American Student Assistance (ASA) has issued a proposal for student loan reform. Breaking the Deadlock: Unifying Our Federal Student Loan Programs envisions a unified federal student loan program featuring a new role for student loan guarantors.

Under ASA's proposal, both FFEL and Direct Lending would continue to exist, and all schools would place ED, with its Direct Loan brand, and at least two other lenders on their preferred lender list. ASA argues that the current system of school choice of FFEL or Direct precludes student borrowers from having true choice of lender. ASA calls for the development of a single, robust, lender/capital neutral, origination platform that can accommodate and communicate data and disburse loans for multiple lenders, including ED, and should be the required process for all federal loans.

ASA argues that "education loans create a 10 to 25-year relationship between the borrower, the lender/servicer, and the federal government. Unlike grant aid, the long term nature of the loans, and the obligations and relationships created by it over the life of the loan, make the education borrower, in every sense, a consumer rather than just a recipient ... One of the basic rights of a consumer is choice. The education loan consumer should have the right to pick who they want to deal with over the next 10 to 25 years ... and one of the points of choice should be the quality of assistance they receive during repayment."

ASA envisions an evolved role for the guarantor as a neutral third-party, uncomplicated by any ownership in the loan. Guarantors would shift their mission to ensuring that students receive high quality, independent, and unbiased life-of-the-loan support services to help assure a successful higher education experience and promote fiscal responsibility.

"The role and financing of the guarantor community should be refocused away from the origination process to early awareness and information, debt management and default prevention, and loan rehabilitation for all borrowers, including those with Direct Loans. Essentially, guarantors would no longer insure the lenders, but instead help guarantee the borrowers' success. Since loans may be securitized or sold to any party, including ED, the guarantor provides the borrower a stable, neutral third-party relationship over the life of the loan. Guarantor fees and incentives should be focused on the relative success of the borrowers in their portfolio as measured by Loans in Good Standing and these results should be published and available to the consumer. The consumer should be allowed to select the guarantor that they believe would best provide those services over the life of the loan."

By Darrill Anderson
NASFAA Associate Director of Communications

Posted 05/07/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.