Colorado school loans to get bypass A new system will have no middlemen such as the state CollegeInvest.

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Colorado school loans to get bypass
A new system will have no middlemen such as the state CollegeInvest.
By Christopher N. Osher
The Denver Post
POSTED: 06/25/2009 01:00:00 AM MDT
UPDATED: 06/25/2009 06:17:11 AM MDT

An expected shift in federal law means the financial-aid arm of the Colorado Department of Higher Education likely will have to get out of the business of issuing student loans.

CollegeInvest, the state's largest student-loan provider, is preparing, reluctantly, to hand that role over to the federal government.

The Obama administration has decided the Federal Family Education Loan Program is inefficient and is proposing a new system.

Under the current system, the federal government guarantees student loans issued by private and nonprofit lenders such as CollegeInvest.

Tax attorney Sima J. Gandhi, writing in the San Jose Mercury News, said the current program delivers subsidies to private lenders, who are then guaranteed a consistent profit with little risk. The Obama plan, she said, would grant money directly to students.

In March, the White House said its plan "will end wasteful subsidies to banks under the Federal Family Education Loan (FFEL) program, and redirect billions in savings toward student aid."

The Congressional Budget Office estimates the administration's plan could save $87 billion.

The shift is contained in the administration's 2010 budget plan, which must still be passed by Congress.

But stopping the Obama administration's push is unlikely, said Lynn Tindall, CollegeInvest's chief operating officer, during a briefing with members of the Denver City Council on Tuesday.

Besides issuing bonds that it sells to investors to fund student loans, CollegeInvest also provides scholarships and oversees the state's 529 College Savings Plans. Those savings plans will not be affected by the expected transition.

A year and a half ago, troubled credit markets made it difficult for CollegeInvest to finance loans, said Colorado State Treasurer Cary Kennedy. She said the federal government then agreed to issue loans to such loan providers, making it possible for CollegeInvest to continue making loans.

Kennedy said the projected shift will not affect students other than changing which entity processes their loans.

Christopher N. Osher: 303-954-1747 or cosher@denverpost.com