Student Loan Bill Could Drastically Alter Education ARM Industry

Congress is slated to debate a bill today that would fundamentally change the student loan industry. The “Student Aid and Fiscal Responsibility Act of 2009” proposes changes to Federal student loans that would impact independent debt collection agencies, borrowers and institutions of higher education across the country.

Under the bill, which was passed out of the Education and Labor Committee in July by a 30 to 17 vote, after July 1, 2010 all Federal student loans will be placed under the Direct Loan Program. In effect, the bill would kill the popular Federal Family Education Loan Program (FFELP). The new student loan system would remove the middle men in loan servicing and collection, making the Department of Education (ED) creditor, processor, servicer, and collector of all Federal student loans.

The U.S. House is scheduled to debate the bill Thursday, with a vote possible by Friday.

The switch to the Direct Loan program will also alter the current Perkins Loan program, changing it to the Federal Direct Perkins Loan Program, which will create a new form of direct loan modeled after the government’s current unsubsidized Stafford Loans, with interest rates capped at 5 percent.

It is thought that the changes to the Perkins Loan program – a program that provides campus-based low-cost Federal Loans to students who demonstrate financial need – will ultimately benefit the education system and students by expanding total loan volume under the plan from $1.5 billion per year to $6 billion per year.

“We strongly support expanding the Perkins Loan program to make loans available to more students at more schools,” said Robert Perrin, president of the Coalition of Higher Education Assistance Organizations (COHEAO).

But a wholesale shift to exclusively government loans could lead to massive job losses for many workers in the space.

Perrin, also the president of accounts receivables management firm Williams & Fudge, told insideARM that their research showed “potential job losses of between five and 10 thousand jobs among [collection] agencies, billing servicers and campus employees.”

In an interview with NPR Thursday morning, Jeff Noordhoek – president of student loan provider NelNet – said that job losses in the industry could reach 35,000.

Perrin noted that relationships that have been developed between students, collection agencies, billing servicers and schools will be lost when ED takes over. “The loss of a personal touch is a detriment to student borrowers,” he said.

“Schools will only be involved with downloading funds from the Department of Education, and then determine which students are eligible for those funds and disperse accordingly. That’s where it ends. All servicing and back door operations on campuses, and all the collections will be done under ED and entities they contract with,” Perrin said.

Don Taylor, president of Account Control Technology, Inc., a collection agency that is currently working for ED, told insideARM that his firm supports a mixed marketplace. “We support choice in student lending, which we believe is best for the borrower,” he said. “The Perkins program has been a successful program for more than 40 years and we see no need to change a successful program.”