Below is an editorial in the Wall Street Journal by U.S. Secretary of Education Arne Duncan:
"Since I arrived in Washington, I've been looking at every line item in the budget of the U.S. Department of Education with two questions in mind: Is this program helping students learn? And is it a good use of taxpayer money? In the case of the Federal Family Education Loan (FFEL) program, the answer to both questions is no.
Under the current FFEL program, banks make loans to students. While those students remain in school, the federal government pays the interest on their loans; otherwise the interest accrues. Once the borrowers leave school or graduate, the lending agency collects on the loans. But if the student defaults, my department pays back the loan—plus the interest owed. The FFEL program, in short, is a great deal for bankers but a terrible one for taxpayers.
Over the next decade, according to the Congressional Budget Office, the Education Department is slated to subsidize banks to the tune of $87 billion to enable them to make federal student loans. All of this money would be put to better use providing financial aid directly to millions of needy students who want a college education. The Education Department will be able to accommodate the new loans through an existing federal public-private partnership, Through that partnership, the federal government makes loans directly to students and uses companies that will provide better service to borrowers at a lower cost to taxpayers
Critics contend that the government is trying to nationalize a private industry and do away with competition. Our real aim is to simply stop using banks as the middle man for student loans.
The banking industry would continue to compete in the marketplace to finance mortgages, business start-ups, and other forms of credit. But we are intent on stopping subsidies to bankers who make student loans at no risk because they know the federal government will bail them out in case of default.
By working with private sector companies with expertise in the field, we are prepared to initiate all new student loans in the existing federal Direct Loan program. Right now, the Education Department already owns and services 80% of the student loans made last year. It owns such a high volume of loans chiefly because it had to take emergency action in 2008 to ensure students had access to loans when lending in the nation's credit markets was frozen.
Our experience handling the bulk of student loans makes me confident in our capability. This year alone, an additional 500 colleges and universities joined the Direct Loan program. Just last month, the department's independent inspector general's office issued a report documenting that the Education Department had taken the right management steps so that all loans can be serviced by the Direct Loan program.
In a recent survey by the National Association of Student Financial Aid Administrators, schools that have made the switch to direct lending overwhelmingly reported the conversion was easy and quick. That is just one reason why that association of financial aid experts, along with organizations representing the nation's largest public and private universities, community colleges and college students, support the department's Direct Loan proposal.
The private sector would continue to play an important role in servicing loans. Last summer, the department's Federal Student Aid Office awarded contracts to four companies to service federal student loans, following an intense competition among the best companies in the loan servicing business. These companies are paid more when borrowers are in good standing, and those that keep defaults down and provide the best customer service will be given the most work.
We are preparing to make the switch to direct loans as easy as possible for colleges and universities. We appreciate their feedback, and their ideas will help us transition smoothly from FFEL to direct loans once Congress has passed a bill authorizing the switch to 100% direct loans
As for the $87 billion we'll save from ending the troubled FFEL program, the administration seeks to use that money for important programs that will improve our economic future. We propose to substantially increase scholarships in the Pell Grant program and other financial aid for low-income students. We would start new programs to raise college graduation rates and strengthen our community colleges. We will expand our investment in early childhood education. Plus, $10 billion would be set aside to reduce the deficit.
Now is the time to allocate resources to students—not to banks—so they have access to college and other educational opportunities. We cannot in good conscience let $87 billion in subsidies go to banks when our students desperately need financial help to realize the dream of getting a college education."
Dec 18, 2009
Dec 16, 2009
Students Protected in Financial Reform Bill
Last week the House of Representatives passed the Wall Street Reform and Consumer Protection Act (HR 4173), a comprehensive set of measures that will modernize America’s financial regulations and hold Wall Street accountable. The bill creates the Consumer Financial Protection Agency (CFPA), a new federal agency devoted to protecting Americans from unfair and abusive financial products and services. USSA worked with several coalition partners to ensure that private student loans were among the financial products under the jurisdiction of the CFPA.
Additionally, HR 4173 strengthened private loan certification laws that were enacted with the reauthorization of the Higher Education Act in 2008. These measures include:
•Ensuring students have talked with a financial aid officer about other options before taking out private loans. Educating students about their eligibility for federal loans is crucial because many students don’t take full advantage of the lower-interest rates and flexible repayment plans of federal loans.
•Requiring that loans do not exceed the cost of attendance, which is an important component in curbing the rising level of student debt.
Students are thrilled about these provisions. “We applaud the House for passing strong protections for students from private lenders who often use manipulative tactics to profit off young people,” said Daniel Ramos, a student at the University of Colorado, Boulder and member of the USSA Board of Directors.
The Senate version of the bill is currently being drafted. USSA and students across the country will advocate for the inclusion of essential safeguards against arbitrary and manipulative private lending practices that have greatly contributed to the skyrocketing level of student debt.
Additionally, HR 4173 strengthened private loan certification laws that were enacted with the reauthorization of the Higher Education Act in 2008. These measures include:
•Ensuring students have talked with a financial aid officer about other options before taking out private loans. Educating students about their eligibility for federal loans is crucial because many students don’t take full advantage of the lower-interest rates and flexible repayment plans of federal loans.
•Requiring that loans do not exceed the cost of attendance, which is an important component in curbing the rising level of student debt.
Students are thrilled about these provisions. “We applaud the House for passing strong protections for students from private lenders who often use manipulative tactics to profit off young people,” said Daniel Ramos, a student at the University of Colorado, Boulder and member of the USSA Board of Directors.
The Senate version of the bill is currently being drafted. USSA and students across the country will advocate for the inclusion of essential safeguards against arbitrary and manipulative private lending practices that have greatly contributed to the skyrocketing level of student debt.
Dec 4, 2009
USSA President Gregory Cendana on ABC Nightline
On Monday, November 30, USSA President Gregory Cendana appeared on ABC Nightline discussing the rising cost of college. Citing economic benefits of college affordability, Cendana declared that post-secondary “education should be free.”
He argued that state divestment from higher education hinders our country’s long-term financial growth as heavily indebted graduates spend the majority of their income on loan repayments instead of contributing to the economy.
The other guest, a University of California, Berkeley professor, advocated for high-tuition/high financial aid funding. Cendana countered that such policies deter potential low-income students, the demographic that proponents of this model claim to be helping the most, from applying to college due to the “shock of the sticker price
of attendance.” Middle-income students who don’t qualify for need-based aid are hit with tuition and fee hikes with only more loans as an option to mitigate costs.
The show engages audience members by displaying viewers’ tweets on the topic at hand. Angus Johnston, a professor in New York City, supported Cendana’s argument by tweeting, “dividing students into ‘poor’ and ‘affluent’ [when considering a high-tuition/high aid policy] ignores the struggling majority in the middle.”
Cendana concluded by calling on Senators Harry Reid (D-NV) and Tom Harkin (D-IA) to take leadership roles in passing a Senate companion bill to the Student Aid and Fiscal Responsibility Act (HR 3221). This legislation is critical for students dealing with massive increases in the cost of attendance.
He argued that state divestment from higher education hinders our country’s long-term financial growth as heavily indebted graduates spend the majority of their income on loan repayments instead of contributing to the economy.
The other guest, a University of California, Berkeley professor, advocated for high-tuition/high financial aid funding. Cendana countered that such policies deter potential low-income students, the demographic that proponents of this model claim to be helping the most, from applying to college due to the “shock of the sticker price
of attendance.” Middle-income students who don’t qualify for need-based aid are hit with tuition and fee hikes with only more loans as an option to mitigate costs.
The show engages audience members by displaying viewers’ tweets on the topic at hand. Angus Johnston, a professor in New York City, supported Cendana’s argument by tweeting, “dividing students into ‘poor’ and ‘affluent’ [when considering a high-tuition/high aid policy] ignores the struggling majority in the middle.”
Cendana concluded by calling on Senators Harry Reid (D-NV) and Tom Harkin (D-IA) to take leadership roles in passing a Senate companion bill to the Student Aid and Fiscal Responsibility Act (HR 3221). This legislation is critical for students dealing with massive increases in the cost of attendance.
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