House Republican Tom Petri of Fond du Lac introduced the bill, called the Student Loan Auction Market, in an attempt to improve the current Federal Family Education Loan Program.,”Legislation introduced by a Wisconsin representative last week may save students and taxpayers money by reshaping a federal student loan program.
Republican Rep. Tom Petri of Fond du Lac introduced the bill, called the Student Loan Auction Market, in an attempt to improve the current Federal Family Education Loan Program.
Such reform would "mark a major change in how taxpayers fund federal student loans," said Thomas Culligan, Petri's legislative assistant for educational policy. "There are serious issues (with FFELP) that divert money from students to loan companies."
These issues include scandals involving subsidy abuse and kickbacks, as well as taxpayer overpayment that becomes loan company profit instead of benefiting students, Culligan said.
Under FFELP, Congress sets a loan rate and loan guarantees payment. This benefits students because the interest rate is set and loan companies do not look at credit history. However, market costs are not adequately taken into account, resulting in taxpayers spending $3 billion to $5 billion per year in over-subsidies through income tax payments, according to Culligan.
With Petri's plan, commonly referred to as SLAM, a loan option would auction existing loans and the rights to originate new loans. Culligan said this means lenders would be forced to set their own competitive rates.
Petri said SLAM attempts to maintain competition between student loan lenders while benefiting taxpayers and students by funding additional grants or reducing the national debt.
"It should make as efficient use as possible of taxpayer money," he said. "When we allocate the money at the end of the day, more will go to students rather than to banks."
SLAM would be used to study the issue and determine how to best implement the program by deciding on loan packages and the number of companies able to bid to make loans. The best options would be applied as two-year pilot programs at participating universities. The secretary of education could then expand the program to other schools and require participation, Culligan said.
"It's a way to get more money in the hands of students without increasing taxes or drawing money from the treasury," Culligan said. "All schools would see savings in the form of Pell grants they can issue to students. It means less money in loans and less payback later."
This is important because debt is on the mind of most students at private institutions, said Catherine Cable, a junior in the College of Arts & Sciences and federal aid recipient.
"I'm going to Marquette to get a good paying job when I'm done," she said. "But debt worries still run across your mind."
The bill has been referred to the House Education Labor Committee, which Petri sits on. His plan could be worked into reauthorization of the Higher Education Act or offered as an amendment to the bill, Culligan said.
"I am hopeful we will get this through the House since it includes a trial project," Petri said. "I have been getting expressions of support."
Because Marquette participates in the Direct Student Loan Program instead of FFELP, the university would not directly benefit from SLAM. However, the effects the program could have on the loan market could help students in the long run, according to Petri.
He said more money available means help for some students at all schools including graduate students and those with Federal Work Study. SLAM may also make a variety of other financial institutions and loans available.
SLAM could further benefit families of Marquette students with siblings, said Cable, who has two younger siblings.
"How siblings are aided affects how and if the family can send a student to Marquette," she said.
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