Legislation before Congress could reform the student loan industry, but Binghamton University’s Financial Aid Services is already a step ahead.
The proposed reforms would end a federal policy that guarantees the loans private banks make to college students to pay for education. This would mean that all loans doled out by universities nationwide would come directly from the federal government.
Dennis J. Chavez, director of financial aid services at BU, said the University is ahead of the curve and already deals exclusively with direct federal loans.
“Binghamton has positioned itself very nicely in what we are hearing,” he said. “For Binghamton, it will require no change.”
Chavez said that in the 2008-09 academic year, about $42 million in financial aid was dispensed to between 7,000 and 8,000 graduate and undergraduate students at BU. Managing those accounts and tracking students’ total indebtedness is much easier, he said, when his office has to deal with only one lender.
For a period of two years, BU also used federally backed private loans for parents of students, but found little benefit. He said the private lenders also seemed to promise better rates, but in practice the private lenders did not deliver significant savings. Chavez also said working with several banks requires a lot oversight and paperwork.
“It was a lot easier to deal with one entity,” he said, referring to the federal government. BU switched back to using entirely federal loans three years ago. Since then, all loans issued by BU originate with the federal government. BU also certifies some private loans that are not affiliated with the federal lending program.
The legislation in Congress would require all institutions of higher education to operate in the same way that BU has chosen to operate.
“We have no complaints,” Chavez said of the current system.
But big players in the industry are not convinced of the benefits of the legislation. Banks that issue student loans are lobbying hard to stall the legislation.
The legislation is hotly debated. President Obama and Secretary of Education Arne Duncan insist that the reforms would benefit students and save money, pointing to Congressional Budget Office estimates that say the reforms could save $80 billion over the next 10 years.
But banks that loan to students stand to lose out. For years they have been able to issue loans under the Stafford program essentially without risk, because the federal government guaranteed all loans made under that program.
HSBC, one of the industry’s largest student lenders, which has several branches in the Binghamton area, held $483 million in student loans in 2008, according to online student financial aid information site FinAid. HSBC declined comment on issues involving the reform.
But John F. Remondi, chief financial officer of Sallie Mae, the country’s largest lender, which according to FinAid held $141 billion in student loans in 2008, told The New York Times that the company is ramping up its lobbying efforts, focusing particularly on senators that are considered fiscal conservatives.
Sallie Mae spent $3.48 million on federal lobbying last year, according to data from the Center for Responsive Politics.
According to The New York Times, banks in student loan origination employ about 35,000 people nationwide, and stand to suffer if the federal government takes away that portion of their business.
Though Chavez said the decision to stick with federal loans only was beneficial for BU, he was unsure whether a nationwide reform that would effectively make the decision for universities would be a benefit.
“We have to make the best decisions for our students,” he said. “I can only hope that the Department of Education can do the same.”