Roundup: Week of June 11 - June 15
Blog Post
June 14, 2007
House Committee Embraces New America's Loan Auction Proposal
The House Education and Labor Committee has embraced the New America Foundations proposal to use an auction mechanism to set student loan subsidies. The Committee unanimously adopted an amendment to the College Cost Reduction Act of 2007 proposed by Representative Tom Petri (R-WI) that would test loan auctions in the government-guaranteed loan program. After a six month planning study and a two year pilot program, the government could auction the right to make all government-guaranteed loans. Petri introduced the amendment to "end the political process which determines the government subsidies provided to private student lenders." Congress now sets the subsidy level without consideration of supply and demand in the market. By encouraging competition between lenders, New America believes a market-based auction mechanism will save taxpayer money by cutting out the excess subsidies now going to student lenders.
New Report from Kennedy on Improper Student Loan Marketing Practices
Senator Edward M. Kennedy (D-MA) released a report yesterday on inappropriate marketing practices in the Federal Family Education Loan (FFEL) program. The report summarizes the findings of his investigation of the relationships between private student lenders and financial aid officials. He found examples of schools receiving compensationfor example "treats" used as marketing tools or value-added services such as printing and counselingfrom lenders in exchange for preferred status. Kennedy also details the individual benefits that many financial aid officials received from lenders, such as travel reimbursements for participating on advisory boards, stock options, and consulting payments. All of these marketing practices were employed with the expectation that the school or official would promote the lender on campus. For more information on the student loan scandals, see Higher Ed Watch's Special Report, which includes a chronology of important news articles and opinion pieces that have been written about the scandals.
Schumer Proposes a "Schumer Box" for Student Loans
Senator Chuck Schumer (D-NY) unveiled legislation on Monday that would require student lenders to clearly disclose the terms of private loans to students. Lenders would have to detail loan amounts, range of interest rates, and all fees in a table on every private student-loan application. Then, after the student applied for the loan, the lender would have to disclose the exact interest rate and other terms. The plan is modeled after the "Schumer Box" now required on all credit card applications. Schumer drew on his recent frustrations trying to select a student loan for one of his children, saying that "you had to be Albert Einstein to figure out how much interest you would have to pay."
Proposed Legislation Would Repeal Student Loan Bankruptcy Provision
Senator Richard Durbin (D-IL) proposed legislation last week that would reverse Congresss 2005 revision of the federal bankruptcy code for private student loans. The legislation would allow students to discharge their private student loan debt through bankruptcy, an option that was taken away from students in 2005 except in extremely rare circumstances of "undue hardship." At a Senate Banking Committee hearing on private student loans last week, several witnesses testified that the stricter bankruptcy provision for student loans is unfairly hurting students. Some lenders may not vigorously lobby against the changea Sallie Mae spokeswoman told The Chronicle of Higher Education that they "agree that it may be appropriate to revisit how to handle private student loans in bankruptcy."