The U.S. House of Representatives voted 253-171 Sept. 17 in favor of legislation that would overhaul the way federal student loans are administered.
The Student Aid and Fiscal Responsibility Act (SAFRA) would end the Federal Family Education Loan Program (FFELP), a system of federally subsidized, privately administered loans that has been around since 1965, in favor of the younger Direct Loan Program (DLP), in which the federal government both pays for and administers student loans.
According to Campus Progress, a non-profit student advocacy organization, SAFRA will save $87 billion in 10 years, expand Pell grants, keep interest rates in check and provide billions for state programs aimed at improving access to education and completion rates. Campus Progress Spokesperson Pedro de la Torre III called the FFELP process of using private banks to administer federal loans "wasteful."
"The difference is cutting out the unnecessary middle man, and reinvesting the money in expanding educational access," de la Torre said.
According to Charles Knepfle, Miami University director of student financial assistance, Miami students will see no change in how their loans are administered. Knepfle said Miami abandoned the FFELP in favor of the DLP 14 years ago.
"We have not been using private institutions for 14 years ... the House bill is mandating that schools choose how we chose 14 years ago," Knepfle said.
Currently, only about one-third of universities use the DLP as the sole means of providing federal student loans.
Knepfle said it is not profitable for private lenders to administer student loans in the current economic climate, which has led to problems for students at institutions that use the FFELP.
"I've talked with financial aid directors at other schools that use banks for their federal loans and there are some issues," Knepfle said. "A lot of banks have left the lending industry and left students hanging, and a whole lot of lenders sell the loans … sometimes (students) get out of school and their loan is with a different lender with different repayment incentives."
Rep. Steve Driehaus (D-Ohio) said SAFRA will improve the affordability of college for many Americans.
"When I was a student at Miami, college was becoming more and more affordable. I think we are moving in the opposite direction today," Driehaus said. "I think college is becoming less affordable for many Americans … in expanding Pell grants and increasing affordability of loans, we are making dramatic improvements."
Before the passage of SAFRA, Rep. John Kline (R-Minn.), the ranking Republican on the Education and Labor Committee, said in debate that SAFRA would harm students and the student loan industry.
"By eliminating the FFELP program, we will lose the choice, the competition and innovation of the private sector … we will also lose jobs - an estimated 30,000 or more in congressional districts from coast to coast," Kline said.
Knepfle explained why the decision to eliminate FFELP has been difficult for many lawmakers.
"Many republicans and democrats have a strong lending lobby in their districts, many have lenders in their districts who employ a lot of people," Knepfle said. "This legislation takes federal lending away from private lenders. Those lenders have employees who vote. Those lenders also contribute to campaigns."
Knepfle said the cost savings and increase in loan and grant availability makes the bill very attractive in spite of any ill effects.
"This bill creates $87 billion in other grant programs, and that is very hard to argue with," Knepfle said.
Driehaus said the welfare of students should take precedent over the desires of the private sector.
"I was lobbied by some folds in the private student loan industry," Driehaus said. "My focus is on what's best for students, not what's best for the people behind the loans."
Driehaus said universities should work to keep tuition down and also play a role in helping to re-educate dislocated workers.
"We need to pay particular attention to people who lose their jobs and need a new set of skills," Driehaus said. "A certain amount of funding should go to those individuals to help prepare them for a 21st century economy."
SAFRA is now being discussed by the Senate.
Knepfle said the debate will be more contentious and the outcome of the vote will be much closer in the Senate than it was in the House.
"Many senators are already on record against it … it'll be tight," Knepfle said.
