Federal Budget Deal Could Hit Student Loan Servicers
NEW YORK ( MainStreet) A federal budget deal was struck Tuesday night that is expected to prevent another government shutdown next yearand have an impact on student loans.
The agreement depends on whether the deal makers--Senator Patty Murray (D-Wash.) and Rep. Paul Ryan (R-Wisc.) can sell it to their respective caucuses. If it becomes law, about 87% of last year's sequester cuts are expected to be restored, leading to an increase in federal spending of about $63 billion during the next two years.
Some spending could be replaced without a tax hike or reductions in entitlement programs. Soup-to-nuts sources of new revenue include higher airline security fees and increased pension contributions from federal workers.
"We are generally pleased," Joel Packer, executive director of the Committee for Education Funding, told Inside Higher Education on Wednesday. While Packer said that this is not what his lobbying organization called for -- which was total replacement of pre-sequester funds -- "this deal does stop the cuts." The sequester is scheduled to run until 2021. There was no apparent word on whether any of last year's cuts to Iraq and Afghanistan service grants or Teacher Education for College and Higher Education Grants--TEACH grants--could be restored.
The budget agreement calls for congress to cut payments to private lenders who made student loans in the now-defunct Federal Family Educational Loan ProgramFFELloans guaranteed by the federal government. The FFEL program ended when the 2010 Health Care and Education Reconciliation Act was passed, ending the lenders' role as fee-harvesting middlemen between students and the Department of Education, which now makes loans directly to students through their colleges or universities. Many of the loans made before FFEL was shut down are still on the street, and a significant number are delinquent or in default.
The new budget proposal could also derail the no-bid contract gravy train for non-profit student loan servicers. The Health Care and Reconciliation Act that ended government guarantees for private lenders preserved annual, no-bid contracts for about 39 non-profit servicers of government loans, who provide operations that include payment processing, claims processing and collections.
These companies don't seem to have a friend in Paul Ryan, who wants these servicers to bid competitively for the federal government's business.
Ryan, the House budget committee chairman, is calling on Congress to "end the special treatment for non-profit student-loan servicers" in a fact sheet his office sent out when the budget deal was announced. "We're paying them too much," he said of the loan servicers, "and these groups should compete for our business fair and square. That would save $3 billion."
Shelly Repp, who represents the student loan servicers and guaranty agencies as president of National Council of Higher Education Loan Resources, found aspects of the Murray-Ryan deal "very troubling." He said that a cut in fees servicers charge for default reduction would "not only result in fewer loan rehabilitations, but also hamper the ability of guarantee agencies to provide access, financial literacy and delinquency prevention services."