FFELP is the cheaper student loan program
For some time now, people have attacked the FFEL Program based upon the inaccurate argument that the public-private partnership is more expensive for taxpayers than the Direct Loan Program. Despite our best efforts to debunk this false assertion with our own research, we have been largely unsuccessful.
However, an article recently appearing in Inside Higher Education (“The Cheaper Student Loan Program?”) reinforces our position: the FFEL Program costs taxpayers less than the Direct Loan Program. The article may be found here: http://www.insidehighered.com/news/2007/12/05/loans.
Editor Doug Lederman confirms what we already knew, based upon revised budget data recently released by the U.S. Department of Education. The revised numbers include the effects of the College Cost Reduction and Access Act, which cut the FFEL Program by more than $20 billion. The data indicates that the federal subsidy (the net budgetary costs measured as a percentage of the amount lent) for loans in the Direct Loan Program is now 4.26 percent, compared with 1.72 percent for the FFEL Program. In other words, as Lederman states in his article, the Direct Loan Program will now cost about two and half times more to operate than the FFEL Program.
It is gratifying to have data provided by a government agency and featured in a reputable industry news publication supporting our position. I hope that the debate about the two loan programs can move beyond this hang-up on cost, which has often monopolized the conversation, and on to other things, such as which program provides better customer service and innovation. We would welcome that discussion too.
posted by nelnet at
|
Determination
Recently, I took my three boys to see the Kansas City Chiefs play their division rivals, the Denver Broncos, in Kansas City. We are all huge Bronco fans. My youngest and I wore red to camouflage our allegiance to the Broncos, while my middle son wore neutral colors and my oldest wore his Bronco sweatshirt. (Their clothing choice reflects their personalities as well.)
As we pulled into the parking lot at Arrowhead Stadium, I gave the attendant our parking pass. He swiped the pass twice before he noticed that it was for the game on December 16. Fortunately, he let me in after I paid an additional parking fee.
However, I was now faced with an even bigger dilemma as I pulled out the tickets for the game and realized that I had grabbed the wrong ones from my desk. My heart went to the bottom of my stomach; my kids had been looking forward to this game all year. Kansas City is a three hour drive from our home in Lincoln, Nebraska, and here we were, just minutes before kick off, and we did not have any tickets.
I was determined to get all of us into the game. It meant the world to my boys. I thought about going to Will Call, explaining the situation to the authorities and begging for some relief. With only ten minutes remaining until kick off, my youngest son and I instead circled the stadium looking for people selling tickets. After a few minutes and a couple of trades, we had our tickets and were headed for the stadium gates.
We still had one more problem. While I now had two sets of tickets, the seats were located in different areas of the stadium: two in the club section and two in the bottom tier of the end zone. After entering the stadium, I walked up to the attendant who lets people into the club seating area and explained to him our situation. He let us into the area with our tickets for the December 16 game. As a father, I was so grateful that we were able to watch the game that we had been waiting for all year together.
You may be wondering what this has to do with Nelnet. I am grateful to be a part of a great company helping students and their families reach their education goals. Just as we overcame several obstacles to get into the Kansas City Chiefs’ game, Nelnet will overcome the hurdles brought on by new legislation.
The main reason for our ability to adapt to the lower economics of federally guaranteed student loans has been our transformation to a diversified education services company. A few years ago, we made the strategic decision to diversify Nelnet with the addition of many great fee-based businesses. These businesses have diversified our revenue as well as products and services – we help families plan, prepare, and pay for their education. Although it has come with its costs, we are a much stronger company as a result.
Our diversification will help us, even as the new legislation takes its toll. The market for our products and services is growing. We are proud to be in this industry and remain committed to our vision of helping making educational dreams possible, no matter what obstacles come our way.
posted by nelnet at
|
Staying True To Our Mission
We have been watching closely as the events on Capitol Hill have unfolded. As it became evident that the proposed cuts to the student loan program would likely be passed by Congress, we started to think about how we could modify our business model to prepare for those cuts, as they will have a significant impact on the student loan industry. Over the course of the summer, we worked hard on innovative approaches to deal with the legislative changes, but also concluded that we would not be able to reduce costs enough through innovation alone.
Therefore, last Thursday, we launched a strategic initiative to position the company for continued long-term success by lowering the cost of student loan acquisition, creating efficiencies in our asset generation business, and decreasing operating expenses partially through a reduction in workforce and realignment of operating facilities.
These were extremely difficult decisions to make and were not something that we took lightly. We are deeply saddened to be losing some very valued, hard-working members of the Nelnet team, and recognize the significant impact these decisions will have, not only on our departing associates, but also on their families.
We remained committed to the affected associates and have made it our priority to help them successfully transition from Nelnet to other career opportunities with job placement services, extended benefits, and severance packages. Also, as part of this effort, we approached other companies with a need for the skill sets that our teams possessed, and are very pleased to be in the process of securing continued employment with third parties for many of the associates affected by the initiative.
As these changes to Nelnet take effect, it is important to know that while we are changing our approach, we remain committed to the education finance market, the FFEL Program, and, most importantly, to our mission of helping students plan and pay for their education. With all of this happening, it’s important to stay focused on our mission and vision. Recently, one of our Nelnet leaders reminded associates of the importance of their work and the difference it makes in the lives of our customers. He put it this way:
“I just hope that the next time you answer the phone, get an e-mail, write a letter or walk into a current or potential customer’s office that you’ll remember that we’re doing great work helping people realize their educational dreams. Today there’s a little six-year-old girl attending the first grade in a faith-based school because we’re helping her parents with a payment plan. There’s a young man who has just entered a private junior high school because his parents were able to request financial aid through our services. There’s a teenager who’s preparing to take the college entrance exams with our help. I see a college freshman just full of dreams that we’re helping make possible by providing her with a loan to attend a top quality institution. And, there’s a medical student on his way to helping heal the sick because we’re providing financial help so he can attend school.”
The future remains bright for Nelnet and we are confident that the results of this initiative will provide more value to our customers and more opportunities to our associates over the long term.Labels: Education, FFELP, student loans
posted by nelnet at
|
Here We Go Again
Hello and welcome back from the Labor Day weekend.
Yet again, Nelnet was welcomed back by another article critical of the student loan industry. The article in The Chronicle of Higher Education dredged up the 9.5% loan program issues, just as it appears Congress will put the final touches on legislation cutting the student loan programs.
As you know, this issue was resolved in January of this year when the Department of Education and Nelnet entered into an agreement under which Nelnet agreed to waive future 9.5% payments to which it was entitled under the longstanding and consistently applied rules.
Besides bringing up old news, the article left out important parts of the story. At every step, Nelnet consulted with the Department of Education on how we intended to fund and bill loans for the 9.5% floor payments and repeatedly offered the Department opportunities to respond or object. In fact, we had previously urged the Department, as well as Congress, to change the law and end the 9.5% special allowance payments for all lenders.
In addition, the Chronicle article incorrectly suggests that we benefited from the 9.5% payments received by the California Higher Education Loan Authority (CHELA) and Greater Texas Higher Education Authority (known as LoanSTAR) before we acquired student loan portfolios from them. In reality, none of the loans that we acquired from CHELA were eligible for the 9.5% floor and we publicly disclosed that we acquired a loan portfolio from LoanSTAR that included approximately $412 million of student loans receiving the 9.5% floors in October of 2005. Therefore, the article’s assertion is simply wrong.
Regardless, all of this is old news, but since the media feels the need to bring up this resolved issue once again, I think it’s important to keep the facts straight. We were very open and transparent about our use of the 9.5% provision. We cooperated fully with the Department of Education every step of the way, and ultimately we entered into the agreement so we could move forward with our mission of helping students and their families plan and pay for their education, something we are working very hard at every day.Labels: 9.5, student loans
posted by nelnet at
|
Back To School
As the summer draws to close, I see that students are starting to head back to school here in Nebraska and it brings me back to my own college days at the University of Nebraska, which I attended both for my undergraduate degree and my law degree. (Clearly, I am very fond of this state). Many things have changed since my time in college, the most prominent of which is cost.
Those students who are entering or returning to college will face the most expensive year to date. According to recently released reports from the College Board, most students and their families can expect to pay, on average, from $90 to $1,238 more than last year for this year’s tuition and fees, depending on the type of college. Here’s a link to the report:
Trends in College Pricing 2006, 2006 Trends in Student Aid,
The good news is that today, students and their families have more options than ever before when it comes to paying for college. Moreover, while the price of an education continues to rise, so does the value of that education.
People with a bachelor’s degree earn nearly twice as much on average than those with only a high school diploma, according to some U.S Census Bureau statistics. In addition, the gap in lifetime earning potential between a high school diploma and a bachelors degree (or higher) can be more than $1,000,000. So for those students out there who are debating whether a college education is ultimately “worth it,” there is some assurance that it indeed is, at least in terms of finances. This is not to mention the diversity of career opportunities a college grad will have in comparison to a high school grad.
It is clear that the short term cost of paying for college, while quite intimidating, will more than pay for itself over the long term. When you think about it like that, financing your education may not seem so daunting.
And that’s exactly why Nelnet is here: to help you plan, prepare and pay for your education so that you can go on to double your earnings potential and more importantly, reach your life long goals.
For all those students returning to school this fall, have a great year.Labels: Education, student loans
posted by nelnet at
Congressional Research Service Report
On July 27, the Congressional Research Service released a report on “Education Debt Burdens and the Student Loan Interest Rate Cut Proposed in H.R. 2669, 110th Congress.” The report concludes that most education borrowers are not burdened by their education debt and that as long as student debt is manageable and the investment in education yields a positive return, then there is no significant cause for concern. Broadly speaking, education indebtedness, therefore, is not the great problem that many have been suggesting. Rather, student loans create affordable access to a college education.
The report also analyzes the effect of the proposed interest rates cuts on student loan payments, concluding: “Interest rate reductions would reduce monthly student loan debt payments for undergraduate borrowers of subsidized Stafford loans by less than $18.” To derive these savings, the analysis compares the monthly payments of a $19,000 subsidized Stafford loan with the current interest rate of 6.8 percent to the same loan with a weighted average interest rate of 5.1 percent, which is due to the proposed interest rate reduction.
We certainly support making college more affordable and lowering loan payments for our customers. For nearly 30 years, we have been helping students and their families plan and pay for their education. It’s a part of our vision to be there with affordable student loans and quality customer service for families that require access to additional funds to attend and pay for college.
I think, however, students stand to lose far more from the pending cuts to the student loan programs than they would actually gain from the proposed interest rate reductions. Today, most lenders not only pay the borrower’s government origination fee on their Stafford loans, they also provide discounts for good payment habits after the borrower has completed school. Congress’ proposed cuts to the student loan program will very likely eliminate this value to the consumer. With the drastic cuts to the program, lenders will have no room to offer such benefits, which annually equate to tens of millions of dollars in fee reductions.
What is more, the cuts would significantly reduce competition because it seems inevitable that many lenders will exit the FFEL program and force borrowers into the government-run Direct Loan program, which will cost students more, offers no choice of lender, and has weaker service.
We should instead focus our efforts on helping more students, who could not otherwise afford it, obtain a higher education. This issue is most seriously experienced by lower income families. Without low-cost student loans through the FFEL program, many would not have the opportunity to gain the education that increases their future earnings.Labels: Education, student loans
posted by nelnet at
Affinity Partnerships End for Nelnet
I read with interest this July 24 article appearing in the Dallas Morning News . It discusses the effects of our recent decision to discontinue our affinity partnerships with alumni associations.
This was a decision that we definitely grappled with, as many of our alumni partners and their members truly appreciate the opportunities and services these relationships presented. As a member of the UT-Tyler alumni group said in the article, his organization and its members are going to suffer as a result of the termination of our affinity and license agreement.
We decided to end this aspect of our business in light of pending legislation and draft regulations that call for the elimination of this program. The often intense, but in our opinion misplaced criticism of these relationships was unfortunate.
We feel as though we have offered some of the most competitive consolidation products for graduates and we think alumni are very supportive of helping their alumni associations by purchasing products that help them individually and also benefit the association, very similar to credit cards and many financial and other products.Labels: borrower benefits
posted by nelnet at
|
|
|
|
