Spring Break
University avoids loan issues in private market
Laura Bryant
Issue date: 3/7/08 Section: Campus
Miami University students can rest easy as the economic crunch causes some banks and loan providers to change programs to the disadvantage of some college students.
Sen. Edward Kennedy (D-Mass.) and Rep. George Miller (D-Calif.) signed a letter to Secretary of Education Margaret Spellings Feb. 28 urging her to take steps to protect student borrowers in case a large number of lenders through the Federal Family Education Loan Program (FFEL) were no longer able to provide funding for students and had to withdraw from the guaranteed-loan program.
According to Chuck Knepfle, director of student financial assistance at Miami, two different loan programs exist for college students.
There are federal loans that are capped at a certain dollar amount with a fixed interest rate.
There is also a set of private or alternative unlimited loans that are issued through private banks, similar to how a bank would issue a consumer loan. However, with private loans, Knepfle said the bank carries the risk of the loan not being repaid.
At Miami, students initially borrow directly through the government with no banks involved-a process called direct lending.
"Other schools use private lenders to provide capital for guaranteed student loans," Knepfle said. "In exchange, the private lenders have the loan guaranteed by the government, and the government reimburses the bank for 95 percent."
Knepfle said that nearly a year ago, Congress passed a law that decreased payments to banks who issue private loans to students so that banks cannot make as much money off of the loans as they used to.
Secondly, out of the 2,700 banks in the country that issue federal loans, Knepfle said about five or six of them are telling the U.S. government that they may have to back out of being a provider under the FFEL loan program.
"The bank goes and borrows the money cheaper than they charge the students," Knepfle said. "There are some banks, especially non-profit institutions, who are telling Congress that they are having trouble getting capital to loan to students and they may have to drop out."
Sen. Edward Kennedy (D-Mass.) and Rep. George Miller (D-Calif.) signed a letter to Secretary of Education Margaret Spellings Feb. 28 urging her to take steps to protect student borrowers in case a large number of lenders through the Federal Family Education Loan Program (FFEL) were no longer able to provide funding for students and had to withdraw from the guaranteed-loan program.
According to Chuck Knepfle, director of student financial assistance at Miami, two different loan programs exist for college students.
There are federal loans that are capped at a certain dollar amount with a fixed interest rate.
There is also a set of private or alternative unlimited loans that are issued through private banks, similar to how a bank would issue a consumer loan. However, with private loans, Knepfle said the bank carries the risk of the loan not being repaid.
At Miami, students initially borrow directly through the government with no banks involved-a process called direct lending.
"Other schools use private lenders to provide capital for guaranteed student loans," Knepfle said. "In exchange, the private lenders have the loan guaranteed by the government, and the government reimburses the bank for 95 percent."
Knepfle said that nearly a year ago, Congress passed a law that decreased payments to banks who issue private loans to students so that banks cannot make as much money off of the loans as they used to.
Secondly, out of the 2,700 banks in the country that issue federal loans, Knepfle said about five or six of them are telling the U.S. government that they may have to back out of being a provider under the FFEL loan program.
"The bank goes and borrows the money cheaper than they charge the students," Knepfle said. "There are some banks, especially non-profit institutions, who are telling Congress that they are having trouble getting capital to loan to students and they may have to drop out."
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