Referred to as the Student Loan Community Proposal, this proposal had thirty-two signatories including lenders (Sallie Mae, Student Loan Corporation, Nelnet, PNC, SunTrust, Citizens), Guarantors (ECMC, NELA, NY HESC, USA Funds), servicers and secondary markets.
The group presented a Fact Sheet which made the following nine points about their proposal:
- Cost savings. "Should achieve the same level of savings for Pell Grants and student financial aid as the President’s proposal."
- No lender subsidies as private sector will no longer finance loans: "Eliminates lender subsidies and private ownership of new federal loans."
- Federal government continues to finance loans (similar to ECASLA): "Ensures the federal government owns and generates savings from all new federal loans."
- Fee for service for origination, servicing and collections: "Establishes a fee‐for‐service system for loan originations, servicing, and collections to be performed by student loan service providers of a student’s or school’s choice."
- Competition: "Retains the competitive environment that drives improvement and innovation in loan delivery to the benefit of students and schools."
- Default management: "Decreases defaults by incorporating “risk sharing” incentives on loan servicing, generating further savings."
- Avoids transition risk: "Avoids transition risk that could disrupt student access or delay crucial budget savings."
- Job preservation: "Preserves the 35,000 jobs that comprise the existing student lending infrastructure."
- Borrower assistance and advocacy. "Expands assistance and advocacy programs to all borrowers."
Delving deeper into the legislative language included as part of their proposal, here are some of the highlights:
- New business model for loan program
- No special allowances paid to lenders
- No interest subsidies paid to lenders
- Lenders do not pay loan fees to Department of Education
- School choice on origination platform:
- Envisions loan participation and purchase agreement between lenders and Dept. of Education
- For participation interest in loan,
- Lender paid 100% of principal balance of loans and
- Administration fee equal to .69% (annual rate) times principal balance for number of days in holding period
- For participation interest in loan,
- For loans sold by lenders to Dept. of Education, lenders would receive
- Origination fee of $75 with $20 paid when participation interest is sold and $55 when legal title passes
- After September 30, 2012, the Secretary of Treasury would decide the economics for both the participation and purchase programs
- Servicing contracts
- Envisions two-tiered servicing contracts
- Multiple contracts based on price and servicing capability
- Contracts set aside for not-for-profit and state servicers to "service under this Part and to service loans made at institutions of higher education within the State of such servicer for loans made under Part D [Direct Loan program].
- Lower volume servicers would receive higher per unit pricing
"Such servicing contracts shall provide that the compensation paid to servicers shall be volume based so that servicers of a lesser number of loans receive higher per loan compensation in order to fairly compensate them for their higher average costs of servicing due to fixed costs."
- Lenders would retain servicing rights for loans that they originate
- Loans originated by lenders that were not awarded contracts to service loans (including not-for-profit and state servicers) would have opportunity to service these loans (or subcontract for the loan servicing) if abide by same terms and conditions of contracts, including price, determined by Dept. of Education OR school could select from among those servicers awarded the contract by the Department of Education
- For those schools in the DL program, they will have the opportunity to "choose one or more eligible servicers to provide servicing on loans made to their students and parents of such students." The proposed legislation goes on to note that "Such servicers may continue to subcontract with their existing subservicers, at the time of enactment, for provision of all or part of the services required under the servicing contracts under this section as long as such subservicers abide by the terms and conditions of such contracts."
- Risk sharing for servicers tied to whether loan defaults in first four years of repayment:
- Smaller servicers may have risk sharing requirement waived:
- Definition of small servicer:
- Post-Default Collections
- Can contract with one or more providers of collection services, including Guaranty agencies
- Allocation of defaulted loans would be based on performance "and shall take into consideration any special collection tools available to state designated Guaranty Agencies
- Department has authority to sell loans as they deem in best interest of United States
- College Access and Completion Fund (SLA Note: Obama proposal is for $2.5 billion to be spent over 5 years)
- Financial Literacy
- No less than 1/3 of funding should be set aside for financial literacy education
- Funds should be allocated by state based on number of FTEs attending institutions of higher education in state
- States should grant all funds to guaranty agencies and to state or not-for-profit lenders
- "States shall grant all funds allocated to the State under this section for financial literacy to guaranty agencies (as such term is defined in section 499H(b)) that provide services in the State and to state or not
for‐profit lenders that meet the definition under section 304 of the College Cost Reduction and Access Act of 2007." - Schools can select financial literacy provider if state has more than one provider
- "States shall grant all funds allocated to the State under this section for financial literacy to guaranty agencies (as such term is defined in section 499H(b)) that provide services in the State and to state or not
- Financial Literacy
- Outreach services
- Funding for outreach services would be granted to guaranty agencies and to state or not-for-profit lenders as described above
- Borrower assistance and advocacy
- Guaranty agencies to provide borrower support services
- Guarantors would receive a borrower services fee on a per month per borrower basis while loan is part of portfolio of loans for which Guaranty Agency provides services
- Cost would not exceed $2.25 billion from July 1, 2010 to September 30, 2014
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