WASHINGTON - The cost of making student loans would rise significantly for financial institutions under a budget measure expected to be approved by a Senate committee today.
Looking for $10 billion in budget savings by 2002, the Senate Labor and Human Resources Committee is proposing a decrease in the government's guarantee of student loans, along with more and higher fees on student lenders.
"This will have a very bad effect on a large number of lenders, especially smaller and medium-size lenders," said John E. Dean, Consumer Bankers Association special counsel. "It will accelerate the departure of some lenders from the program."
The measure would make financial institutions share 5% of the unpaid principal and interest of defaulted loans. Currently, the government guarantees 98 cents of every dollar of a loan. The bill would drop that figure to 95 cents. After a student graduates, financial institutions would be hit with a 2.5-basis-point fee twice a year on the total loan amount. Finally, the bill would double, to 100 basis points, the origination fee lenders must pay the Department of Education.
The House Economic and Educational Opportunities Committee is expected to vote on similar legislation next week.