Lenders and schools in Colorado are fighting to save a program that once accounted for more than 80 percent of federal student loans in the state.
The Obama administration has put the Federal Family Education Loan Program on the chopping block in the upcoming federal budget.
Eliminating the program, which guarantees student loans that banks, Sallie Mae and state-affiliated student lending arms such as CollegeInvest provided, could save taxpayers $94 billion over 10 years in lower costs and higher interest income, according to estimates from the Congressional Budget Office.
If approved, elimination of the program wouldn’t take effect until the 2010-11 academic year.
The government recently has taken on a larger share of the student-loan market after higher capital costs and lower government incentives pushed many FFELP lenders to stop or reduce student lending.
But eliminating FFELP would leave students with fewer borrowing options, reduce the customer service they receive and potentially contribute to higher defaults, backers of the current program argue.
“You are adding another $1 trillion to the national debt and basically nationalizing the student-loan business when you have a viable private financing mechanism,” said Debbie Demuth, director of CollegeInvest, the state’s largest student-loan provider.
The government estimates assume its cheap borrowing costs would continue, but that could change if rising deficits cause interest rates to rise, Demuth said.
When credit markets were working, College Invest’s interest rate on loans beat the government’s Direct Loan program, and it waived more fees and even funded $200,000 in scholarships, she said.
Another concern is whether the U.S. Department of Education can duplicate the local outreach that lenders provide, especially in rural states, said Woody Farber, president of New Mexico Student Loan Guarantee Corp.
“Competition provided by both programs makes each one better,” said Jeff Nordhoek, president of Nelnet, a large provider of student loans.
CollegeInvest hosted 573 financial-aid seminars in Colorado last year and distributed 76,451 information packets using a staff of six. Its website had 1.25 million hits. In Colorado, 88 percent of schools use FFELP, but the University of Colorado at Boulder and Colorado State University do not. A few states, including Alaska, Montana and North Dakota, depend entirely on FFELP.
In the 2007-08 school year, before the credit crunch worsened, FFELP lenders made $1.29 billion in student loans, while the government made $269 million.
Even if CollegeInvest stops making student loans, the state’s 529 college savings plans are separate and won’t be affected, Demuth said.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
