Not Sure I Agree...

I came across this article in the Credit Union Times today: "Bill Has No Impact on Private Student Loans, Jeffrey Says."  Here is a quick summary of the article:

"In a press release, CU Student Choice Jon Jeffreys said, “The bill obviously has a huge impact on lenders who participated in the Federal Family Education Loan Program, whereby they were able to originate federal student loans. However, it’s important to note the distinction between federal and private student loans. While they do share the same bankruptcy exemption as federal student loans, private loans are completely separate from the federal government and are meant to help students fill the funding gap after federal loans have been exhausted. The demand for these loans remains very strong–to the tune of nearly $15 billion this year alone.”

Remember that the bill that passed the House also calls for a $5 billion expansion of the Perkins Loan program which will reduce demand for private loans as more student borrowers opt for the 5% fixed interest rate of a Perkins loan vs. the variable rate private student loan with an average starting interest rate between 9.5% and 10.0%.  Meanwhile, Credit Union Student Choice, which has originated over $100 million in loans during this peak lending season has had average variable rate of about 6.0%. 

Comments

[Aaron]

Perhaps "no impact" is a slight exaggeration - nothing is free of impact entirely. However, I definitely think that the howls of outrage at a "government takeover of the student loan industry" are disingenuous at best.

Editorials and even reporting pieces in places like the Wall Street Journal have claimed that the federal government will become the "sole source of student loans." This is, frankly, a lie. The federal government will become the sole source of federally-guaranteed loans, while private enterprise will still be able to make non-federally-guaranteed loans.

There's a parallel with people fearing that government will take over medicare: Stafford loans are ALREADY a government program, and eliminating the extra private-sector step in the Stafford process just simply isn't the earth-shattering takeover the banks say it is.