WASHINGTON, D.C.,August 2, 2007—More than three dozen organizations today released an open letter to Congress, warning of the serious consequences of the proposed $18 billion in budget cuts to the Federal Family Education Loan Program. A conference agreement on the House and Senate budget reconciliation packages may come to the floor as early as this week.
The letter in its entirety follows:
STUDENT LOAN COMMUNITY URGES CONGRESS TO PROTECT FAMILIES FROM HIGHER LOAN COSTS AND PRESERVE THE FEDERAL FAMILY EDUCATION LOAN PROGRAM
August 2, 2007
The Federal Family Education Loan Program (FFELP) is the nation’s largest and one of its most critical financial aid programs. It serves 8 out of 10 student borrowers and 8 out of 10 schools—specifically, 6.5 million borrowers and 5,000 colleges, universities and technical schools. In 17 states more than 90 percent of schools participate in FFELP. Since 1965 it has helped more than 50 million Americans pay for postsecondary education.
Pending before Congress is the largest proposed spending cut in the history of FFELP. If enacted, a minimum of 70 percent of the government’s projected support for the program between now and 2012 would be eliminated.
No federal program of this size has ever been de-funded to such an extent and in such haste. Make no mistake: the risk of major disruptions and dislocation in federal student loans would be significant. The impact on the millions of families that rely on guaranteed loans to pay for college would be immediate and direct:
– Loan costs for families would increase, and college would become less affordable, as loan providers reduce the discounts they offer on interest rates and upfront fees.
– Major disruptions could occur in service as lenders, many with longstanding relationships with borrowers and schools, stop offering student loans—the exodus of small lenders could be substantial.
– The choice and competition that has generated millions of dollars in consumer savings and convenience would be reduced—indeed, two-thirds of registered voters recently polled said families should have a choice of private lenders that compete to offer federal student loans.
– New investment and innovations in loan delivery and customer service would decline.
Taxpayers, too, would lose. Debt management and default prevention programs that go well beyond the federal requirements, preventing an estimated $13 billion in defaults annually, would be compromised. More important, successful programs to keep loans in good standing protect borrowers from the life-changing, negative consequences of default.
More broadly, these proposals are likely to increase loan volume of the government-run Direct Loan program, which would increase the federal debt.
New Analyses Show That Cuts Go Too Far
Recent independent analyses by the Congressional Research Service and other experts confirm the severity of the proposed $18 billion in cuts to FFELP. For example, Mark Kantrowitz, a respected independent authority on financial aid and publisher of FinAid.org, draws clear and unambiguous conclusions: “The proposed subsidy cuts, especially those passed by the House, represent a severe cut in profits for education lenders. The cuts are severe enough that they may leave many smaller lenders unprofitable.” [Emphasis added; http://www.finaid.org/educators/2007subsidycuts.txt]
More to the point, these cuts threaten the viability of the unique public-private partnership that is FFELP.
By making lender participation in FFELP economically unsound, these cuts raise a fundamental issue: Does the nation want a strong private sector-based federal student-loan program? When Congress votes on the proposed budget cuts later this summer, that’s the real question it will be voting on.
When President Johnson signed the Higher Education Act into law in 1965, the goal was to increase access for a much broader array of Americans by providing a small measure of federal support to those who agreed to provide loans to students who have no credit history, income or cosigner. Cuts that don’t allow a reasonable return for the wide range of services provided to the public by lenders are wholly incompatible with that goal. Millions of students and parents would be left with few options and forced to use a bureaucratic government-run Direct Loan program that has failed to serve borrowers adequately in the past and, moreover, denies them any lender choice and the benefits of competition that follow.
In addition, the proposed auctions in the House and Senate bills are deeply flawed and require further study. The legislation would impose unworkable, untried auction systems on parent borrowers and schools. The ultimate consumers—parent borrowers—could be excluded from the process entirely. The central focus of these proposals would be to produce the lowest bidder, not necessarily the best qualified and most reliable. It is worth noting that not a single congressional hearing has been held on them. We therefore urge Congress to listen to the warnings of a broad, bipartisan group of House lawmakers who have called for caution and meaningful study before the student loan program is completely restructured.
An opportunity remains for Congress to reconsider the severity of the cuts. Their impact is more clearly understood now that independent authorities have weighed in. The law of unintended consequences would apply if their findings are ignored. Such major structural changes to a program as successful and important as FFELP in enabling millions of students to pursue postsecondary education warrant Congress’s most careful consideration. We respectfully urge Congress to consider the likely effects of these dramatic cuts and unwise auction proposals on students, parents, schools and taxpayers.
America’s Student Loan Providers
American Education Services/ Pennsylvania Higher Education Assistance Agency
Arkansas Student Loan Authority
Bank of America
College Advance, LLC
College Loan Corporation
College Loans Direct, Inc.
CollegeInvest
College Parents of America
Consumer Bankers Association
Edfinancial Services, LLC & Edamerica, Inc.
Education Assistance Corporation
Educational Funding of the South, Inc. (Edsouth)
Finance Authority of Maine
Finansure Student Loans
Great Lakes Higher Education Corporation & Affiliates
Higher Education Servicing Corporation
ISM Education Loans, Inc.
JPMorgan Chase
Kentucky Higher Education Assistance Authority & Kentucky Higher Education Student Loan Corporation (The Student Loan People)
Louisiana Education Loan Authority
Missouri Higher Education Loan Authority
Montana Higher Education Student Assistance Corporation
National Council of Higher Education Loan Programs
New Hampshire Higher Education Assistance Foundation & New Hampshire Higher Education Loan Corporation
NelNet, Inc.
Oklahoma Guaranteed Student Loan Program
Oklahoma Student Loan Authority
OneSimpleLoan
PNC Bank
Progressive Financial Services, Inc.
Sallie Mae
ScholarPoint Financial, Inc.
Student Assistance Foundation
Student Loans of North Dakota & Bank of North Dakota
SunTrust Bank
The Student Loan Processors, Inc.
USA Funds
Utah Higher Education Assistance Authority
V-Tek Systems Corporation
Wachovia Bank
Wyoming Student Loan Corporation