WASHINGTON, D.C.—In the midst of college graduation season—and with two-thirds of Ohio students graduating from four-year public and private institutions with an average of nearly $26,000 in student loan debt—U.S. Sen. Sherrod Brown (D-OH) announced new legislation that would simplify the student loan repayment process. This legislation would help borrowers avoid financial penalties for missed payments, save Ohio graduates money on their student loans, and bolster the federal Pell Grant program that helped send more than 240,000 Ohio students to college from 2008-2009. Nancy Hoover, director of financial aid at Denison University and chair of the National Direct Student Loan Coalition, joined Brown to discuss how this bill would benefit Ohio graduates.
“Students shouldn’t have to sign away their financial futures when they sign up for college,” Brown said. “This month marks commencement season at our great colleges and universities across the state and the nation. It’s a day of achievement and accomplishment—and reaffirmation of why education is a key to our economic prosperity. But celebration can soon turn to anxiety, with two-thirds of Ohio students graduating with an average of nearly $26,000 in student loan debt.”
“Last year, we passed the single largest investment in student aid—all at no cost to taxpayers—by ending wasteful subsidies to private lenders to service federal loans. It’s time to cut out the middleman once and for all by giving college graduates the chance to transfer debt to a Direct Loan Servicer. By preventing graduates from writing two separate checks to two separate servicers, we will decrease the likelihood that a borrower may miss a payment and end up further in debt,” Brown continued. “And, by reducing the subsidies provided to FFEL lenders, this legislation will lead to $1.8 billion in savings over 10 years—a savings that can be reinvested in the Pell Grant Program, which helped sent more than 240,000 Ohioans to college in 2008-2009. It’s a win-win for borrowers and taxpayers—by ensuring that students can access higher education and by helping already-strained borrowers reduce their personal debt load.”
“Students graduating from college have a lot on their plate—from finding a job, a new place to live, and starting to pay off their college education. As a practicing financial aid professional for 25 years, I have seen first-hand how students can sometimes lose track of which checks need to be sent to which loan servicer,” said Nancy Hoover. “Sen. Brown’s bill would reward students for consolidating their loans and help them save money, simplify the payment process, and bolster the Pell Grant program, which is so vital for helping talented students from low-income families attend college. As chair of the National Direct Student Loan Coalition and director of financial aid at Denison University, I’m glad that Sen. Brown is helping Ohio students tackle their loan debt and ensure that more students have access to affordable higher education.”
Last year, Congress passed the single largest federal investment in student aid—at no cost to taxpayers—by overhauling the federal financial aid system. By ending subsidies to private lenders through the Family Federal Education Loan (FFEL) program, the reform replaced these “middlemen” with direct loans to students—saving the federal government $68 billion over 11 years, allowing the maximum Pell Grant award to reach a historic high, and making student loans more manageable to repay by strengthening an Income-Based Repayment program.
Over the past year, higher education institutions from across the nation have made the transition from the FFEL system to the Direct Loan program. While all students who borrowed starting July 1, 2010 or later will now only have to make one federal payment each month upon graduation, more than six million borrowers are currently wedged between these two student loan programs. This requires them to make at least two payments to at least two separate servicers. Having multiple payments to multiple servicers can complicate the repayment process and increase the risk that a borrower may miss a payment and accrue financial penalties.
Brown’s bill, the Student Loan Simplification and Opportunity Act of 2011, would give borrowers with both FFEL debt and Direct Loan debt the option to convert their FFEL loans to Direct Loans during a nine-month period (January 1, 2012 – October 1, 2012.) While conversion is not mandatory and students would not be required to consolidate their loans, those who do choose to make the conversion would receive up to 2 percent off the principal of their FFEL loan. According to the Congressional Budget Office (CBO), Brown’s legislation would lead to $1.8 billion in savings over 10 years by eliminating federal subsidies for FFEL lenders.
Nationally, there are 21 million eligible loans that would qualify for savings under Brown’s bill—most borrowers have more than one loan—and students would save up to $887 million due to the 2 percent reduction in principal of their FFEL loan. A list of average savings for students with loan debt follows.
Stafford Loan: Average Size $3,329 Average Savings $75.91
Unsubsidized Loan: Average Size $4,811 Average Savings $109.69
Federal Parent Plus Loan: Average Size $12,729 Average Savings $290.23
Consolidated Loans: Average Size $18,324 Average Savings $417.79
The $1.8 billion in savings will be reinvested into the Pell Grant program, which is currently facing an $11.2 billion funding gap for 2012. The Federal Pell Grant Program provides need-based grants to low-income undergraduate and certain postbaccalaureate students to promote access to higher education. For academic year 2008-2009, 240,336 Ohio students received Pell Grants, for a total of $671,976,231 awarded.
In addition to the National Direct Student Loan Coalition, the National Association of Student Financial Aid Administrators (NAFSAA), U.S. PIRG, the Institute for College Access and Success (TICAS), the Association of Independent Colleges and Universities of Ohio, and the United States Student Association (USSA) have all endorsed Brown’s legislation.