The Bangor Daily News was right to focus on the significant changes pending in Congress to federal student loan programs in its Feb. 19 editorial “A Student Aid Battle.” The editorial, however, included several inaccurate statements.
The editorial states that the Finance Authority of Maine originated $15 million in student loans this year, down from $60 million last year. To be clear, academic year 2009-2010 was the first and only year that FAME originated federal student loans. FAME provided this new service to ensure that all Maine students and families who needed access to the lower cost federal loans would have it.
The BDN’s reliance upon a Jan. 7 Huffington Post blog was misplaced. That blog focused on a provision in the student loan reform bill passed by the U.S. House of Representatives. The provision allows the U.S. Secretary of Education to award contracts for loan origination and servicing to certain eligible not-for-profit entities, providing an allocation of up to 100,000 borrowers annually. The blog proclaimed this to be a monopoly in states with a single servicer and fewer than 100,000 borrowers annually.
Although Maine has fewer than 100,000 federal student loan borrowers annually, this will not result in a monopoly for FAME, and not just because the secretary’s authority under the proposed provision is subject to conditions. FAME does not currently service federal student loans. Unlike other states, no nonprofit lender in Maine has set up the infrastructure necessary to service student loans, so there will be no monopoly here.
The editorial further turned the Huffington Post blog’s discussion of loan servicing into a “counseling monopoly.” This is particularly unfair since the House proposal would have shortchanged locally provided counseling, financial literacy and default prevention. It is that oversight that FAME worked successfully with Maine’s U.S. Reps. Mike Michaud and Chellie Pingree to fix. Both of our representatives supported an important amendment to the House bill that retained local counseling and outreach to help Maine students and families understand the financial aid process and the importance of a college education, as well as early outreach and intervention for students at risk of defaulting on their student loans.
Student loan reform is both important and complicated. While it may sound good to phrase the pending federal initiatives as taking profits away from rich lenders and giving them to low-income students in the form of Pell Grants, it is not that simple.
For the past several years, lenders have not received a subsidy from the federal government to provide student loans. The subsidy has actually gone the other way, with lenders sending funds that they might have used to reduce student loan borrowing costs for students to the federal government. Since 2007, FAME has sent more than $6 million to the federal government as a result of this system. Moreover, FAME and its lending partners provided borrower benefits that have saved Maine students and families $4.3 million in student loan costs from 2004 to 2009.
FAME supports efficient lending and need-based grants. But let’s get the story straight. The bill passed by the U.S. House of Representatives will only “save” money by borrowing funds at low-cost Treasury rates, increasing the amount borrowed by the federal government. Rather than providing the student loan borrower the benefit of that low cost of funds, the feds will instead charge the student up to 6.8 percent and use the difference to boost Pell Grants and fund myriad new initiatives.
What concerns us the most is that, in the effort to “reform” federal student loans, the local services that FAME provides, which in Maine this year alone includes 109 financial aid events, 34 FAFSA preparation workshops, 40 financial literacy events (together benefiting 8,038 attendees), as well as specific early counseling to prevent loan defaults and training for school counselors and college access advisors, will be lost. Maine, lagging behind our neighbors in college degree attainment, cannot afford to lose those services.
Elizabeth L. Bordowitz is the chief executive officer of the Finance Authority of Maine.