n Don't be fooled by the success some schools have experienced with the Federal Family Education Loan program ("Kennedy's Tuition Loan Plan Helps," April 4, p. 1). If they want to continue in the Sallie Mae-FFEL program, they can, but when push comes to shove, the Direct Loan program that Boston University uses is cheaper for taxpayers and better for students. If Sen. Kennedy's Student Aid Reward (STAR) Act is passed, students will benefit even more.
This semester I've been in Washington, D.C with BU's Washington Internship Program, and I've learned a lot about the complex student loan program. There are two main college loan programs: the Sallie Mae-FFEL program and Direct Loans.
Under the Sallie Mae-FFEL program, the U.S. government subsidizes banks making guaranteed-against-default college loans to students. Banks and the agencies can sell the loans to one another, frustrating borrowers who must pay their bills to lenders they didn't borrow from originally. The frustration of borrowers, however, doesn't bother Sallie Mae or the banks. No matter what, they get a taxpayer subsidy, student interest payments and a government guarantee of returned principal. It's why Sallie Mae is the second most profitable Fortune 500 company. Microsoft is third.
Under the Direct Loan program, the U.S. Treasury allocates funds to schools for student loans, and then contracts private companies to collect student payments. The Sallie Mae middlemen lenders are cut out.
The Direct Loan program is about 11 cents cheaper on the dollar than the Sallie Mae-FFEL program, according to The Institute for Higher Education Policy. All in all, the Kennedy plan would shift $17 billion in corporate welfare to students as colleges switch to the Direct Loan program, according to the Congressional Budget Office.
Kennedy's Student Aid Reward Act puts students first without hurting taxpayers; it's a win-win situation, and we should all encourage our senators and representatives to support the legislation.
Nora Crowley
Brandeis University '06
BU Washington Internship Program
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