Contact:

Tracey Mills, tmills@cbanet.org, (703) 276-1750

Student Loan Bill a "Setback for Students," But Just the First Step

Washington, DC (July 21, 2009) - Richard Hunt, president of the Consumer Bankers Association, today called a congressional committee's approval of a proposal to eliminate federally guaranteed student loans "a setback for students." The U.S. House Education and Labor Committee approved The Student Aid and Fiscal Responsibility Act; while the full House may consider the bill before the August congressional recess, the Senate is not expected to take up the legislation until September.

Richard Hunt said, "The House committee's approval is a setback for students, but it is just the first inning in a game that could easily go into extra innings. For 44 years retail banks in towns and cities across the country have served their customers by offering low-cost federal student loans. If the federal government takes over this important consumer transaction, it would cost jobs and lead to poor service."

The bill would eliminate the role for private lenders in making federal student loans; it would force students who attend 4,400 of the nation's 6,000 schools to begin getting federal student loans directly from the federal government's Direct Loan program, which currently serves about 1,600 schools. Students and parents would no longer have a choice of lenders, a right they've had since 1965.

"The bill would eliminate the consumer choice that has produced lower cost loans, better service, innovation and effective default prevention programs," Hunt said. "There's still time, however, to persuade Congress that creating a student loan monopoly, run out of Washington, D.C., is bad for borrowers and could cost thousands of jobs."

Supporters of the House bill, which is based on a White House proposal, say it would save $87 billion over ten years. The White House says the proposal would save $41 billion over ten years, an amount that also does not include the Direct Loan program's operational costs.

Hunt said, "Given the uncertainty of these cost estimates, it is unwise to eliminate a successful public-private partnership that serves millions of families and thousands of schools."

For ninety years the Consumer Bankers Association has been 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.