Private lenders, including some in Waco, upset with student loan reform tied to health care bill
By Tim Woods Tribune-Herald staff writer
Republicans and private student loan companies, including Waco-based Brazos Higher Education Service Corporation, are railing against proposed student-loan reform that they call “a government takeover,” a “job killer” and an “outrage.”
College students, though, should not find it more difficult to get their federal loans, said Jackie Diaz, assistant vice president for student financial services at Baylor University, which is currently transitioning to offering only direct federal loans through the U.S. Treasury.
“The process is really the same,” Diaz said. “What this direct loan program does, basically, is take out that middle man and the student deals directly with the federal government.”
The legislation is expected to be tacked onto the health care reconciliation package, which is in the House Rules Committee.
Direct lending from the U.S. Treasury would become the only option for federal student loans beginning July 1, if the measure passes.
Texas State Technical College has offered only direct loans for nearly two years, and TSTC-Waco director of financial aid Jackie Adler said TSTC’s experience so far “has been very positive,” and that students haven’t had difficulty with their loans.
However, if the measure is passed, private lenders like Brazos Higher Education Service Corporation — which has been able to offer federally backed loans to students under the Federal Family Education Loan Program since 1965 — say the damage to their industry could be devastating.
Republicans in Congress and private lenders project job losses in the range of 30,000 to 35,000 nationally.
BHESC executive vice president Ellis Tredway said some schools’ recent move to only direct loans in anticipation of the legislation, combined with the credit crunch that has spanned more than two years, has caused BHESC to “shrink from 425 employees to 75.”
The lender no longer offers loans through the Federal Family Education Loan Program and services existing student loans.
‘One size fits all’
Republicans, such as Sen. Lamar Alexander of Tennessee, also warned that a government monopoly on the student-loan industry could result in worse service.
“That’ll make getting a student loan about as pleasant as standing in line to get your driver’s license,” he has said.
Tredway, too, expressed worry about the impact of a government monopoly.
“Gone will be the local service. Gone will be the financial literacy training. Gone will be the college outreach programs provided. . . . One size fits all will truly be the way of the future in student loans,” Tredway said.
While Adler said TSTC’s transition to direct-only lending has been smooth, she said her department is concerned about service when the loans become due.
“We’re more than a little bit concerned about that, especially since we thought that everything would be serviced by one service, and that’s not the case,” Adler said.
The plan calls for the government to contract with four loan service companies, Diaz said, and Adler said “we’re still not sure how all that’s going to be, to be very honest. We are concerned.”
National Association of Student Financial Aid Administrators director of communications Haley Chitty said that switching to direct-only loan programs could be a problem for some institutions, depending on the software and systems they use.
Chitty said that NASFAA member schools run the entire range from those who wholly support the legislation to those firmly against it.
Adler said TSTC “found that the transition was extremely easy.”
She added that TSTC received help from other schools that use the same software and had already made the transition, “and since then, we’ve paid that forward and helped some other schools who are trying to make the transition.”
Loan reform scrapped?
Rep. Chet Edwards, D-Waco, voted in favor of a student-loan reform bill that passed the House in 2009 but has thus far stalled in the Senate.
Edwards sits on the House Budget Committee, which passed the reconciliation package by a 21-16 vote Monday. He voted against the measure, saying that he opposes the health care bill in its current form, at least in part because of the potential to further increase the deficit. He also opposes the process of reconciliation.
Edwards spokesman Josh Taylor said it won’t be certain that the student loan issue is in the final reconciliation package until it’s reported by the Rules Committee, which is expected to happen later this week.
However, it is widely assumed that student-loan reform will be included, with speculation that its inclusion is intended to garner more support for the overall package and get health care reform passed.
NASFAA’s Chitty said it’s anybody’s guess whether or not the bill will pass.
“Combining it with health care definitely muddies the waters, in terms of whether it’s going to pass,” Chitty said.
The Washington Post contributed to this story.
twoods@wacotrib.com
757-5721
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It has always been the Government program. What they got from the public private relationship with the lenders were a couple of things. The lenders used their captial instead of the Federal Government haveing to borrow every dollar to be loaned. The cost of borrowing for US is going to increase. The lenders conducted outreach to encourage students and parents to attend college and helped with all the paper work. Schools did not have the resources to provide an effective outreach. This is gone. Lenders because it was important for competition constantly strived to provide better service for students so school and students would use them. They invested in better delivery systems and technology. DOE does not have the budget, or the interest to continue to invest in these kinds of improvements. The schools and students benefited from the efforts from lenders and secondary markets like Brazos HEA to prevent defaults because it was in their interest to maintain the loan on their books as an earing asset for as long as they could. DOE does not have this as their concern by definition and will use the IRS and other agencies to collect harshly the loans students have made. Customer service and quick response for callers were important to lenders because it was in our best interest to serve the students so they would continue to use us. DOE contracts with the low bidder to provide that same service, but it is with a new directive to keep cost down. The lenders provided competition to DOE and the schools and students benefited. They will still benefit from the loan proceeds but there are so many uninteded consequences not because the DOE is bad, it just not in their best interest to do all the things lenders did. So long for now, we will be back. They have tried a centeral program before and it failed to deliver money to students because the government did not have to take ownership of the actions. Sincerly Jim Carroll Former lender in the FFELP
When private enterprise is taken over by the greedy fat cat republicans, the government must take over. The same can be said about the medical mess.
To payurownway: Your comment makes no sense. If you take a student loan today, you are still borrowing the money from the government or as you said, going into debt to the government. The banks are just doing the administrative (paper) work and getting paid billions of dollars that could be going directly to our students instead. Educational costs have gone up, and this is a way for the government to provide more funds for education instead of giving that money to banks such as BankAmerica, Capital One, Chevy Chase, etc. These banks really don't need anymore of the tax payers' money, in my opinion!
The reason the government is cutting out the middle man (the banks) is to save billions of dollars and add those funds instead to educational spending for higher pell grants etc. Every student should be supporting this with the rising cost of tuition. There is no reason for banks to be getting paid these billions of dollars for government-guaranteed loans. That money should go to supporting our students not to supporting banks and extravagant bonuses for their officers. The additional financial benefits for college students should have been included in the article. Mr. Woods needs to do his research and report the facts!
Bad enough these student's have to pay for these temple's of worship for the Alumni Messiah and line the pocket's of Wall Street through the usuary rate's charged. Guess Obama see's what is going on and think's, hey, this could be some action he could use for his own agenda! Either way the parent's and the student's get ripped off! I know the University of Texas in Austin look's more like a Temple than an institution of learning! FACT! The WASTE there is beyond belief!
Shoot the government does every thing so well--I cant wait for Edwards and his crew tho get socialism thur out--guess energy is next? After all nobody has to pay for this stuff then
What could be better than having all of the young college dunderheads in debt to Uncle Sam. Now the master can really control your life. Wake up America !!!
BOY THOSE CROOKS IN THE EMPERORS PARTY WILL TRY ANY AND ALL DIRTY TRICKS TO GAIN TOTAL CONTROL OF THE PEOPLE OF OUR COUNTRY.
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