Congress killed the guaranteed student-loan program in March, but banks buried it today. Yesterday was the final day that banks and other lenders could issue federally guaranteed student loans. From now on, the federal government will make all federal loans directly to students through their colleges.
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6 Responses to Bank-Based Student Lending Is Laid to Rest
drangie - July 1, 2010 at 4:35 pm
This can only be an improvement. I never understood why private lenders should be middlemen between federal dollars and students. They added no value to the process (in spite of claims to the contrary), and simply took a cut.
22037432 - July 1, 2010 at 4:57 pm
drangie, you are blind. I don’t care for banks, but this will soon be a disaster. When there is no one else to give out the funds than the federal government, it will fail. Wait until the first time a friend of yours is denied a loan because of an outstanding IRS lien or wage dispute, and then people will scream for an alternative. Just watch….
11132507 - July 1, 2010 at 6:34 pm
OK, 22037432, so all federal government financial programs automatically fail. What private sector has kept Pell Grants going all this time? This is not a new loan program, student have been receiving Federal Direct Student Loans since 1993. Please show your statutory or regulatory citation indicating that these loans can be denied on the basis of an IRS lien or a wage dispute. Where are you getting this from?
lurquita - July 2, 2010 at 9:13 am
When I was an undergraduate, the loans came directly from the government. Nobody I knew (myself included) ever had trouble getting his or her loan. I was also a Pell recipient. Never a problem. I agree with drangie. The private middleman was just there to get the cut. They weren’t there for the students. They were there for make government-guaranteed loans and take their nice juicy slice o’ the pie. Anyone says otherwise, they’re dreaming.
jetfuel - July 2, 2010 at 9:26 am
I am all for the change, so long as the government’s overhead costs are cheaper than the “cut” the private lenders were taking.
evansrwe - July 2, 2010 at 10:23 am
What critics of FFEL seem to forget, or choose to ingore, is that the federal government came to the private sector for help, created all of the incentives everyone has been complaining about, AND created Sallie Mae, which subsequently became the primary scapegoat of those who wanted to move to a centralized federal system. The banks did not seek this business, they were incented to participate in order to leverage the federal dollars needed for student lending. The FFEL program was not perfect, nor will the Direct Loan Program be without its problems, but millions of students got the money necessary to attend postsecondary education, many of whom would have not otherwise had that opportunity. Except for thos of us in the business, you seldom hear about the successes, only about the failures, and believe me, there are a lot of the former and relatively few of the latter. When the pendulum of concern about the national debt swings back, and it will, the Congress will start looking for ways to cut back on student loan expenditures that are entirely “on-budget” and Direct Lending will not look so enticing as it may now appear. But we will adapt and find another solution as need be. A forty + year observer and participant in federal student loans.