Stu­dent-loan takeover slips through with health care law

The Washington Times Weekly - - Politics - BY MON­ICA MARTINEZ

It passed with lit­tle fan­fare in the slip­stream of health care re­form two weeks ago, but a loom­ing over­haul of the na­tion’s stu­dent­loan mar­ket may bring just as large a pol­icy revo­lu­tion in higher-ed­u­ca­tion fi­nance as Oba­macare does for the na­tion’s med­i­cal-de­liv­ery sys­tem.

Pri­vate lenders are an­gry, and many colleges and uni­ver­si­ties are scram­bling to ad­just in the next three months, fol­low­ing pas­sage by the Se­nate and House of a bill of “fixes” to Pres­i­dent Obama’s sig­na­ture health care re­form. Con­gres­sional Democrats used the must-pass bill as a ve­hi­cle to push through the long­sought stu­dent-loan pack­age as well, mak­ing the fed­eral gov­ern­ment — not the pri­vate sec­tor — the di­rect provider of fed­eral loans to some 8 mil­lion stu­dents na­tion­wide an­nu­ally.

“We were very dis­ap­pointed,” said Elena Lu­bimt­sev, gov­ern­ment-re­la­tions of­fi­cer for Ten­nessee-based Edamer­ica, one of the na­tion’s largest pri­vate providers of stu­dent loans. “We lost our busi­ness. Congress took it from us.”

But re­form back­ers said the change — re­vamp­ing a sys­tem that dates back to the mid-1960s — will cut out the un­nec­es­sary mid­dle­man in col­lege lend­ing, the pri­vate com­mer­cial lenders who orig­i­nate the stu­dent loans and col­lect fees from both the bor­row­ers and the fed­eral gov­ern­ment for their ef­forts.

Pro­po­nents say that hav­ing the fed­eral gov­ern­ment di­rectly is­sue the stu­dent loans will free up about $61 bil­lion over the next decade that can be used for loans to help more fam­i­lies meet soar­ing tu­ition costs.

“For mid­dle-class fam­i­lies, one of the big­gest chal­lenges comes when their chil­dren reach col­lege age,” said Se­nate Health, Ed­u­ca­tion, La­bor and Pen­sion Com­mit­tee Chair­man Tom Harkin, Iowa Demo­crat. “The ques­tions around the kitchen ta­ble are: How do we pay for col­lege? [. . . ] The rec­on­cil­i­a­tion bill ad­dresses th­ese chal­lenges head-on.”

Un­der the new law, money pre­vi­ously used to pay pri­vate lenders will be used in part to in­crease the Pell Grant pro­gram for stu­dents from low-in­come fam­i­lies by about $36 bil­lion. The max­i­mum Pell Grant an el­i­gi­ble stu­dent can re­ceive will rise and, start­ing in 2013, the max­i­mum loan level will be in­dexed to the Con­sumer Price In­dex for the first time.

Schools across the coun­try will be scram­bling to re­wire their fi­nan­cial-aid pro­grams di­rectly into the Ed­u­ca­tion Depart­ment by the July 1 dead­line. Many schools, sens­ing the shift­ing po­lit­i­cal winds in Wash­ing­ton, weren’t wait­ing for Mr. Obama’s sig­na­ture.

Re­becca Sanchez, fi­nan­cialaid di­rec­tor at Cal­i­for­nia Bap­tist Uni­ver­sity in River­side, Calif., said the pri­vate Chris­tian school in an an­tic­i­pa­tory move shifted its lend­ing pro­gram from Fed­eral Fam­ily Ed­u­ca­tion Loan Pro­gram (FFEL) to Di­rect Loan — linked di­rectly to the Ed­u­ca­tion Depart­ment — even be­fore it was man­dated by the gov­ern­ment.

“We felt it was the best de­ci­sion to be pre-emp­tive,” Mrs. Sanchez said. “We were an­tic­i­pat­ing that it was go­ing to be man­dated be­cause it has strong Demo­cratic sup­port.”

The new law pro­vides $50 mil­lion for colleges and uni­ver­si­ties to pay for the tran­si­tion to the Di­rect Loan net­work.

De­spite the changes in the mar­ket, stu­dent bor­row­ers should not no­tice much dif­fer­ence, since most of the work is done be­hind the scenes.

How­ever, stu­dents who will ac­cept loans for the 2010-11 school year must fill out a new mas­ter prom­is­sory note, a con­tract be­tween lender and bor­rower, and com­plete a new en­trance coun­sel­ing ses­sion and exam if their school was pre­vi­ously par­tic­i­pat­ing in the FFEL pro­gram. Mrs. Sanchez said that once the fall 2010 se­mes­ter starts, there will be an es­ti­mated 4,000 stu­dents fac­ing the new re­quire­ments at a school with a to­tal en­roll­ment of 4,105.

Par­ents will ben­e­fit with the new leg­is­la­tion. Those who ap­ply for a Par­ent PLUS loan will save money on in­ter­est rates. Pri­vate lenders’ in­ter­est rates were as high as 8.5 per­cent, while the Di­rect Loan rate is capped at 7.9 per­cent.

The over­haul also tried to sim­plify the re­pay­ment process and al­lows for only one pay­ment to be sent to one lender. Stu­dents who take out loans in 2014 will have the op­tion of ap­ply­ing for “in­come-based re­pay­ment,” a plan that gives bor­row­ers monthly pay­ments capped at 10 per­cent of their in­come. Those al­ready re­pay­ing their loans can sign up to cap their bill at 15 per­cent of their an­nual in­come.

The Obama ad­min­is­tra­tion said the pri­vate sec­tor will still play a ma­jor role in ser­vic­ing the loans, and Democrats may even see a po­lit­i­cal ben­e­fit from the fight.

But many in the in­dus­try are brac­ing for the worst.

Edamer­ica’s Ms. Lu­bimt­sev es­ti­mated the in­dus­try could see some 30,000 jobs lost be­cause of the changes. Stu­dent-loan gi­ant Sallie Mae has said that the over­haul law will lead to ma­jor in­ter­nal con­sol­i­da­tions and lay­offs of more than a quar­ter of its 8,600 em­ploy­ees.

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