The House and Senate education committees have approved massive cuts in the federal guaranteed student loan program, and the bills now move to the floor. The packages will make student loans unprofitable for all but the largest loan companies. Many lenders will simply stop offering loans. Middle class families are almost sure to see their loan costs increase. Many of the lenders who remain won't be able to offer discounts off of the interest rates and upfront fees set by Congress.
Washington, D.C. (PRWEB) June 30, 2007 -- Looking ahead to floor consideration of massive student loan cuts when Congress returns after the July 4th recess, Kevin Bruns, executive director of America's Student Loan Providers (www.aslp.us), urged Congress to carefully consider the budget cuts, issuing the following statement:
"The two committees of jurisdiction have now acted - approving budget packages that we clearly think are misguided and potentially very harmful. The bills will soon come before the full House and Senate. As they work their way to the floor, the student loan community looks forward to working with members of Congress to perfect them - to ensure they're in the best interests of borrowers and the nation.
"Our message to the members of Congress who will now be considering these budget proposals on the floor: First, do no harm, and second, please listen to your constituents.
"Before Congress today are massive proposed budget cuts and policy changes to the Federal Family Education Loan Program (FFELP).
"No matter how you camouflage it, an $18 billion budget cut - on top of last year's $18 billion cut - is deep and would make student loans more expensive, and therefore college less affordable, for millions of families already struggling to pay for college.
"Both the House and the Senate bills would impose an unworkable, untried auction system on parent borrowers and schools. The lowest bid would trump service reliability and quality every time, leaving borrowers and schools to pick up the pieces. Auction proposals have been studied in the past and found wanting. [U.S. Department of Education and U.S. General Accounting Office, Alternative Market Mechanism for the Student Loan Program, GAO-02-84SP, December 18, 2001] Their supporters offer no evidence - academic, empirical or analytical - why these proposals are any different.
"For more than 40 years guaranteed loans have helped millions of American families achieve the kind of dreams made possible by the best higher education system in the world.
"The truth is the private sector-based guaranteed loan program - one of President Johnson's original Great Society proposals - has been a remarkable success. Since 1965 it has helped 50 million Americans go to college. It has helped triple the percentage of college graduates in this country.
"This year, it serves 6 million students at 5,000 schools, or roughly speaking, 8 out of 10 students and 8 out of 10 schools. And because loan providers compete with each other on price, not to mention service, the typical borrower can save thousands of dollars. In other words, guaranteed loans make college more affordable for millions of families. In fact, they are the lowest-cost student loans available anywhere.
"Loan providers also encourage smart borrowing, discourage excessive debt and counsel borrowers on ways to avoid default, all of which saves taxpayers billions of dollars. These efforts help explain why FFELP's default rates are lower than the government-run Direct Loan program's."
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