Reform proposals
All stakeholders including schools and the lending community agree with the President’s main objectives: to create better student loan programs for students, schools, and taxpayers and to secure a historic level of savings for Pell Grants.
Student loan community proposal
With a few enhancements to the Administration's proposal, as outlined in the Student Loan Community Proposal, choice and competition in loan servicing and loan origination can be preserved by affording numerous originators and servicers, including smaller, regional, state and non-profit providers, the opportunity to compete to provide quality service to students.
More than 30 members of the student loan community (PDF) — including, non-profit state agencies, stand-alone lenders and loan servicers, consumer banks and non-profit state-based guaranty agencies and secondary markets — have signed on to the Student Loan Community Proposal.
More information
Key features
- A historic increase in Pell Grant funding
- Preserves choice and competition in the federal student loan program
- Eliminates lender subsidies and engages private sector to deliver high-quality services on a fee-for-service basis
- Leverages low-cost federal funding
- Keeps the loans on the government's books so they earn the net interest income
- Reduces defaults by requiring “risk sharing” for all student loan servicing
- Extends repayment and graduated repayment for borrowers
- Eliminates massive transition risk of requiring 4,000 schools to immediately move to the government’s loan system
Summary of major provisions (PDF).
School proposal
In addition, an independent group of financial administrators known as the Friday the 13th Group, released a framework for reform (PDF, 155KB) that would simplify the student aid system, maintain postsecondary institution and consumer choice in the federal student loan program, and earn historic taxpayer savings for Pell Grants and Federal Work-Study.
Key features
- Capitalize on the historic opportunity to generate funding for need-based financial aid by shifting to a model of 100% federal funding for all federal student loans and simplify the financial aid system for students by eliminating ACG, SMART, TEACH and SEOG, and redirect those financial resources toward need-based financial aid by significantly expanding funding for the Pell Grant and Federal Work-Study (FWS) programs.
- Preserve institutional choice of loan programs to leverage competition, maximize service levels and preserve student and parent choice of lender to ensure life-of-the-loan servicing and the continuation of customized default prevention and financial literacy programs.
- Eliminate the significant financial and administrative burden and likely subsequent confusion and processing risks associated with requiring thousands of postsecondary institutions to switch to an entirely new loan process.
Read quotes from financial aid administrators regarding the school proposal.