As reported in NASFAA News today (February 24th), the NASFAA President and CEO Dr. Day is urging Congress to delay implementation of the PLUS loan auction. In the letter sent to Rep. George Miller, Dr. Day sounded the following concerns about the auction:
- Market conditions and timing necessitate a delay.
- "While innovation and experimentation can be desirable methods of testing loan subsidization alternatives, current market conditions and the relatively short time until the pilot’s scheduled launch date on July 1, 2009, warrant more analysis to avoid unintended consequences."
- "Implementing the auction pilot program during these troubled economic times would likely create more turbulence for students and parents."
- Issues with auction mechanics, including failed auctions and reduced choice for borrowers
- "With so many lenders out of the federal loan programs, NASFAA is concerned that some states with relatively low student loan volume could have failed auctions with no lenders willing to even go through the pre-qualification process stipulated by law.
- "In states where lenders compete for the right to originate parent PLUS loans, we are concerned that a small handful of lenders could conceivably win all of the auctions, leaving far fewer options for students."
- Savings conceived by the program seem illusory at this point
- "In addition, the savings first calculated by the Congressional Budget Office are unlikely to materialize until market conditions stabilize."
- Timing of bid awards will impact operations of financial aid offices
- "The simple timing of an auction means many applications won’t be received by schools until late summer. This will set off a domino effect of delays in the application, certification, and disbursement processes as well as delays in the receipt of needed financing to pay bills for college costs."
- "If a lender is not selected, then parent borrowers with current PLUS loans will find they
must change lenders and servicers resulting in bewildering multiple accounts and,
consequently, repayment confusion leading to delinquencies."
The other revelation from this notice was the fact that the Department of Education had responded to NASFAA in early February (three days after an SLA post on the topic) indicating the following:
- The Secretary of Education does not have the authority to postpone or delay implementation of the auction.
- The procedures for lenders interested in bidding in the auction process would be in the Federal Register "in the near future."
- In formulating the plans for the auction, the Department "has taken into consideration the current economic conditions."
I continue to encourage schools to include Parent PLUS loans in their RFI process to provide a fallback position, should the auction program not be implemented. I will continue to monitor the Federal Register to look for any postings on the auction. Stay tuned....
- What's up with the Parent PLUS auction? (January 31, 2009)
- WSJ: Schools seek delay in move to cut subsidies to student lenders (February 24, 2009)
- Higher Ed Watch Blog: Please Don't Make Us Bid on PLUS Loans (February 25, 2009)