Higher Ed Watch writes today about one of the arguments private lenders are using in support of the FFEL program, and against Obama’s proposal to provide all loans through the federal government’s Direct Loan program: that the profits the government will make on loans to primarily middle class students will be used to subsidize increased Pell Grants to lower-income students. This is, they argue, a tax on the middle class to help poor students attend college. As Higher Ed Watch explains, that argument twists the truth about where the money for increases in Pell Grants is coming from.
But, what is even more disturbing, is that lenders are using that argument in the first place, rather than having a real discussion about how students might benefit from keeping private providers in the federal loan system. It’s a sign of how far this conversation has gotten from students’ experiences and what policies are most likely to benefit them, as borrowers.
I just returned from a conference held for financial aid officers by Texas Guaranteed, one of the 35 guarantee agencies in the country. The conversation at the conference was not generally about FFEL vs. Direct Lending (although there was certainly some of that). Among the financial aid officers it was, refreshingly, about what makes it easier for students to both get and repay student loans, and also what makes it easier for schools to do their job in getting financial aid to students.
From those conversations, a few key qualities emerged which any new loan program, whether it is FFEL, Direct Lending or some ‘third way ‘ approach should have, including clarity on where students can get loans and who they need to repay, good communication between lenders and schools and lenders and students, and strong default prevention activities, which includes letting schools know when their students are behind on loan payments and supporting schools in providing good loan counseling and financial literacy instruction during school.
These are all areas where lenders and guarantee agencies can contribute to conversations about their role in a new loan system and how that system can best support students. Texas Guaranteed, for example, provides some great (free) resources to schools, including technology that allows them to track loan repayment, financial literacy presentations and course materials, and default prevention consultants that can work individually with schools to improve their default rates. But I haven’t heard about how those resources will be kept, replicated, or improved under a new system. Instead, we get to hear the usual rhetoric pitting one group of students against another group of students in a debate that should be leading to a better financial aid system for all groups of students.