Changes Proposed for Guaranteed Student Loan Program

Secretary of Education Margaret Spellings has asked congress to change the way the federal government subsidizes the guaranteed student loan program. Jason Delisle is concerned about the proposal:

At issue is the index the government uses to set subsidy payments to lenders. Currently, subsidy payments are indexed to commercial paper interest rates, but securitization markets prefer to operate on LIBOR, a different index. In her letter, Secretary Spellings says that "volatility in the financial markets" has caused a major mismatch between the two indexes that could "have a severe impact on lenders' ability to make loans." She urges Kennedy to change the index "as quickly as possible."

While we appreciate the Secretary's concerns, this is not a matter that should be rushed or handled through behind-the-scenes policy negotiation. What Spellings has proposed is unprecedented, could be costly to taxpayers, and again highlights the desperate need for long-term reforms in the Federal Family Education Loan (FFEL) program.

Read the article at The Higher Education Watch Blog.