CBA News
CBA Says Federal Action is Needed Now to Avert Loan Access Problem
'To rely on the Direct Loan program to meet the needs of borrowers who may suffer loss of access to student loans in coming weeks would be a mistake. This option should be rejected by all.'
CBA President
The testimony urges immediate action to promote liquidity in the student loan financing markets, but notes that bank lenders' participation in the student loan programs depends on the opportunity to earn an adequate return on student loans. In the testimony, CBA notes, "Last summer, before a yield cut of 0.55% on Stafford Loans, a doubling of the lender paid origination fee, and a more than 0.70% rise in debt costs, a typical FFEL lender was able to earn a net return before taxes of 1.12%. That return now is approximately a negative 0.4%."
To address the problem of unacceptably low returns, CBA proposes that various budget cuts made in last year's budget bill, including eliminating the increase in the lender paid origination fee and the reduction in lender yield, be revisited and rolled back.
CBA noted in its testimony that loan access problems exist in the non-federal student loan market and also that CBA supports increasing unsubsidized
Belew also expressed concern over the statements of some policymakers suggesting that increased reliance on the Direct Loan program represented a solution to the student loan access problem. "Anyone familiar with the challenges of running a large-scale student lending operation will doubt whether the Direct Loan program could handle a sudden and dramatic increase in student loan volume. To rely on the Direct Loan program to meet the needs of borrowers who may suffer loss of access to student loans in coming weeks would be a mistake. This option should be rejected by all."
"Eighty percent of student loans are made through the private-sector based FFEL Program because students and schools prefer the high quality of service provided by private lenders," Belew said.
The Consumer Bankers Association is the recognized voice on retail banking issues in the nation's capital. Member institutions are the leaders in consumer financial services, including auto finance, home equity lending, card products, education loans, small business services, community development, investments, deposits and delivery.
CBA was founded in 1919 and provides leadership, education, research and federal representation on retail banking issues such as privacy, fair lending, and consumer protection legislation/regulation. CBA members include most of the nation's largest bank holding companies as well as regional and super community banks that collectively hold two-thirds of the industry's total assets.
SOURCE Consumer Bankers Association
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