Student loans: Not another D.C.-run plan

The federal government has its hands in far too many pots these days. It has taken over U.S. automakers, sectors of the financial industry, and now, along with health care, the Obama administration would like to take over student loans. This would create a huge problem for Utah, where our student loan system actually works.
Utah's state-organized student loan program creates custom repayment plans resulting in the lowest default rate in the country. Nationalizing student loans would undo the successful work of Utah, cut state jobs and increase default rates by eliminating the one-on-one service guiding students through the complex process.
Utah has the highest student loan repayment rate in the nation. Our colleges and universities are providing students good value for their investments, and the Utah Higher Education Assistance Authority has designed a loan repayment strategy that works for everyone. A September U.S. Department of Education report indicates only 2.1 percent of UHEAA borrowers defaulted last year, compared with a national average of 6.7 percent. But the Obama administration wants to make a federal case of it -- to literally take it apart and put it back together in Washington. The administration is calling for the U.S. DOE to become the originator of student loans, beginning next July. This could shut down UHEAA, which has successfully administered Utah education loans for more than 30 years.
Last year, UHEAA made nearly half a billion dollars in loans to students at Utah's major colleges and universities. About 170,000 Utah borrowers are well-served now, and millions of loans have been processed over the years. All of this goes away under the Democrats' plan for student loans, which will only expand D.C. bureaucracy and mismanagement.
A government-run student loan program would drive out the competition of private lenders by setting artificially low rates, yielding a complete takeover of the industry.
Obama's Direct Student Loan program would expand the federal balance sheet by $1 trillion over the next decade and taxpayers will fork over approximately $100 billion per year to lend to students. The Congressional Budget Office even admitted that the accounting on the plan's potential savings is skewed because it doesn't consider the risk from increased default rates.
I'm working with my Republican colleagues to bring some common sense to this discussion. There are several options. One is stopping Obama's student loan program entirely. The more people understand about this trillion-dollar bill and its implications, the better chance we have of keeping student loans local. We are also queuing up more modest modifications to preserve as much local autonomy as possible.
Anyone who has ever applied for a student loan knows that it's a formidable undertaking that requires a lot more assistance than what's available on a D.C. Web site. Students and parents will be hard-pressed to find someone to coach them through the repayment process if the Obama plan becomes law.
Washington should refrain from engaging in another government-run program that would only cripple the strong system developed in Utah rather than allowing our state to serve as an example for other states to follow as it does now.


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Student loan programs to switch lenders beginning Fall 2010

SFA Financial Aid will be switching lenders for student loan programs. This scheduled change will affect more than 7,000 students utilizing the Federal Stafford Loans (subsidized and unsubsidized) as well as the Federal Parent Plus Loan.

Currently, loan funding comes from 100+ financial institutions that participate in the federal loan program; with this change, funding will now be allocated through one direct lending source, the U.S. Treasury. All students who plan on receiving financial aid beginning with the Fall 2010 Semester must complete a new master promissory note regardless of previously completed promissory notes. This includes any loans granted to SFA parents as well.

This change will not affect interest rates, as they are set in the same manner and will be appointed accordingly.

"Our biggest concern is educating students about this impending change so that they know what to do and when to do it," Rachele Nixon, assistant director of financial aid, said. The financial aid department plans on rolling out a campaign to educate students on the changes beginning in December with a heavy emphasis in the Spring 2010 Semester after the transition has been completed and the process nailed down.

An important issue for upper level students receiving financial aid to consider is that this change will have a greater affect on their loans.

"Our long-term goals for students is that they understand when they graduate they will then carry two loans, (one) from the previous system and (one from) the new system. At (that) point they may wish to consider a consolidation loan upon graduation to alleviate the burden of carrying multiple loans," Valerie Harrell, assistant director of financial aid, said.

Student loans for the 2008 SFA school year amounted to $68 million, further indicating the scope of this change for students. This transition to direct lending through the U.S. Treasury is being instated in multiple higher education institutions, and the numbers are expected to grow. Over the past two years the financial aid program has begun losing participating lenders due to fundamental issues concerning new regulations that are tightening up the lending process.

While SFA is not legally bound to make this switch, current legislation indicates that it may very well become a mandate in the future.


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