All industry participants' livelihood is in jeopardy with the current leadership in Congress and the White House. It is difficult to explain in a few sentences all of what the individuals in FFELP do beyond the servicing of student loans. I'll just mention a few here:
Our company delivers hundreds of financial aid nights across the Texas Panhandle to small and large high schools. We offer bilingual sessions (mostly for the parents of the high schools students) and inform students of all their financial aid options.
We also provide a comprehensive one stop shop where students can apply for a FFELP loan. The recent inability of lenders to obtain financing to make loans is causing some less than desirable effects. On the other hand, no student has been unable to obtain a FFELP loan. That's a tribute to the work we do to help students achieve their dreams.
Financial literacy is provided by the guarantors and other nonprofits throughout the nation. Default prevention is a goal of anyone who is involved with the loan. With reduced guarantee payments on the loan, the lender bears the difference between claim payment and actual loaned amount. This can be substantial.
Congress changed the rules effective 10-1-2007 that adversely affected the student loan industry. The collapse of the credit market added to the stress. It's a wonder any lender makes a FFELP loan these days since the lender probably incurs a loss (depending on the lender's cost of funds) with each loan it makes.
Would you pay a fee of 1% for the privilege of making a loan and accept less than a 100% guarantee from the Federal government should the loan default? I doubt it, but that's what lenders have to do.
The President's Budget pushes for a move to the competing government program, the Direct Loan Program, for all new loans made after 7-1-2010. The current programs put in place to address the credit market meltdown are essentially funding FFELP loans through the Department of Education. I don't agree with this model, but it is the reality today.
So, for now, we keep fighting for FFELP. We haven't learned whether this is a losing battle or not. I will keep you posted.
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