By Hailey Heinz
Legislation was introduced in Congress last week that, if passed, would encourage universities to cut out private lenders like Sallie Mae.
The legislation is called the Student Aid Rewards (STAR) Act, and one of the backers is Sen. Edward Kennedy. In a teleconference last Tuesday, Kennedy said the STAR Act could save about $17 billion that is currently going to private lenders. Kennedy said the STAR Act would instead put those funds toward the Pell Grant program, which gives need-based aid to students nationwide.
“It’s a win for the students, it’s a win for the schools, it’s a win for the taxpayers,” Kennedy said.
Currently, universities can choose either to use the Federal Family Education Loan (FFEL) Program or the Direct Loan (DL) Program. The FFEL Program, which Northeastern uses, contracts with private lenders like Sallie Mae for government-backed loans.
The DL Program cuts private lenders out entirely, with schools borrowing straight from the government.
The STAR Act encourages schools to switch loan programs by offering increased Pell grants as an incentive. Kennedy said the legislation will take money currently supporting subsidies to private lenders and put it toward student aid. He acknowledges, however, that there is a strong opposing lobby.
“On the other side are the banks and Sallie Mae, and they are a very formidable group. Even though this makes a great deal of sense from the students’ point of view, this is a real battle, make no mistake about that,” Kennedy said. “We can’t underestimate the power on the other side.”
The opposing side argues the savings promised by the STAR Act just aren’t there. Lenders argue the numbers being used to justify the legislation don’t accurately consider the costs of the DL Program.
“[The numbers] don’t account for all of the administrative expenses that would be incurred by the government administering the credit program, like salaries or buildings,” said Kevin Bruns, a lending industry spokesman.
Bruns also described the legislation as “discriminatory,” because it would give more need-based aid to certain students, based on which program their school chose to use.
“This would be the first time in history that the government treated needy students differently on a basis unrelated to need,” Bruns said. “There’s at least three dozen congressional districts without the Direct Loan Program. There’s entire states that don’t have schools in the Direct Loan Program. It’s unfair to students in those areas of the country if they want to stay close to home.”
Lenders also argue that private lenders can offers students and schools more choice.
“The lenders … have more flexibility to meet the needs of schools … they can customize loan packages for each school,” Bruns said. “A private lender can choose to eat the origination fees, or if students make 36 on-time payments in a row, some lenders give a full percentage break. These are things the Direct Loan Program couldn’t do.”
Private lenders are looking to offer even more attractive options to schools and students, with the Access and Equity in Higher Education Act, introduced Monday. According to a press release from America’s Student Loan Providers, the legislation would increase loan limits, change interest rates on loan consolidation and offer more flexible repayment plans.
With both sides arguing for their program, Dean of Student Financial Services Seamus Harreys said it’s hard to see through the numbers. He said if the STAR Act actually produces the savings its supporters claim it would, it could be beneficial to students, but there are a lot of “what-ifs” to consider.
Harreys said Northeastern has used Sallie Mae as a preferred lender in the past because private lenders tend to be more efficient, have better technology and are able to provide extra services that aren’t available from the government. Harreys said he has worked at institutions in the past that used the DL Program, and has come up against these issues.
“Northeastern has remained in its current form mainly because if you go to a direct loan process, it requires more infrastructure on the school’s side, because you can’t turn to an outside bank,” Harreys said.
Although he said using Sallie Mae is currently the best option Northeastern can offer its students, he said he would seriously consider switching to the DL Program if the STAR Act were passed and the savings to students materialized.
“If a student is going to receive grant aid that they would be unable to receive in the current loan program, we would need to take a very hard look at this and make a decision to benefit the students at Northeastern,” Harreys said. “It’s likely, given the comments going on, that the legislation has quite a row to hoe.”
Ali Barlow, Student Government Association vice president for financial services, said she agrees that the legislation could be beneficial, but needs to be examined further.
“It’s sort of a case by case thing. If we can figure out the numbers and make sure it does benefit Northeastern students … then we should definitely look into it,” Barlow said. “I’m not 100 percent sure because I don’t see the proof.”
Whether it passes or not, Northeastern students say it won’t affect them very much, since both programs offer similar loan benefits, and the potential savings from the STAR Act would only benefit students with Pell grants. For Mark Corsillo, a freshman pharmacy major, it’s simply not an issue.
“I have to pay them either way,” Corsillo said.
