Costs Less/More Efficient: But What About Borrowers?

A Wrap Up of Recent Student Loan Reform Hearings in Congress

The Congressional hearing on student loan reform last week was fairly predictable, as the Democrats defended Direct Lending and Republicans staunchly supported FFELP. However, in all of the pontificating, there was not one discussion framed around which features of the current program (forget the sources of capital) work best for borrowers. Surely there must be attributes of each that were worth discussing in a real and civilized way.

But let’s forget all that for a moment. What I was truly struck by as I looked at the hopeful faces of the U.S. Public Interest Research Group (PIRG) students sitting beside me was, “Egad! There isn’t one borrower, one parent, or even one everyday constituent scheduled to testify at this hearing.”

And so we heard…

Committee Chairman George C. Miller (D-CA) emphasize that any reforms to the student loan program should be both more efficient and more stable than the current system. Deputy Under Secretary at the Department of Education Robert Shireman echoed Miller’s statements, arguing that the efficiencies generated by switching to Direct Lending could generate steady funding for need-based Pell Grants.

From the school community, Anna Griswold, Assistant Vice President for Undergraduate Education and Executive Director for Student Aid at Pennsylvania State University, and Dr. Charles Reed, Chancellor at the California State University, shared their experiences in moving large, diverse universities from FFELP to Direct Lending. Both Griswold and Reed said that fears about the stability of FFELP motivated the switch.

Chris Chapman, President and CEO of Access Group, shared the perspective of this non-profit lender, followed by René Drouin, President and CEO New Hampshire Higher Education Assistance Foundation. Chapman and Drouin discussed the unique role that their non-profit organizations play in the student loan program and offered their own proposals for a student loan program. Jack Remondi, Vice Chairman and Chief Financial Officer of Sallie Mae, also added an alternative plan to the FFELP versus Direct Lending debate, in which private lenders would be allowed to compete to originate, service, and collect student loans on a fee-for-service basis.

We’ve heard it all before and will again before this is all over. But I ask once more, “What about borrowers?” We all know—regardless of the operational components and capital source ultimately chosen—that, at the end of this process, students will receive their federal student loan funds on time and at the campus of their choosing.

So let’s step back and focus on what’s really important as student loan reform goes ahead:

• – U.S. students are borrowing more than ever before to fund their educations. As of 2006, an estimated 60% of bachelor’s degree recipients borrowed to fund their educations. The average debt burden for a bachelor’s degree borrower now stands at $22,700—more than the starting salary for some college graduates. Even with an increase in federal funding, the maximum Pell Grant award will still fall short of the full cost of tuition and fees for the average student.
• – Borrowers want and need help managing their education debt. In a survey of recent college grads:
  
  
  • – 89% said, “Students who borrow money should receive financial counseling.”
  • – 83% said, “College students should receive more information about loan repayments.”
  • – 63% said, “I had only a vague idea about the amount of debt I was incurring.”
  • – 49% said, “My loan repayments cause me more hardship than I anticipated.”
  
  In addition, the most recent statistics from the Department of Education show that the rate of students defaulting on their student loans is on the rise—from 5.2% to 6.9%, year-over-year—and today’s economic conditions may predict worse numbers ahead.

American Student Assistance continues to believe that it’s our job to focus on the borrowers—whether they’re recent grads, parent borrowers, or first-generation college-goers. All will need guidance from time to time, whether it’s about what type of higher education financing is the right fit for them or which plan is best for repaying their loans, regardless of whether or not they run into trouble.

Education debt management services can help all kinds of borrowers, and this is a vital issue within the student loan reform discussion. That is, if you bother to ask borrowers what they think…

Posted by Shelley Saunders on June 03, 2009 at 10:53 AM EST

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