VSAC newsline

Irene Racz, VSAC's director of public affairs

… where you can find background information about VSAC, our press releases, annual reports, FAQs, research reports, and schedule of board meetings. The site also includes links to articles of interest about VSAC or higher education topics.

Fast facts about recent news involving VSAC:

VSAC has funding available for student and parent loans for the 2009-10 academic year. We are using a federal “conduit” program to provide undergrad and grad students with federal Stafford loans and parents and grad students with federal PLUS loans. In addition, we are using our own resources to fund private loans for students, although, as always, we counsel families to maximize use of federal loans before turning to more expensive private loans.

Either way, VSAC loans remain a good deal for borrowers: We are waiving the 1-percent federal default fee on Stafford and PLUS loans issued in 2009-10 and have very competitive rates, ranging from 5.19 to 8.19 percent depending on the cosigner’s credit rating, on private loans issued through September 2009.  To be eligible to borrow from VSAC, the student (or parent) must be a Vermont resident, borrow for attendance at a Vermont institution, or have an existing loan with VSAC. Visit our Web site at http://tinyurl.com/mhfokb for details or to apply online.

Another topic on the minds of many students and parents is an administration proposal to eliminate the federal loan program known as FFEL, in which VSAC participates,  in favor of “federal direct lending.” Proponents claim the plan would free up billions for student aid, which sounds good in theory. But here’s what isn’t as widely known:

• There is major disagreement about how much would actually be saved. The “budget scoring” system used to compare costs between FFEL and direct lending is skewed in direct lending’s favor.
• Not all of the purported savings would be directed to Pell grants for students, as was assumed when the proposal was announced. Some would fund initiatives outside higher education and some would go to deficit reduction.
• Much has been made of subsidies paid to lenders, but the government itself  makes most of the money on federal student and parent loans through interest rates that are set fairly high relative to market conditions. It has not proposed a reduction in interest rates, which would go a long way toward making higher education more affordable, but rather will continue to funnel loan proceeds into other sectors of the economy — a bit like robbing Peter to pay Paul.
• The proposal claims to eliminate the “middleman,” meaning banks and other lenders in the FFEL program, by having the federal government issue all education loans directly. However, the government is not equipped to service loans for the 10 to 30 years in which students and parents repay them. It contracts out to — guess who? — banks and other lenders to do that work. The government recently contracted with two of the biggest for-profits in the business, Sallie Mae and Nelnet, to provide some of its servicing for the existing direct loan program.
• Nonprofits like VSAC are too small to compete with national lenders, but provide many valuable free services at no cost to taxpayers. The big question is what happens to these services if nonprofits don’t have a role in a reformed higher education finance system. It’s unlikely the federal government (or states if they were to receive federal funding) will be able to duplicate what is provided today in as comprehensive and efficient a fashion.

Click on the News & Views tab to find out more about direct lending and its potential impact on Vermont.