The Obama administration has proposed a big change in the $85 billion-dollar-a-year student loan industry. The proposal would end a program that pays government subsidies to private student loan companies. That means that all federal loans would come directly through the government, saving $4 billion dollars annually. The change would be a big blow to companies such as Sallie Mae, that receive subsidies to originate federally backed student loans. It would also affect many state-based student loan offices across the country, like South Carolina’s State Education Assistance Authority, established under the state government 36 years ago. Chuck Sanders directs that organization. He says there are two ways that college students receive government loans. One is through the Federal Family Loan Assistance program, with which South Carolina’s state loan organization is associated. In South Carolina, there are 55 institutions of higher learning and 93 percent of those schools are with signed up with that state-based program.
The remaining schools use another federal student loan program which uses a thrid party contractor out of California and outsources 35 percent of their jobs overseas. Sanders says the Obama Administration proposal would channel all student loan funds through that federal loan program.
He says if his organization goes down the drain, the state will loose a lot. “We do a lot of things locally. We have people who go out there and work directly with the middle schools and high schools, providing financial literacy, helping students fill out forms. We conduct financial aid nights at more than 100 high schools. We currently service more than 375,000 people in this state.”
Sanders says the hands-on personal service given by his organization would be sorely missed. “We’re a vital part of what goes on in the high school and college arena. So if they go straight to direct loans and eliminate our industry, all those services that are currently provided would go away.”
Sanders says his organization has the lowest default rate of any state in the country for student loans.
“Just to give you an example, we had one school in South Carolina that was a part of the direct lending program but their default rate got as high as 22 percent, so they approached us about coming back to the Federal Family Education Loan program. Within two years we had reduced their default rate to 8 percent. That’s hands-on personal service you can’t get when you’re dealing with a 1-800 number.”
Sanders says while it’s true that the student loan industry has faced great difficulty in fiancing loans during the recession, he asserts that it doesn’t make sense to quickly throw out a great public-private partnership just because of a credit market that everyone is experiencing.
To learn more about the purpose of the South Carolina State Education Assistance Authority, go to SCstudentloan.org,