Blog

Browse All Blog Topics

NASFAA Questions Student Lender Auctions

Oct 26, 2007

by Scholarships.com Staff

A recent evaluation released by NASFAA, an organization representing the interests of financial aid professionals, brings into question the effectiveness of a new student lender auction system. The recently-passed College Cost Reduction and Access Act created, among other things, a new auction system wherein student lenders would bid on exclusive market rights in each state. While the law concentrated on cuts in student lender subsidies and increases in free student grants, the auction system aimed at lowering taxpayer burdens was also enacted.

When the system goes into effect in 2009, lenders interested in participating in the government's subsidized FFEL Plan would have to compete for the lowest subsidies. Those who won the bid would get exclusive state lender rights. Only lenders who would choose to take part in the government’s FFEL program would be effected, and only rights to PLUS loans would be auctioned.

However, the NASFAA report questions whether an auction would really be as effective as it initially seems.The statement suggested that the auction program was based on the rash assumption that lenders who bid for loan rights would be willing to greatly lower subsidy expectations, and that taxpayers would really benefit from lower subsidies. This assumption, based on the report, may prove to be faulty. State competition could be lower than expected, and some states could problematically benefit more than others. After a few years, the competition is likely to decrease altogether, and lenders may simply choose to opt out of the program.

Doubt was also cast upon the assumption that student borrowers would not be affected by the auction system. Based on the report, it is more likely that lenders will get rid of certain student benefits once they have exclusive rights to a state. Borrower services that could be affected include default prevention, financial literacy and electronic processing. The report disputes the claim that very few students are eligible for benefits. Instead, it suggests that most students qualify for at least some helpful services or benefits.

How an auction would in effect change the financial aid system and affect taxpayers remains to be seen. However, a "Bill Gates is about to take over the world" scenario is unlikely. First of all, a total overhaul is not going to occur; PLUS loans will be used to test out the system. Based on the results, a general idea of what could happen in such situations should be obtained. Secondly, the auction would repeat after two years, and it’s unlikely that lenders will get comfy enough to cause a ruckus. Because two lenders will be chosen per state, some competition is likely to keep them in line. Let us also remember that PLUS loans are not the only loans on the planet. If FFEL PLUS loans become too pricy, students could look to competing loans and lenders. FFEL program winners will still have a reputation to upkeep.

Ultimately, the government has the last word on this one. We'll see if that’s a good thing.

Going to college doesn't have to break the bank or saddle you with tens of thousands of dollars in student loan debt. Check out the Scholarships.com free college scholarship search where you’ll discover you qualify for hundreds of thousands of dollars in scholarships in just a few minutes, then apply and win! It’s that easy!

Discuss

Share your thoughts and perhaps thousands of students will benefit from your unique insight on the subject!



If you can read this, don't touch the following fields


 

Most Shared Articles

Prospective Rhode Island college students may score two years of free college with Governor Gina M. Raimondo's $30 million plan, Rhode Island's Promise. Beginning with the class of 2017, the plan would foot full tuition bills and mandatory fees, according to Inside Higher Ed.

In an effort to "knock down the financial barriers to obtaining a college degree," Gov. Raimondo's proposed [...]

0 months ago 0 comments Read More

College is supposed to be the best four years of your life. Or as one sociology professor claims: "a big four-year orgy." Was college always this fun? History may indicate otherwise, and Lisa Wade highlights a "demographic shift" 300 years ago that changed the college campus landscape and made colleges bastions of sex, booze, and entitlement.

U.S. colleges during the colonial era [...]

0 months ago 2 comments Read More

While you can always increase your chances at landing a scholarship - increasing your community service and extracurricular involvement, having good grades and writing strong essays - winning one isn't always guaranteed...or can it be? According to TIME Money, one way to secure a scholarship is to apply to, and attend a college that guarantees its incoming class free college money. Here [...]

0 months ago 5 comments Read More

A burglar who targeted college apartments in Cobb County is now in jail after Kayla Mesar, a freshman university wrestler threatened and scared him off campus property.

The identified suspect, Amir Williams had allegedly broken into several other college apartments near Life University before entering Mesar's unit through a back unit where her mother had stood. Mesar, who was around [...]

0 months ago 2 comments Read More

In hopes of boosting the local economy, Tennessee state education officials spent roughly $1 million this past year in advertising enticing college dropouts to finish what they started.

The state's partnership with Tennessee Reconnect is just one of several comeback programs established to combat the "nearly 37 million working adolescents nationwide [that] have some college credits [...]

1 months ago 1 comments Read More

College can be expensive, and while some may rely on scholarships, grants, loans or their parents to foot the bill, one Jacksonville woman got creative and sold her urine and positive pregnancy tests on Craigslist for a little extra cash.

Why would anyone ever purchase positive pregnancy tests or urine? The three-months pregnant woman, who chose to remain anonymous, didn't really [...]

1 months ago 4 comments Read More

Teenagers aren't using drugs, alcohol, and tobacco as much as they used to, according to a new national study. Substance use rates have declined significantly and are at their lowest since the 1990s. Despite this trend, researchers caution that there is still high use of marijuana for a certain age group.

The Monitoring the Future study, conducted by U-M's Institute for Social [...]

1 months ago 7 comments Read More

Rather than basically give you 23 birds for the first 7 of the 12 days of Christmas, we've compiled a holiday list of scholarships yule adore...with a head start too! Check out these scholarships that'll last a few days after you enjoy the holidays:

NATA Business Scholarship

[...]

1 months ago 3 comments Read More

The mantle of "College President" is one that includes a lot of responsibility and scrutiny, but for some in the higher ranks, the lucrative pay makes it worth it. According to data released by The Chronicle of Higher Education, some private-college presidents have made over $5.4 million in a single year.

The average annual salary for full-time college/university presidents in 2014 [...]

1 months ago 2 comments Read More