Middle-income American families will pay more for college if lawmakers cut federal subsidies to lenders, limiting children’s chances for education, student-loan companies said last week.
The industry doesn’t need a major overhaul as outlined in legislation being considered by Congress, according to America’s Student Loan Providers, an 89-member trade group of lenders. A separate proposal, the Student Loan Sunshine Act, would correct ethical lapses in the industry, said members of the group.
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Last month, a Senate panel voted to cut federal subsidies to student-loan providers – including SLM Corp., known as Sallie Mae; Citigroup Inc.; and Bank of America Corp. – by $18.3 billion. The savings would be used to increase aid for low- and moderate-income students.
“The legislation that has been proposed is negative to three areas: choice, customer service, and certainty,” said James Doyle, executive director of College Parents of America, an association of parents, schools and lenders.
The Senate plan is similar to legislation a House panel backed late last month that would increase grant funding and cut subsidies by $19 billion. Congress, led by a Democratic majority since January, is considering spending and ethics legislation as committees examine the increasing cost of a college education and probe marketing practices in the $85 billion-a-year student- loan industry.
The Senate panel, led by Massachusetts Democrat Edward Kennedy, also voted unanimously to adopt ethics and disclosure legislation designed to make the lending system less susceptible to conflicts of interest.
“There were some boneheaded mistakes; there were some criminal mistakes,” said Joe Belew, the president of the Consumer Bankers Association. “Those should not be taken to represent the entire industry.”
Student-loan companies would leave the business and those that stay in it would have to reduce discounts or services, said Kevin Bruns, executive director of America’s Student Loan Providers.
“If these cuts go into place in the most severe form, every student attending school in Missouri will suffer through higher borrowing costs,” said William Shaffner, an associate director of the Missouri Higher Education Loan Authority. “It will raise the cost of education because our benefits are going to be erased.”
