With President Obama's proposal to end the bank-based Federal Family Education Loan Program, there has been much speculation on what role would be left for banks in student loans, as well as which banks would be allowed to play that role. An announcement made yesterday by the Department of Education indicates that at least four banks will remain involved in federal student loans for the forseeable future.
The Department of Education has selected four companies to service loans made through the federal Direct Loans program. Sallie Mae, Nelnet, American Education Services/Pennsylvania Higher Education Assistance Agency, and Great Lakes Education Loan Services will all be awarded contracts of five to ten years to manage the increasing volume of student loans the federal government owns.
The servicers selected will be responsible for the student loans currently in the Direct Loans system, as well as loans the federal government has purchased as part of the federal rescue plan. If all federal student loans are moved into Direct Loans, these agencies will also service them. For now, what this means for student borrowers is that you may be dealing with different people if you have questions about your Stafford loans next year. However, if Congress eliminates FFEL, this news could become more significant.
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