Carolyn Karno on the Problems in Eliminating FFELP

Carolyn Karno, Manager of Early Awareness & College Planning at the Connecticut Student Loan Foundation, speaks on the problems with eliminating the Federal Family Education Loan program, as suggested under the Obama administration's changes.

Carolyn discusses how the high-volume end-users, the schools, had the highest exposure to the deficits and limitations of the Direct Loan program, and how after some experimentation with DL, most schools switched back to FFELP.

"That should tell you something, " says Karno.

She also addresses what President Obama suggests as the primary driver for the elimination of FFELP - cost savings to be put toward the expansion of the Pell Grant program. "It will come, most likely at the cost to the consumer."

Karno goes on to assert that this is "...not necessarily a win-win situation for students," and that public school systems that have traditionally relied on the free services in college planning, financial aid training and early awareness will be at serious loss.

As Karno points out, individual students do *not* save any money by using the government's Direct Loan program. In addition, when proponents of the Obama administration's plan trumpet potential future savings, they forget to account for the fact that shifting all student loan business to Direct will also increase the national debt and government spending. *Every* dollar originated for student loans will either have to be borrowed by the Feds or will have to come from The Treasury. Thus, spending on loans for higher education will shift from the private market to consumers, increasing individual tax burden and possibly contributing to later inflation.

For more information on preserving student choice, please go to http://cslf.wordpress.com and http://www.keepstudentloanslocal.org.

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[theloangeek]

I appreciate your frustration, but this is factually incorrect. FFEL is regulated by the same legislation and guidelines for handling defaulted borrowers as the Direct Lending program (which the government is attempting to make the sole provider of federal student loans). These actions may be taken for defaulted borrowers even under the current "reform" plan. This change does not address that or make loans more affordable for borrowers.

But thank you for your comment and interest.

[Markam44]

More FUD from the lobbyists . . . Direct Loan in fact has more default aversion activities, delinquency prevention activities, due diligence activities and borrower counseling than FFEL. Their lower default rates also say something. Cutting out the middleman is not just a benefit for the taxpayer. It also benefits the borrower. Future borrowers don't have to suffer through the same confusion I did, receiving conflicting communications from the lender and the guarantor.

[studentloanreform]

Yes loan geek, you are correct. The default provisions are the same. But, big difference, when it's an FFELP lender and the loan is put back to the government/guarantor, the fees, penalties and capitalized interest are paid in cash. Just like Sallie Mae indicates in their SEC filings that this is their largest source of income. Under direct, the fees are still applied, but no tax dollars leave the government. You lose - you're not needed. Bye.

[studentloanreform]

Amazing these people pretend they are needed - they aren't. This is a government program already and the FFELP lenders are mere middlemen. No need for them. They can go away and not be missed.

[studentloanreform]

Let's not forget the corruption that the subsidies fund. The following student aid administrators got into more than a little hot water for taking kickbacks and other inducements from the student loan industry - most lost their jobs:

Ellen Frishberg - Johns Hopkins

Catherine Thomas - USC

David Charlow - Columbia

Lawrence Burt - University of Texas

Walter Cathie - Widener University

Tim Lehmann - Capella University

Daniel Pinch - Emerson College

[studentloanreform]

The FFELP has bred such corruption that the public has turned against it.

Even in your organization: All six governor-appointed board members of the Connecticut Student Loan Foundation were dismissed ter state auditors found seriously mismangement of funds.

There is no competition where a school has a preferred lender list. We'd fight for you if you agreed to NO preferrred lender lists and force reconsolidation to be enabled for any credit worthy loan holder - but you won't.

[Moveontonumber2]

Not to mention That the Interest and penalties end up costing the borrower twice as much as their original principal. Who gives a 17 year old with no credit a 15,000 dollar loan? Is that responsible? Its the same as the housing industry BUT there is no bankruptcy. Even worse in my opinion.

[Moveontonumber2]

The Federal Loan program is predatory lending on individuals that can't afford to go to school due to the high cost of a college education. It isn't regulated and if you fall into hard times, You lose ALL your rights. You WILL be Garnished, you WILL lose your rights to ALL Federal AID including Social Security, Medicad, and any refund of taxes the government has overly withheld. Its the easiest way the Government can enslave you into a debt trap. Stop the unregulated Predatory loans!