Federal student loan plan could hurt NH agency but would free up money

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Friday, March 5, 2010
Federal student loan plan could hurt NH agency but would free up money
By MICHAEL BRINDLEY
Staff Writer


A federal proposal to transform how student loans are distributed would mean more financial aid for many of the state’s low-income families, but may also jeopardize the future of the state’s biggest lender.
The Student Aid and Fiscal Responsibility Act would completely federalize student loans, taking the “middle man” out of the process, as President Barack Obama and other federal officials have described their plan.
“We need to educate our way to a better economy – and we can’t do that by padding bank profits and executive salaries,” U.S. Education Secretary Arne Duncan wrote in an op-ed to The Telegraph. “It’s time to cut out the middlemen on Wall Street and support the students on Main Street.”
Obama has said this proposed reform would play a significant role in his goal of the United States having the largest proportion of college graduates by 2020. The U.S. House of Representatives passed the bill in September and it is now in the Senate.
It’s estimated that $87 billion would be saved over the next 10 years, money that would be put back into several areas, including increasing funding for Pell Grants, which provide financial aid for students from low-income families.
But the New Hampshire Higher Education Assistance Foundation, the state’s primary lender for student loans, believes it will also result in the elimination of Federal Family Education Loan Programs like itself and many others around the country.
“It would put us out of business,” said Tara Payne, a spokeswoman for the Concord-based nonprofit organization, which employs about 200.
Payne said NHHEAF provides resources the federal government will simply not be able to replace. Representatives from the organization have spent the past two months working with New Hampshire families for no charge, helping them fill out their Free Application for Federal Student Aid forms, she said.
The organization also holds regular workshops at high schools across the state, educating students and their families on the college application process and how to get financial aid, she said.
“There is no way the Department of Education is going to come into New Hampshire and duplicate that,” Payne said. “That’s where we’re particularly concerned.”
Last year, NHHEAF reported that its default rate was 3.1 percent, compared to 6.7 percent nationwide. Payne said her organization is able to keep defaults to a minimum by personalizing the process with borrowers and working with them to manage their loan payments.
In his op-ed to The Telegraph, scheduled to run Sunday, Duncan said the House bill increases Pell Grant scholarships to $5,710 in the next fiscal year, which is almost $1,500 more than when President Obama took office.
New Hampshire would receive an additional $35.9 million in federal Pell Grant funding, which would ensure 5,733 more students in the state get access to higher education, Duncan wrote.
The $87 billion in savings over the next 10 years “will be made possible by eliminating our current set of student loan subsidies, where borrowers and taxpayers are chained to corporate profits,” Duncan wrote.
But Payne said the savings comes from the income the government will make from having a low cost of funds – 1 percent to 2 percent – and being able to get payments at 5.6 percent to 7.8 percent on loans to families.
Payne said the legislation doesn’t address critical issues like interest rates on unsubsidized loans or the cause of rising tuition.
NHHEAF operates as a private nonprofit, raising the funds it needs to distribute student loans with a guarantee on behalf of the federal government that students won’t default.
If students do default, the federal government provides NHHEAF the funding to pay the loans, Payne said.
Higher education officials in New Hampshire are following the reform plan in Washington D.C. closely, given the significant change it will have on the borrowing process.
Lucille Jordan, president of Nashua Community College, said the reform plan is a mixed bag. While it means more students will likely have access to college because of more Pell Grants, Jordan said the services NHHEAF provides are valuable.
“It is better for students on the finance side, but on the service side, there will be a signficant impact,” Jordan said.
Jordan believes that the loss of NHHEAF will result in a higher default rate among New Hampshire student loan borrowers.
“My hope is that there would be some dollars set aside so organizations like NHHEAF can still provide some of those services,” she said.
Thomas Horgan, president of the New Hampshire College & University Council, said the reform proposal is sweeping, in that it mandates that all colleges and universities go through a direct lending process. The plan would shift all student loans into the Direct Loan program, which is government run.
Something that may become an issue is the capacity of the United States Department of Education to take on the student loan industry and make sure all of the loans are dispersed.
“It’s a complete federal takeover of the student loan market,” Horgan said. “It might be a challenge for them, especially in this first year.”
Horgan, who serves on NHHEAF boards, said he has been in touch with New Hampshire’s senators in Washington, D.C., who said they are working to ensure that there is still a place for NHHEAF.
While it wouldn’t be providing loans, Horgan said he would still like for the organization to be able to keep providing services for college planning.
“Hopefully Congress will recognize that it’s important for organizations like NHHEAF to have a role,” he said. “They are an important point of access for information.”
Jordan said one of the areas she would like to see in any student loan reform plan is requiring college applicants to fill out the FAFSA.
“Often students don’t realize what they’re eligible for and what they can get,” she said.
Michael Brindley can be reached at 594-6426 or mbrindley@nashuatelegraph.com.