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GOP, Lenders Oppose End to Private Student Loans

Tennessee education lenders and Republican lawmakers are fighting a bill that could end federally subsidies for private student loans, saying the legislation would eliminate competition and choice for borrowers.

“President Obama’s blueprint for a federal takeover of the college-loan industry will create a new entitlement that will cost taxpayers billions and will never go away,” according a statement by Knoxville-based Edamerica, one of the country’s largest private student lenders.

The student financial aid bill, which the Democratic-led House passed last month, would eliminate the Federal Family Education Loan Program and require all schools to receive loans directly from the government. The Senate is expected to debate the bill in coming months.

Cutting the loan program is expected to trigger more than $80 billion in savings over the next 10 years, money slated to increase Pell grants, bolster financial support for community colleges and decrease the federal deficit, its supporters said.

The University of Georgia shifted its student lending operations from FFELP to the Direct Loan Program more than a decade ago, and officials said it is easier to work with student borrowers without banks and lenders serving as the middlemen.

“It is a very streamlined, automated process,” said Bonnie Joerschke, director of student financial aid at the University of Georgia.

Ms. Joerschke said the student aid bill would increase the amount of money available to Pell-eligible families. It also could provide Pell grants to students during the summer months, a time when students traditionally couldn’t qualify for federal money.

Nearly 75 percent of colleges and universities, including many in Southeast Tennessee and North Georgia, participate in FFELP, which was designed in the early 1970s.

If approved, the bill would require more than 3,100 colleges, including the University of Tennessee at Chattanooga and Chattanooga State Community College, to switch the Direct Loan Program by July 1.

“There is a lot of concern that this is coming at a time when colleges don’t have a lot of extra resources and financial aid offices are especially stretched thin right now because of increased demand for financial aid,” said Haley Chitty, a spokesman for the National Association of Student Financial Aid Administrators.

A new era for student lending also could shutter state guarantee agencies, such as the Tennessee Student Assistance Corp., which currently backs private student loans and helps monitor schools’ default rates.

“It could put TSAC out of business,” said Jane Pennington, associate executive director of student loan programs at TSAC.

Still, Ms. Pennington said lawmakers, specifically Sen. Lamar Alexander, R-Tenn., are pushing the Senate version of the bill to include a role for guarantee agencies, she said. The U.S. Department of Education may want state guarantee agencies to be at the ground level, working with students, she said.

All Republican state representatives voted against the House bill, and Sen. Alexander, a former U.S. secretary of Education, has been outspoken against the plan to cut FFELP.

“The cost savings that is alleged is … a trick on students to make congressmen look good,” Sen. Alexander said in a statement. “What we are going to do if we do not preserve choice is saying to all the students who get a loan that we are going to take money from them and then give it to other students so that congressmen can go home and brag that (they have) increased the amount of the Pell grants.”

Opponents of the bill argue that private lenders are able to offer incentives or back-end benefits to students that the government cannot, such as lower interest rates for payments made on time.

But students who enjoy those perks are few, Ms. Joerschke said. And many companies cut these benefits when the credit markets froze last year, she said.

“Not all students get those benefits because they don’t do what they need to do to get those benefits,” she said.

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