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Margaret Spellings Stands Behind Federal Student Aid Program

March 18, 2008

by Paulina Mis

Speaking before the U.S. House Committee on Education and Labor, Secretary of Education Margaret Spellings told representatives what they wanted to believe, but didn’t: the college aid crisis was under control. After months of financial struggles, a number of student lenders have decided to discontinue their participation in the Federal Family Education Loan Program (FFEL), leaving students to look elsewhere for college funding.

A troublesome lending market and a new law limiting government subsidies to student lenders have many lenders rethinking their participation in the FFEL.  With less government backing and greater default rates, some student lenders are finding it necessary to cut back on student benefits, increase borrowing criteria, and sometimes, leave the government program completely.

These changes have left families worried about finding sufficient student loan assistance from the government, concerns Spellings has tried to diminish. During her testimony, the education secretary stated that so far, “No institutions have notified us that any eligible student has been denied access to federal loans.”

If true, students and parents would be relieved to know that they can still take advantage of low interest government loan rates rather than relying on private, more expensive, student lenders. According to Spellings, the government would step in before students were forced to rely solely on private lenders.

One safeguard proposed by Spellings was the option for schools participating in the FFEL program to switch to the government's Direct Loan program, one in which students bypass government-subsidized lenders and borrow straight from the government.

Ms. Spellings also pointed out that Pell Grants, federal need-based awards that do not need to be repaid, have been increasing and will likely continue to do so. Students who receive free grant money will have fewer loan needs---to an extent. Currently, those eligible for Pell Grants may only receive $4,310 per year, and not all are eligible for this form of federal student aid.

Still, the Secretary of Education maintained a positive outlook and expressed confidence that most student lenders are not in critical positions stating, “More than 2,000 originating lenders participate in FFEL...a small number of these lenders have reduced their participation or stopped origination new loans.”


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