Lenders lobby against bill, want focus on Pell Grants

By Marc Larocque

Student loan lenders like Sallie Mae, are lobbying against the bill passed by the house last week that decreases student loan interest and would rather see increased funding for Pell Grants.

“We don’t oppose the lower interest rate,” said Tom Joyce, Sallie Mae spokesman, in a statement to the News. “But we do oppose these further cuts to the guaranteed student loan program these lenders participate in. Instead of investing in education, they’re robbing Peter to pay Paul, and it will have consequences.”

The bill would reduce by two cents the amount the government pays lenders for each dollar not paid back by student borrowers; cut seven percent of the money lender agencies can recover from default cases and double the 0.5 percent fee that lenders pay the government when consolidating a loan.

A representative for private lenders and banks that would be affected by the bill said the cuts will end up hurting students as well as these private lenders.

“This will put pressure on private lenders to cut back on some of the services they offer that schools love so much,” said Kevin Bruns, executive director of America’s Student Loan Providers. “Each lender will decide differently how they will react. Some lenders will just get out of the program.”

Students should realize they are better off without the proposal, he said, and using private lenders gives them lower fees and interest rates.

“The richer the Pell Grant program aid is, the more students go to school, and we’re all better off with more students in school,” Bruns said. “So we have long supported the increased generosity of the Pell Grant program.”

Bruns also noted problems with the assumption Congress will extend the 3.4 percent rate after 2011.

“Note that the 2011/12 rate changes run from July 1, 2011 to Jan. 1, 2012, a total of six months. It is unclear whether this is a legislative drafting error or an intentional limitation,” Bruns said.

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