The Obama administration’s recent education budget proposal intends to make college an affordable reality for American students. But Director of Student Financial Services Caesar Storlazzi criticized the plan in an interview Monday, saying parts of the proposal could create problems for students at Yale.
The proposal’s most controversial point calls for the elimination of private loans in July 2010, requiring college students instead to borrow directly from the federal government. Yale — unlike some of its peer schools, such as Harvard and Brown universities — currently offers loans through private companies. The Obama administration estimates that the switch will save the government $94 billion over 10 years. But if the proposal is approved, Storlazzi argued, students would have to forego what he dubbed higher-quality service from private lenders, though he said the availability of loans would not likely be impacted.
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“I don’t like the idea of the federal government running the entire loan program,” he said. “I don’t think the infrastructure is there to handle this smoothly.”
The proposal — which is part of Obama’s federal budget plan — passed the House of Representatives Budget Committee last Thursday and will be up for a vote by Congress this week.
Storlazzi said he is most concerned that there might be a “hiccup” in service during the transition period when all student loans are first made exclusively through the government.
Currently, about 10 percent of Yale undergraduates take out some form of student loans, Storlazzi said. Due largely to improvements to Yale’s financial aid program, this figure has been declining in recent years in response to improvements in Yale’s financial aid program, he said, noting that the figure peaked for the class of 2000, in which 49 percent of students had borrowed at some point in their college careers.
Storlazzi said graduate students will be most affected by the switch to government direct loans, since they borrow more money on average than undergraduates. Still, he said, the proposal would not adversely affect the availability of graduate student loans.
Storlazzi is not alone in his apprehensions about the switch to direct federal loans. Kevin Bruns, executive director of America’s Student Loan Providers, said the program would create a monopoly on student loans.
“The benefits of competition will be lost,” Bruns said. “There is no telling what will happen to the quality of service in the direct loan program. Many people agree that having two student loan programs keeps them doing the best job that they can.”
In the past, the competition among student loan providers offered unique benefit programs to entice students to borrow from them, but many such programs have disappeared in recent years as federal subsidies for offering certain types of student loans disappeared, Storlazzi said.
One element of Obama’s proposal calls for a guaranteed increase in funding for need-based Pell grants, which are provided by the government to low-income college students. While this change would save the University money, it would not help Yale undergraduates, Storlazzi said.
Yale meets all student financial need with grant funding, but if a student receives a Pell grant or other outside scholarships, the University subtracts that much grant funding from the total aid package it would offer.
And so the only students who will be impacted by the increases in Pell grant funding are those who receive Pell grants but do not need Yale financial aid, as is the case for some students with divorced parents, Storlazzi said.
If the Obama administration’s proposal passes, the maximum Pell grant for the 2010-’11 academic year will increase to $5,550, compared to the $5,350 maximum Pell grant for the 2009-’10 academic year.
The Obama administration has argued that the increase in Pell grant funding will be made possible by originating all student loans on a federal level, saving the government money, Bruns said. But both he and Storlazzi said an increase in Pell grants should be done on its own accord.
The Obama administration is also likely to save less money than estimates indicate with the proposed switch to direct government loans, said Bruns and Mark Kantrowitz, a college financial aid expert and publisher of FinAid.org.
Kantrowitz said the government would save money through the federal student loan program by transferring some administrative responsibilities to university staff members. Storlazzi said Yale’s Student Financial Services would need to do some restructuring to fulfill these new responsibilities, but he added that an all-direct loan program will make some tasks easier, such as sending back loans from students who no longer need them.
The Obama budget proposal will have some visible advantages for Yale students and their families, including a proposed $2,500 tax credit for parents with students in college.
Other organizations have offered praise for the Obama proposal, most notably the Institute of College Access & Success, whose acting president, Lauren Asher, issued a statement in praise of all pieces of the proposal, including the shift to exclusively government-based loans.