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Federal Government Takeover of College Loan Pool in Works
The Kansas City Star (Kansas City, Missouri) via Yellowbrix
November 04, 2009
KANSAS CITY, Mo. _ College students are facing a sea change in borrowing to pay for their degrees _ unfortunately, many would still be drowning in debt.
The change, perhaps as soon as July, would end the Federal Family Education Loan program that has dominated the federal student loan pool for more than 40 years.
Banks and other private sources would be cut out of the process by the Student Aid and Fiscal Responsibility Act, passed in September by the U.S. House. The measure still must be considered by the Senate.
Colleges that once kept a long list of lenders are converting to the Direct Loan Program, in which student loans come directly from the government.
The trend was accelerated by many private lenders dropping out of the business when the economy tanked. That led Congress to pass temporary legislation _ expiring in June _ to assure that students and families still would be able to get loans for school.
In the last two years, students already were relying more on federal loans. The volume of loans from private sources fell by 52 percent in the 2008-2009 school year, according to a recent report by the College Board, a nonprofit organization that watches trends in higher education.
“Moving to direct lending will … eliminate the uncertainty families have experienced due to the turmoil of the financial markets,” said Secretary of Education Arne Duncan.
That’s all well and good, said Tony George, director of financial aid at the University of Missouri-St. Louis, which is preparing to switch to the Direct Loan Program by December. But the cost of borrowing would remain the same as under the old system.
“Will students get any better interest rates with direct lending? No.”
The balance of outstanding federal loans assumed by students or their parents continues to grow. By 2007-08, two-thirds of four-year undergraduate students had some debt along with their degrees. The average cumulative debt incurred was $27,803, according to the National Center for Education Statistics.
