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  • Student Loan Community Proposal should make way for real time reforms
  • Posted By:
  • Chris J
  • Posted On:
  • 14-Dec-2009

  • It is indeed a sad state of affairs that the legislation remains stalled in the senate trying to do away with the FFEL or the Federal Family Education Loan program. This is predominantly due to the fact that there is no end to the proceedings on the health care overhaul bill. Student loan industry is rejoicing with this delay.

    In fact some of the moderate Senate Democrats are seen contemplating proposal on alternative reforms. Irrespective of which way the student loan industry turns, there is nothing remotely real time in the reforms proposed by the Student Loan Community Proposal, which does nothing but keep the situation as it is. Whichever side the political tide shifts to, loan industry big wigs want to be in their favour.

    Under the lender’s proposal plan, which is nothing similar to the House student loan reform bill and President Obama’s proposal, Federal student loans will still be dished out by private lenders on behalf of the government. As a payment for this administrative service performed by them, they will also receive huge amounts as fee.

    The next step will lead to sale of these loans to the Department of Education by the loan providers who will cunningly retain servicing them for another fee. This fiasco is as insipid in view of public policy as it is lucrative for lenders.  The best thing that can happen for the student is the elimination of middlemen as the primary goal of reforms. When the students can benefit from lower cost loans directly from the government, where is the need to create unnecessary complexity in the program?

    Activities that are outsourced to lenders can be performed at a much lower cost by the government.
    Another point of concern is the arbitrary subsidy rates set for the lenders by the Congress as a part of the political process as far as the FFEL program is concerned. Fearing the risk of certain students not obtaining the loan with very low subsidy, lenders are usually offered over subsidy by the lawmakers. Lenders naturally take advantage of this situation and pitch in for bigger subsidies through Capitol Hill lobbyists.

    There is an urgent need for real time reforms in the student loan sector and not encourage the fears and panic whipped up by the loan companies due to the resistance of lawmakers. For the initial two to three years of the plan, the Student Loan Community Proposal will force the government to set payments and fees for servicers and lenders that are arbitrary. There has already been a demonstration of the arbitrary fee structure by officials in the loan industry.

    Initially, according to the plan, there was a proposal by the lenders which stated that the government will pay a fee of $75 to every loan given out. This fee has dropped to $55 as a part of an effort to bring down the proposal cost and make it amenable to the lawmakers.








 

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