In a letter to House and Senate education leaders yesterday, four student loan provider associations jointly called on Congress to delay implementation of a student loan auction system. The proposed auction system would implement a pilot program requiring lenders to bid for the right to originate student loans in each state and then limit borrowers’ choice of lender to the winning bidders. The Consumer Bankers Association, Education Finance Council, National Council of Higher Education Loan Programs, and the Student Loan Servicing Alliance requested that Congress conduct "a comprehensive review of how auctions might work" instead of implementing the proposed pilot program.
The Senate reconciliation bill would direct the Secretary of Education to implement a pilot program that requires lenders to bid for the right to originate student loans in each state in the country. The Secretary would hold a an auction in each state where lenders would be able to make private and confidential bids on the lowest amount of special allowance funds the lender is willing to receive from the Secretary.
The Secretary would pre-qualify all lenders before the bidding process by outlining the borrower benefits and servicing requirements each lender must meet in order to make a bid. The Secretary would then choose two lenders that would have exclusive rights to originate loans in that state. The pilot program would begin with only parent PLUS loans. The proposed legislation would mandate that the Secretary continue to hold auctions every two years.
But the loan provider associations believe that an auction system would "create unacceptable levels of uncertainty for lenders and schools alike," according to the letter. Pointing to a 1998 Government Accountability Office (GAO) study, the groups reminded Congressional leaders that the final GAO report found "no compelling reason to shift to a FFELP auction" and "found potentially serious problems with every type of auction considered."
If Congress does enact a pilot program, loan providers believe it should be limited in size, not to exceed more than 100 schools during the pilot phase, and that all school participation be voluntary.
The associations also asked for a decrease in the currently proposed subsidy cuts, citing reductions in borrower benefits, reduced participation by lenders in the FFEL program, and increased costs for college students as reasons.
The letters come a week before Congress reconvenes after the August recess. House and Senate reauthorization and reconciliation bills that have already been passed are expected to be conferenced together before final proposed legislation reaches the president’s desk in the fall. The administration has already signaled a possible veto if the bills reach his desk in their current form.
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By Justin Draeger
NASFAA Assistant Director for Communications
Posted 08/28/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
