Saturday, October 3, 2009

Sallie Mae Highlights Common Ground in Discussion on Student Loan Program Reform

(BUSINESS WIRE)--On a recent conference call with school customers, Sallie Mae executives highlighted the company’s support for reforming the federal student loan programs and making college more affordable. Consistent with the President’s reform proposal, the Community Proposal, an alternative plan supported by Sallie Mae and a broad list of industry players, would eliminate lender subsidies and have federal ownership of all student loans, generating $87 billion in mandatory savings to help make college more affordable.

Vice Chairman and CFO Jack Remondi emphasized that the company agrees that the old Federal Family Education Loan Program (FFELP) should end, and that reform should result in a single federal student loan program with one set of loan terms. He also clarified that the Community Proposal supported by Sallie Mae and other lenders would end the pre-2008 FFELP lender compensation formula, which included lender subsidies.

Executives also underscored the following facts:

* The government has the lowest cost of funds and can fund federal student loans least expensively.
* FFELP’s performance under the highly successful Ensuring Continued Access to Student Loans Act (ECASLA) proves that federal funding works for institutions and students and that federal ownership of student loans delivers significant budget savings.
* Current market participants deliver federally funded student loans as seamlessly as they delivered privately funded student loans.
* The Congressional Budget Office has determined that the Community Proposal would have the federal government own student loans, achieving $87 billion of mandatory savings, just as federal ownership saves $87 billion in H.R. 3221, the Student Aid and Fiscal Responsibility Act of 2009, that can be used to fund Pell grants. Comparisons to historic FFELP program costs are misleading and irrelevant, as the Community Proposal advocates for the termination of the pre-2008 FFELP cost and subsidy structure.
* Private sector service providers bring expertise in loan origination, servicing and collection that cannot be matched solely by the federal government in a non-competitive environment.
* Private sector competition and consumer choice drive innovation and responsiveness, and have proven to lower student loan defaults.

Remondi addressed numerous questions from schools regarding their concerns about the significant risks for colleges and students inherent in the Administration’s proposal. He also clarified that the choice on the table is not between $87 billion in savings and lender subsidies, as both proposals generate the $87 billion of savings and advocate for the elimination of subsidies. Rather, the choice is between a government-run monopoly and a competitive program that provides better service for students and schools. In addition, he outlined the unique risk-sharing component of the Community Proposal and how it would lead to lower default rates.

He also discussed the community’s broad support for maintaining competition among numerous originators and servicers, compensating service providers on a fee-for-service basis (as the Direct Loan Program does today) using competitive market rates, maintaining guarantors’ successful financial literacy and default prevention programs, requiring servicers to share in the risk of loan default, and eliminating transition risk for 4,500 colleges and universities at a time of severe budget constraints.

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