Is That All She Wrote for Private Student Loan Lenders?

Nov 2nd, 2009 @ 6:13 AM by Debbie Dragon

The Student Aid and Fiscal Responsibility Act, currently moving through Congress, would stop the FFELP (Federal Family Education Loan Program). The FFELP has allowed third party (private) lenders to issue student loans which are backed by the government. In 1992, the Federal Direct Student Loan Program began, which allowed parents and students to borrow directly from the U.S. Department of Education without a FFELP lender or involvement from a bank. If the Student Aid and Fiscal Responsibility Act is passed by Senate vote, critics of the act argue that it will put most private student loan lenders out of business as the law would require all colleges to convert to the federal Direct Loan Program by July 1st.

The largest Wyoming nonprofit student loan lender, WyoLoan, has already announced that as of April 1st, 2010 it will no longer issue new student or parent education loans. Previously approved loans scheduled for disbursement by March 31, 2010 will still be funded. WyoLoan’s decision is in response to the Student Aid and Fiscal Responsibility Act already approved by the House of Representatives on September 17th, but states that if it fails to pass the vote in Senate they will consider resuming funding of their student loan program.

Supporters of the SAFRA, including President Obama, believe that the Federal Family Education Loan Program subsidies are keeping government money away from students and funneling it into banks. By eliminating the subsidies given to third party lenders issuing private student loans, supports of the FFELP estimate $87 billion in savings to taxpayers over a period of 10 years. Nonsupporters of the act feel it takes away the rights of students to choose their own lenders, and that the act allows government takeover of student loans.