As the wrangling over proposed healthcare legislation drags on in the Senate, progress on other bills has stalled, including a piece of legislation that would impact federal student financial aid programs.  The Student Aid and Fiscal Responsibility Act, passed by the House of Representatives in September, has yet to see its counterpart taken up for debate in the Senate.  Yet the debate over student loan reform is heating up again as the Department of Education and lenders both attempt to press their agendas forward.

Student loan reform has been a topic of contention since President Obama announced his 2010 budget proposal at the beginning of the year.  Among them was doing away with the Federal Family Education Loan Program, which subsidizes private banks to make and service federal student loans, such as Stafford Loans and PLUS Loans.  Students would borrow directly from the Department of Education through the Direct Loans Program.  The money saved from the subsidies would then be channeled into Pell Grants and Perkins Loans, among other education funding priorities.  The proposed changes would go into effect on July 1, 2010 necessitating a quick switchover to direct lending for all colleges still participating in FFELP.

After the bill passed the House, the Department of Education began urging schools to voluntarily make the change to Direct Loans, which concerned some financial aid administrators and most lending agencies.  Concerns have been expressed over the efficiency of direct lending, the loss of choice in eliminating FFEL, the feasibility of making the switch, and the continuation of services such as financial aid counseling that some lenders currently provide.  Many of these were aired at a recent meeting of a panel of financial aid experts in Washington.  Representatives of student lenders were also there to champion an alternate plan that would bring some of the savings proposed by SAFRA, but would maintain a role for banks in student lending.

It’s widely expected that the Senate will ultimately pass a version of the bill similar to what was passed by the House, but when that will happen remains uncertain.  Procedural regulations and concerns over support are currently preventing the bill from progressing until the issue of healthcare is settled.  In the meantime, it appears debate, analysis, and lobbying will continue on both sides of the issue.

Posted: under College in Congress, Student Loans.
Tags: College in Congress, Direct Loans, FFEL, financial aid news, Student Loans

Comments (0) Nov 12 2009

Private student loans may soon come under increased federal regulation as Congress takes up legislation that would create a consumer financial protection agency.  The bill moved out of the House Financial Services Committee yesterday and will soon go to a floor vote.

Lenders fought the legislation, but the proposed amendment to exempt student loans from the agency’s oversight was defeated in committee.  A brief but heated debate also arose over whether the agency should also regulate “gap loans” made by private for-profit colleges directly to students to help cover tuition and other expenses.  Ultimately, the panel sided with the schools who argued that new Truth in Lending restrictions already offered students sufficient protection in regards to borrowing from schools.

Student loans are only one of several aspects of lending that would be regulated by the new agency.  They’d be accompanied by mortgages, credit cards, and other bank-based loans.  This comes in addition to legislation that’s already been passed that will limit lenders’ ability to market credit cards to college students.  However, auto financing plans offered by car dealers were exempted and the agency’s role in regulating smaller banks and lending institutions was also limited by amendments.

Backers of the proposed regulatory agency hope that its creation will offer greater protection to consumers, including college students, who find themselves overwhelmed by risky debt or deceptive lending practices.  They hope that they will be able to limit the extremely high interest rates and confusing terms that accompany some private loans.  Student lenders have previously come under fire for questionable lending practices and have paid out large settlements and agreed to new codes of conduct governing their practices of marketing loans to students and offering incentives to colleges to promote their services on “preferred lender” lists.  Private loans have also seen increased regulation this year, with previous student aid legislation requiring them to disclose terms up front, among other steps taken to make their lending practices more transparent.

Posted: under College News, Student Loans.
Tags: college news, credit cards, financial aid news, money management, private loans, Student Loans

Comments (0) Oct 23 2009