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Department of Education Names New Student Loan Servicers

Jun 18, 2009

by Scholarships.com Staff

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.

And remember, there’s no need to rely on expensive student loan options to pay for your college education. For more information on finding free scholarship money for college, conduct a Scholarships.com free college scholarship search today, then apply and win! It’s that easy!

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Congress Holds Hearing on Lender Subsidies

May 22, 2009

by Scholarships.com Staff

Yesterday, Congress held a hearing to begin the process of determining the fate of the Federal Family Education Loan Program, the bank-based federal student loan program that President Obama has proposed eliminating in the 2010 federal budget. Voices from both sides of the debate chimed in, with one clear theme emerging: in 2010, student loans are definitely going to change. The questions at this point are to what extent federal student lending will change and whether the banks currently involved in FFEL will still have a place in the new system.

The Obama administration proposes switching all federal Stafford and PLUS loans to the federal Direct Loans program, then using the savings from eliminating lender subsidies to increase Federal Pell Grants and make funding mandatory, while also greatly expanding the federal Perkins Loan program and spending more on college completion. Opponents of this plan, primarily consisting of FFEL lenders and representatives of schools that participate in FFEL, have suggested alternatives that would restructure student lending, but still leave a place for lenders to service the loans. Not one witness at the hearing advocated keeping the system as it is, though, and it seems that a shakeup in student lending is inevitable. Hopefully, this will result in more available financial aid for students.  Inside Higher Ed has more information on the hearing.

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!

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Students Encouraged to Write to Congress about Student Loans

May 6, 2009

by Scholarships.com Staff

A little over a week after announcing his plans to gear up for battle with student lenders over the future of the Federal Family Education Loan Program, President Obama has begun calling in the troops.  An e-mail message sent to young Obama supporters by the Democratic National Committee is urging students to speak up in favor of the President's proposal to switch all federal lending to the Direct Loans program and to use the savings to expand Federal Pell Grants.

Students have been asked to call, write, or e-mail their Representatives and Senators to let them know what they think of the proposal to eliminate FFELP for Stafford Loans and PLUS Loans.  The text of the e-mail, as reported by The Chronicle of Higher Education, urges students to stand against "special interests" and to help "fix a broken system."  Rhetoric on the other side has focused primarily on preserving jobs and preserving choice (technically, the choice is primarily left to schools, not students, as students aren't able to choose freely between DL and FFELP until they graduate and consider consolidation loans).

Regardless of whether you favor or oppose this plan, now is a good time to let your people in Congress know how you feel, since changes in federal student financial aid are likely to affect you directly.  So, what do you think?  What changes, if any, should Congress make to student loans? Do you plan on writing to Congress about this issue?

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!

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Student Loan Debate Heats Up

Apr 28, 2009

by Scholarships.com Staff

As Congress moves forward with a federal budget plan for 2010, rhetoric is ramping up on both sides of what is proving to be one of the most contentious budget debates so far:  whether or not to eliminate the Federal Family Education Loan Program.  President Obama initially proposed this move in his budget outline, saying that a move to Direct Loans would result in a savings of $48 billion, money that could be put towards expanding the Federal Pell Grant program.

After the Congressional Budget Office revised the estimated savings to $94 billion over 10 years, many members of Congress and several higher education professional organizations have been offering up tentative support for the plan.  Democrats on the joint budget committee have even begun paving the way for this portion of the budget to be eligible for reconciliation, a filibuster-proof process that will allow portions of the budget to pass with a simple majority vote in the Senate.

However, lenders and other groups have begun suggesting and campaigning for alternatives that would allow the bank-based student loan program to continue to exist while still cutting costs to some extent.  Concerns have been raised that Direct Loans will not be as efficient or as kind to borrowers in the long run, though the credit crisis has made the program especially appealing as FFELP has required repeated government interventions to avoid grinding completely to a halt.  With many schools voluntarily making the switch to direct lending based on the program's current stability, concerns have also been raised about a rapid expansion in Direct Loans overwhelming the program as it currently stands.  Others worry that eliminating FFELP may speed lenders' exodus from private loans, ultimately leaving many students in a worse place financially than they find themselves in now.

What's emerging is a war of words between banks and the President.  In a speech on Friday, Obama characterized lenders as, "gearing up for battle," to which he responded, "So am I. . . And for those who care about America's future, this is a battle we can't afford to lose."  Considering the President's popularity and lenders' tarnished reputations from crisis after scandal after crisis over the last two years, we may see big changes happening soon in student loans.

And don't forget, you should pay for your college education with as much free money as possible! Find as many scholarships and grants as you can before turning to student loans. Visit the Scholarships.com free college scholarship search today where you'll get matched with countless scholarships and grants for which you qualify, then apply and win! It’s that easy!

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Student Loan Default Rate Rose in 2008

Mar 27, 2009

by Scholarships.com Staff

Student loan default rates increased in 2008, according to a preliminary report released by the Department of Education.  The numbers, which still aren't finalized, indicate an increase from 5.2 percent last year to 6.9 percent this year in the two-year default rate on federal student loans. The increase in default rates is likely due to continued economic difficulties facing new graduates.

The report also shows a difference in default rates between the Federal Family Educational Loan Program and the Federal Direct Loans Program, though FFELP advocates are arguing that the differences are largely due to different makeups of the schools participating in each program (For example, students at for-profit schools are more likely to default, and are also more likely to participate in FFELP).  However, even among similar groups, FFELP still had a slightly higher default rate.

Typically, reports on default rates are released around September and don't compare FFELP and Direct Loans, but Congress had requested data earlier to aid with the federal budget decision-making process.  This is only the latest bit of bad news for FFELP, which President Obama urged Congress to eliminate in the 2010 federal budget.  The Congressional Budget Office has said that eliminating FFELP could save more money--$94 billion, double the previous estimate.  Additionally, a report by two interest groups states that the proposed increases in Pell Grants, some of whose funding is tied to cutting FFELP, would increase the average grant award by $121 and would make 260,000 more students eligible for the program.

If you're a college student looking to minimize student loan debt and reduce your risk of default, it's still not too late to start your scholarship search and find free money you won't need to pay back.

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!

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Direct Lending Continues to Gain Popularity

Mar 10, 2009

by Scholarships.com Staff

According to US Department of Education data, over the last year colleges and universities have continued to leave the Federal Family Education Loan Program in droves, switching to the federally run Direct Loans Program.  Between February 2008 and February 2009, the number of schools issuing federal Direct Loans increased from 1,072 to 1,620, an increase of nearly 34 percent.

Direct Loans and FFEL are two competing programs schools choose between for the two most common varieties of federally funded student loans.  Both Stafford Loans and PLUS Loans can be issued and consolidated through either program (Perkins Loans are issued through separate loan programs).  Previously, FFEL was more popular, due in part to generous government subsidies that allowed participating banks to offer breaks on origination fees and loan repayment, as well as comprehensive programs to prevent borrowers from defaulting.

However, subsidy cuts and the collapse of credit markets in 2008 both took their toll on FFEL, as well as private loans, which are often issued by the same banks that participate in FFEL.  Many lenders left the program, and those still participating in FFEL could no longer afford to offer incentives to borrowers, and when the government stepped in to keep the system afloat last year, part of the deal involved taking other incentives and inducements (primarily ones involved in the conflict of interest scandals of 2007) off the table.  This ongoing string of troubles prompted more college financial aid offices to decide to make the switch to Direct Loans for Stafford and PLUS.

Direct lending has also received an endorsement from the executive branch of the federal government.  President Obama has called for an end to the lender subsidies that comprise the FFEL program, and urged Congress to consolidate funding into one federal student loan program: Direct Loans.

And remember, there’s no need to rely on expensive student loan options to pay for your college education. For more information on finding free scholarship money for college, conduct a Scholarships.com free college scholarship search today, then apply and win! It’s that easy!

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