Although many students face the difficulty of paying back loans, acquiring loans in the first place is now becoming a pressing issue. As a result, the US Department of Education is getting involved to make loans easier to secure by purchasing Federal Family Education Loan Program Loans (FFELP).
With the recent financial crisis in the United States, banks began to restrict lending, and people have found it harder to borrow money. This was especially tough on students, many of whom rely on loans to pay for their education.
Therefore, Education Secretary Margaret Spelling announced on Nov. 8 that the department will purchase loans, including the FFELP loans from 2007 to 2008, to "ensure availability of federal student loans, maintain the public/private partnership in the Federal student loan program, protect taxpayer interests by adding no net costs to the Federal Government, and provide the liquidity and support needed to stabilize the student loan marketplace."
The plans are to accumulate $6.5 billion in loans by buying $500 million worth of loans each week beginning in early December until Feb. 28, 2009.
The department will also buy fully disbursed FFELP Subsidized Stafford, Unsubsidized Stafford, and PLUS loans originated for the 2007-2008 academic year, according to the department's Web site.
"I am not sure where this will end up 20 years from now because student loans have high interest as it is. So going through a middleman will only increase the costs for a student," said University of Massachusetts student Rachael Mroz.
On Nov. 20, Spelling said in a statement, "I remain committed to making sure students and their families continue to have access to Federal loans for this school year and beyond."
These words may reassure those who think the department will not have the money to buy loans if the financial crisis continues.
"Today I am using the authority granted by Congress to protect students and their families during the unprecedented current market conditions and taking necessary steps to help ensure continued, successful disbursements of student loans," Spelling said.
"It is so important that students be able to continue their education and focus on learning rather than worrying about how and whether they can pay their college bills," said Anna Nagurney, a professor from the UMass Department of Finance and Operations Management. "Studying and getting the best education possible should be a student's primary concern. The investment now will pay the nation back many times in terms of human capital."
In terms of how this will impact the future, Nagurney said, "The default rate on student loans is still lower than the default rate on certain types of subprime/exotic mortgages. Thus, it is very likely that this investment by the federal government will pay off."
Last week, the US Treasury Department announced a new $200 billion consumer-lending program that can be used for student loans.
However, student advocacy groups are voicing their concern over this program, saying it benefits only private student lenders.
Student advocacy groups say that private student lenders prey on students with high-interest loans.
"The estimated 8 percent of undergraduates who take out private loans often are swayed by misleading and deceptive advertising, then saddled with interest rates two or three times as high as federal loans," wrote a Washington Post staff writer.