Content area
Full Text
The agencies that guarantee federal student loans are in a bind and looking to borrowers to bail them out.
Lobbyists for the country's 36 guarantors are considering whether to ask Congress to require students to pay the agencies a fee to get their loans. Under federal law, guarantors are already allowed to charge students the fee, which is equal to 1 percent of the amount they have borrowed. But few of the agencies have done so in recent years, for fear of losing business to competitors that don't charge the fee.
By choosing not to collect the fee, the guarantors have depleted the financial resources they need to perform their primary task: reimbursing lenders for loans that go into default. As a result, some agencies, particularly small ones with modest cash reserves, like those in Arkansas and New Mexico, are struggling to survive.
If the government does not step in and require that the fee be charged, guarantors say, some of the agencies could be forced to shut down, disrupting a program that millions of students depend on.
"We're looking at this from the perspective of what do we need to do to insure the stability and solvency of the entire guaranteed- loan program," says Brett E. Lief, president of the National Council of Higher Education Loan Programs, which lobbies on behalf of the agencies.
Advocates for students are outraged that guarantors would consider requiring students to pay more because the agencies have backed themselves into a corner.
"Tuition hikes and frozen student-aid funding are already creating enormous hurdles for students seeking an affordable college education," says Kate L. Rube, higher-education adviser for the State Public Interest Research Groups. "Reinstating the guarantee fee on student loans only makes those hurdles higher."
"Students are the ones who need saving, not big lenders and guarantee agencies who are afraid to compete with one another," she says.
'A Punitive Tax'
Ms. Rube's organization and other groups that lobby for students and colleges want Congress to eliminate all the fees that students pay to receive federal loans. This will be one of hundreds of issues that lawmakers will consider next year when they debate the renewal of the Higher Education Act, the law governing major federal...