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Davis, California

Monday, May 20, 2024

Federal government to assume student loan system

President Obama’s new student loan bill has colleges saying bye-bye to the middleman. The federal government will take the place of private lenders on student loans.

The Student Aid and Fiscal Responsibility Act, a rider attached to the main health care bill, will remove banks and private lenders as providers for federal student loans and place that responsibility with the government.

According to SAFRA, the Federal Family Loan Program will be eliminated and no new loans will be disbursed through the FFEL program after June 30. UC Davis is a direct lending institution, meaning UCD already processes its loans directly with the federal government and this change will not have a direct effect on UCD students or the current process.

There are no changes to older or existing federal student loans. Students and families will continue working with their current service provider as they repay those loans.

Kevin Bruns, executive director of America’s Student Loan Providers, said the bill does more harm than good.

“This will cause major job losses for lenders [who had good health care benefits] and hurt schools,” Bruns said. “Students would still have a choice about who would service their loans with the alternative bill, which would have allowed for lenders to stay afloat.”

The Consumer Bankers Association agrees with ASLP.

Special Counsel to the CBA and UCD alumnus Harrison Wadsworth said although the bill will not affect UCD students since the school is already a part of the federal direct loan program, it will have an effect on private lenders.

UCD could have switched to some private lending, but with this bill this is no longer possible, Wadsworth said.

Under SAFRA, the federal government will save approximately $61 billion over the next 10 years. The majority of this will be used to fund Pell Grants, according to the Congressional Budget Office.

Pell Grants will see an increase in funding, changing the current system, Wadsworth said.

“There will be an increase in the Pell Grants, but eliminating most of the student lending business for banks will cause a decrease in competition,” he said. “There will be a deterioration of service because the government will have a monopoly on the system.”

The National Association of Student Financial Aid Administrators’ communications director Haley Chitty said although he agreed the bill could cause a deterioration of lending services and change in schools’ lending systems, the bill will help Pell grants.

“Pell grants were on unstable footing for future rewards,” Chitty said. “There will be more firm financial funding and students will receive greater repayment benefits. Anytime there is a change in a system there will be some service changes, but students will continue to see pretty good services.”

Trina Wiggins, associate director of student services in Financial Aid Office at UC Davis, said as current participants in the direct lending program the financial aid office believes the bill is a move in the right direction. She thinks the new law allows for a consistent process amongst all institutions and will benefit the students.

One of the largest providers of student loans, Sallie Mae’s corporate communications director Patricia Nash Christel offered tips for students and remained hopeful about her business’ future.

“Sallie Mae will continue to offer savings programs, interest-free tuition payment plans and private loans,” Nash Christel said. “As always, we recommend students follow a 1-2-3 approach to paying for college: First, maximize scholarships and grants, along with savings and income. Second, tap federal student loans. Third, fill any gap with a pay-interest-as-you-go private education loan.”

ANGELA SWARTZ can be reached city@theaggie.org.


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