January 17, 2005: Headlines: COS - Somalia: Congress: Student Loans: Green Bay Press Gazette: Tom Petri proposes changes in the federal guaranteed student loan program for college students that could save $12.3 billion over 10 years

Peace Corps Online: Directory: Somalia: Special Report: Tom Petri: Tom Petri: Archived Stories: January 17, 2005: Headlines: COS - Somalia: Congress: Student Loans: Green Bay Press Gazette: Tom Petri proposes changes in the federal guaranteed student loan program for college students that could save $12.3 billion over 10 years

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Tom Petri proposes changes in the federal guaranteed student loan program for college students that could save $12.3 billion over 10 years

Tom Petri proposes changes in the federal guaranteed student loan program for college students that could save $12.3 billion over 10 years

Tom Petri proposes changes in the federal guaranteed student loan program for college students that could save $12.3 billion over 10 years

Changes in federal student loans afoot
Bill would boost incentives for direct-loan program

By Brian Tumulty
Press-Gazette Washington bureau

WASHINGTON — Proposed changes in the federal guaranteed student loan program for college students could save $12.3 billion over 10 years, according to a new analysis by the Congressional Budget Office.

Legislation expected to be reintroduced this year by U.S. Reps. Tom Petri, R-Fond du Lac, and George Miller, D-Calif., in the House and U.S. Sen. Ted Kennedy, D-Mass., in the Senate would use the savings to increase funds for Pell grants to low-income students.

At the University of Wisconsin-Madison, for example, a low-income student eligible for a Pell grant would get an estimated $1,000 to $1,500 increase in aid.

Petri and Miller’s plan would entice more colleges and universities to opt into the direct loan program by funneling the savings back to the schools. Colleges would be required to use the additional money for enhanced Pell grants for low-income students.

Hundreds of colleges already participate in the direct loan program run by the federal government, but it only accounts for about 25 percent of all guaranteed student loans.

Lenders that get a federal subsidy for handling student loans are opposing the bill because it would provide a new financial incentive for colleges to switch to the competing direct loan program.

Questioning savings

Republican lawmakers also expressed skepticism Thursday over the estimated savings of $12.3 billion over 10 years.

Financial services trade groups critical of the Congressional Budget Office analysis say it does not take into account the administrative costs of the direct loan program to the federal government.

“Taxpayers, parents and students deserve to know the real costs of the direct loan program,” said Rep. John Boehner, R-Ohio, chairman of the House Committee on Education and the Workforce. “And they certainly deserve to have these facts before they’re asked to pay more money to entice schools to stay in the program.”

Colleges that have opted into the direct loan program since it began in 1994 say many of the original kinks in the program have been worked out.

“We’ve been nothing but pleased with it,” said Jeff Zahn, director of financial aid at St. Norbert College in De Pere. “It has had its growing pains, but they have been good about working with schools.”

About 76 percent of the $59.4 billion in federally guaranteed student loans made in 2004 originated under the Federal Family Education Loan program that uses commercial banks, credit unions and other lenders, according to the U.S. Department of Education.

Although thousands of financial institutions participate in the program, a majority of these loans originate from a couple of dozen commercial banks.

The White House Office of Management and Budget last year characterized the program as having “significant cost inefficiencies.”

“We have a more generous subsidy in the private sector loans,” said Congressional Budget Office Director Douglas Holtz-Eakin. “We have subsidies to the student plus to the lender. And the net effect is that if we went under current law to the direct student loan program, we’d save money basically because we’d subsidize those loans less heavily.”

Streamlining process

Petri, a longtime supporter of the direct loan program, thinks the Congressional Budget Office analysis offers a compelling reason for Congress to take up the legislation.

“This is big money in the real world — not around here,” Petri said. “I can’t believe how big it is.”

Private lenders, however, dispute the congressional findings.

“The premise that the savings are based on are faulty methodology,” said Harrison Wadsworth, a Washington lobbyist for the Consumer Bankers Association. He said the Congressional Budget Office analysis does not take full account of the cost of running the direct loan program, so the savings are overstated.

Dick George, chief executive of the Great Lakes Higher Education Corp., a third-party service provider and guarantor for student loans, said the legislation would eliminate a level playing field for private lenders to compete with the direct loan program. “It is inappropriate to create statutory incentives for one program or another,” said George.

The bill proposed by Petri, Miller and Kennedy would provide an incentive for more colleges to participate in the federal direct loan program by redirecting all the savings to only those colleges that use direct loans.

Emily McWilliams, chairwoman of UW’s student government, Associated Students of Madison, supports the Petri-Miller bill.

“To me, it seems to me almost irrefutable for students and taxpayers because it eliminates the middle man,” said McWilliams, noting that private lenders receive a subsidy of almost 10 cents on the dollar.

Competing programs

But administrators at UW-Madison are happy with their partnership with private lenders under the Federal Family Education Loan program.

“I like the competition,” said Steve Van Ess, director of the office of financial services at UW-Madison. “I like that both programs exist.”

Van Ess said the incentives in the Petri-Miller bill would essentially mean the end of the Federal Family Education Loan program because universities would be compelled to switch to the direct loan program. “The current loan program works well now,” Van Ess said. “Maybe I’m nervous about changes.”

Colleges that participate in the direct loan program say its advantage is simplicity.

“The program is totally electronic and I have only one lender, the U.S. government,” said Faye Scheil, senior associate director of the office of student financial aid at Marquette University in Milwaukee. “On our campus we have students from all 50 states, Guam and Puerto Rico. Prior to direct loans, before the program even existed, we were working with banks and guarantee agencies from virtually every state and it was almost unmanageable.”

On the Net: White House Office of Management and Budget’s February 2004 evaluation of federal student loan programs, www.whitehouse.gov/omb/budget/fy2005/pma/education.pdf.





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Story Source: Green Bay Press Gazette

This story has been posted in the following forums: : Headlines; COS - Somalia; Congress; Student Loans

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