If you’re like most college students, you have student loan debt. If you don’t, just wait. By the time you finish UCSB, you will. Those loans come from one or both of two federal programs: Direct Student Loans and Federal Family Educational Loan. Direct Student Loans are held and serviced by the U.S. Dept. of Education. FFEL loans are held and serviced by private lenders, but the federal government insures lenders if you fail to pay them off. For each program, the U.S. Congress sets some restrictions on things like interest rates and origination fees (fees paid at the outset of the loan), but each program has a certain amount of flexibility in offering borrowers benefits that make students’ lives better.
Recently, many lenders in the FFEL program, including USA Education (formerly Sallie Mae and USA Group), Bank of America, Citigroup and other big names, filed suit against the U.S. Dept. of Education for lowering the origination fees in the direct loan program as well as interest rates for students who pay their consolidated loans on time. In other words, private lenders are suing the Dept. of Education for making loans less expensive and have the audacity to say it’s for our benefit.
The lenders say that if the government is going to provide loan benefits to students in the Direct Student Loan program, they should provide these benefits to all students. That sounds OK, until you realize that most lenders already offer similar, and sometimes better, benefits to their borrowers. They just want the government to start picking up the tab for loan benefits in addition to existing subsidies. Even worse, if the private lenders win, many students in the Direct Student Loan program will not be able to get these benefits at all. Let’s just reflect for a moment and thank private lenders for making our loans more expensive.
Maybe you only have FFEL loans, so you think this has nothing to do with you. Wrong. Although the FFEL program has many private lenders, only a couple of lenders hold the vast majority of loans, so there is relatively little competition. It turns out that the Dept. of Education is the only lender able to compete with the financial giants, so conditions for FFEL borrowers have actually improved dramatically in the last 10 years, thanks to the Direct Student Loan program. The Direct Student Loan program actually keeps costs down for ALL borrowers, even if they don’t participate in the program.
Some lenders have acknowledged that this lawsuit may ultimately hurt students, and have refused to participate. This act of good conscience on the part of a few private lenders only makes it more obvious that those participating in the lawsuit understand that only they, not students, will truly benefit from this suit.
Do you know who your educational lender is? Find out. If they are part of the lawsuit against the Dept. of Education, ask your financial aid officer to drop them from UCSB’s preferred lender list. After all, why give more business to the folks who are trying to make loans more expensive?
If you have any questions, feel free to contact either Mel Fabi at
Mel Fabi is the Golden Pacific Region vice chair of the United States Students Association and a senior film studies and Chicano studies major.