Direct loans bill stalls

Yale will continue to make the transition to direct federal student loans even if Congress does not ultimately require their use, Caesar Storlazzi, director of student financial services, said Monday.

In the past, the government offered two types of student loans: loans from private lenders and federally funded loans. Anticipating that the Senate would pass the Student Aid and Fiscal Responsibility Act — which proposes to replace federal subsidies to private lenders with direct government loans — Yale announced in November that it would adopt direct federal lending. Now, aggressive private lender lobbying, along with the fight over the health care bill — which is prioritized above SAFRA in the Senate — has stalled the direct loans legislation.

In an article published Friday in The New York Times, Storlazzi appeared to question Yale’s decision to switch to the new federal direct-lending program. But in a letter to The New York Times on Monday, he said he had been misrepresented in the article and that Yale continues to support SAFRA.

“Yale is on record supporting the Student Aid and Fiscal Responsibility Act of 2009 and continues to hope that Congress will enact it in time for the next academic year,” Storlazzi wrote in the letter. Yale will finish the conversion to the new program by the end of this academic year and does not plan to revert to the private lending system, he added in an e-mail to the News on Monday.

The terms of both federally funded and private loans are similar, and Storlazzi said students will not see much of a difference with the switch. In addition, direct government lending will allow Yale students to take out federal student loans only from government funds, regardless of whether SAFRA passes.

Mark Kantrowitz, publisher of FinAid.org, a Web site that offers financial aid information and advice to college-bound students, said colleges will need to convert to the new direct-lending system regardless of whether SAFRA stalls.

The Ensuring Continued Access to Student Loans bill, intended to provide federal subsidies to private lenders until SAFRA is passed, is set to expire June 30. Unless the legislation is renewed, credit from private lenders for student loans will dry up, Kantrowitz said, and colleges will need to offer the federal direct-lending program if they are to ensure access to loans for all students.

A number of colleges, including Yale, have already exited the private-lender system in favor of federal direct lending. The move is meant to ensure that students can continue to take out loans and avoid a potential last-minute conversion rush should the bill pass by July 1 — the deadline for schools to adopt direct loans, said Kevin Bruns, executive director of America’s Student Loan Providers, a coalition of private lenders.

Still, Bruns said the stalling of SAFRA may allow private lenders to continue issuing student loans for a little while longer. He also noted that an alternative bill may be formally introduced in the Senate, proposing that private lenders be allowed to generate loans on the government’s behalf. The new proposal would generate $4.2 billion less in savings, according to estimates by the Congressional Budget Office, but would help to reduce the number of job losses that will result from SAFRA, Bruns said.

If passed, the SAFRA legislation is expected to generate around $80 billion in savings, which the Obama administration hopes to use toward expanding the Pell Grants Program for low-income students entering college.

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