “This (BorrowSmart) is not a magic pill.”
Evans suggested students go to the Kent State Student Financial Aid Web site, www.sfa.kent.edu, for current information on available aid. He also said students should come to the financial aid office and talk to a financial aid representative if they have questions.
Mimura said KeyBank’s decision to exit the private student loan market was made about a year ago.
“We are still committed to education,” Mimura said. “But we have to make decisions to protect the strength of Key.”
Although some students may have to apply for private student loans from a different company next year, Evans said students shouldn’t be worried about getting another loan.
