State could be hurt by student loan bill

Posted: Monday, October 05, 2009

The U.S. House recently approved a big money-saving move in the federal student loan program. The federal government will stop guaranteeing loans financed by private lenders and replace them with less costly student loans financed directly with Treasury funds. By cutting out the middleman, the federal government expects to save somewhere around $80 billion over 10 years. The savings come from what private lenders would have collected as profits on the loans, which carry virtually no risk thanks to the government guarantee. Making those low-risk, government-backed student loans proved highly profitable, and it mushroomed into a multibillion-dollar business.

In the House bill, some of the $80 billion savings will be used to give low-income students more and bigger grants for college expenses. Community colleges will see an increase in federal aid, as well. Some students - those who take low-paying jobs or go into public service - will be able to skip repaying portions of their federal student loans.

Private student loan companies won't be run out of the business altogether by the House bill. They can still get contracts to service the loans for the government and they remain free to compete for loan business by beating the deal the government is offering students.

Alaska's Rep. Don Young voted against the reforms.

From a national perspective, the federal changes are all to the good. They put more federal aid in the hands of those who need it - students - and less in the hands of the moneylenders.

In Alaska, though, the changes will put a crimp in low-cost loans offered by the state's student loan agency.

The Alaska Commission on Post-Secondary Education handles the vast majority of student loans for Alaska students. The commission is a nonprofit operation. It uses federal student loan subsidies to help cut interest rates on its loans and offer students advice on financing college.

Losing federally insured loans means the commission will have less money for those purposes, says Commission Director Diane Barrans.

Barrans told the Daily News she's not optimistic the U.S. Senate will make any major changes to the bill that help Alaska's student loan situation. We're a tiny piece of the national student loan puzzle, and any special provisions for Alaska would create a morass of complexity in the reformed program. So it appears likely the pending federal reforms will shrink the money available to help Alaska students.

"Hopefully it will not be a disaster but it's not what we consider an improving change (for Alaska borrowers)," Barrans said. "The goal is to mitigate the impact for Alaskans."

If federal reforms pass, the student loan deals available to Alaska students won't be as good as they used to be. It looks as though Alaska will suffer collateral damage inflicted by otherwise useful cost-saving moves in the federal student loan program.

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