Thanks to NASFAA News for the heads-up on a link to the transcript from Secretary Duncan's conference call with press last week. Here are the highlights:
- Claims of job losses in industry: "They [lenders] claim that ending this giveaway will cost tens of thousands of jobs. But we believe there’ll be little or no net job loss because we’ll use private loan servicing companies. But you don’t have to take our word for it. You can ask Sallie Mae directly. Two years ago they shipped thousands of American jobs overseas. Now they are rehiring thousands of Americans because they want a piece of this loan servicing business which under our contracts require them to do work in the United States."
- On growth of direct loan program: "In the last two years our department has directly issued more than $50 billion in student loans. And today some 2300 colleges and universities participate in the direct lending program compared to just 1000 three years ago."
- SLA analysis finds that in 1Q of 2009-10 academic year, DL had a 35.2% share of disbursements so there are still thousands of schools to onboard to DL prior to 2010-11
- On cost of lender proposal vs. administration's proposal: "And the lender’s plan would cost taxpayers $13 billion more over ten years and by definition cover many fewer students."
- From Sallie Mae press release last week about savings from lender's plan: "...generates $83 billion of taxpayer savings, according to the Congressional Budget Office."
- From Comm. Director of House Committee on Education and Labor: "Sallie Mae claims their plan would save $83 billion for students, but these savings are achieved through the gimmick of sun-setting the proposal after five years. A closer look at CBO’s 10 year estimate of the proposal confirms it would direct at least $8.5 billion of the total savings generated by the President’s proposal to lenders."
- On factors that students and families should consider when selecting a college (Deputy undersecretary Shireman provided answer): "It’s certainly one of the pieces of data that a family can look at. Default rates, retention rates and graduation rates are probably more important for our families to look at and then all of the other factors that go into choosing a college."
- Reaction to CBO letter last summer to Judd Gregg which lowered savings estimate by $33 billion (Shireman): "The government takes the interest rate risk in the current government guarantee program and would continue to have the interest rate risk under the Direct Loan program. So, you know, Congress makes the decisions about how to account for loan programs. And the 87 billion is the figure that will be used in the actual decision that Congress will be making."
- On whether interest rates for federal loans made to graduate students, currently up to 8.5%, should be reduced (Shireman): "Well as you know, the President has proposed limiting the percentage of someone’s income that needs to be paid for student loans. So targeting some assistance in the form of Pell grants in the form of income based repayment is the best way really to help ensure that people can pay for college and not suffer as a result of excessive debt burden.
- On how SAFRA might impact rising student default rates (see SLA posts here and here and here for default trends): "Yes, well a big piece of this bill that were talked about is -- and I think folks haven’t fully understood this -- and on the whole servicing of loans, that’s all going to be done by the private sector. So that’s not our expertise. It’s not our core competence. And 100% of that business -- and that’s a growing business -- is going to go to the private sector. And we’re going to compete that out. And there are four or five players now. And going forward, part of how we’re going to judge performance is based on those private companies doing a good job of reducing those default rates."
- Here is how Sallie Mae, the largest servicer, characterized the Direct Lending contract at a recent investor meeting [emphasis is mine]: "The default side will not be measured for a number of years because all the loans are in school and won't show up in time...Their [Dept. of Education] way of managing better performance is to pay less when account becomes delinquent. We would argue that you gotta incent people to make contact. In one category we get paid as little as $.90/month for a highly delinquent account. You can't make contact for $.90/month. It's just very hard."
- On extending ECASLA, the program that financed approximately 75% of FFEL loans in 2008-09 (Shireman): "The ECASLA was a temporary program and we see no reason to extend a ECASLA. If schools are having any difficulty gaining access to loans, they can either make use of the lender of last resort provisions in the guaranteed program or make use of the Direct Loan program as the Inspector General reported."
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