A bill encouraging colleges to leave privately-sponsored student loan programs for a federal program was introduced in the U.S. Congress during budget deliberations earlier this month.
The Student Aid Reward (STAR) Act, introduced by Sen. Edward Kennedy (D-Mass.), aims to give universities an incentive to join the federal government-managed William D. Ford Federal Direct Loan Program (FDLP).
This would eliminate the need for heavily subsidized private intermediaries such as banks and private lenders like Sallie Mae.
In a conference call held during spring break, Kennedy, along with STAR act cosponsors Rep. Thomas Petri (R-Wis.) and Rep. George Miller (D-Calif.), addressed reporters from college newspapers across the country.
"We made the announcement today to try and do something about the explosion of cost of all higher education, college as well as graduate school," Kennedy said. "We are trying to introduce legislation that will promote the direct loan plan."
Most college students currently use the privately-sponsored loan program, through which they borrow money from banks and lenders. The money for these loans is subsidized by the federal government.
Under the proposed plan, universities would shift to a federal program which, by eliminating the need for subsidies and private intermediaries, would save the federal government an estimated $7 billion to $9 billion a year.
The proposed changes are not expected to have any effect on Princeton's loan programs, according to Director of Financial Aid Don Betterton, who said that he was unaware of the legislation being proposed.
"We've already made up the financial aid packets for next year and none of this is really going to have any impact on the rewards that we give out," he said. "Our students borrow so little that it really isn't of primary importance to us."
Kennedy said the proposed plan would lead to a total increase of $17.2 billion in grant aid for students at no additional cost to taxpayers, calling it a "win for the students, win for the colleges and a win for the taxpayers."
Opponents of the legislation point to reports by the House Budget Committee and surveys by PricewaterhouseCoopers claiming that the statistics presented in the STAR bill understate the actual cost of the legislation for the federal government.
"The legislation has a fundamental flaw," Kevin Bruns, Executive Director of the American Student Loan Providers, said in a statement this week. "It's based on numbers that don't add up."
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