One aspect of NASFAA’s NCI preliminary recommendations is a new approach to student loans that would replace the Federal Family Education Loan Program, the Direct Loan Program, and the Federal Perkins Loan Program with a program that integrates the best aspects of all three. This new loan program would incorporate current FFELP participants to ensure a high level of customer service and maintain valuable borrower services like financial education and default prevention.

This new, integrated loan program would be simpler and more equitable for students while expanding the amount of capital available to make loans through the capital markets. The proposed loan model also encourages all beneficiaries of postsecondary education (i.e., borrowers, state governments, private employers, friends and families, and all Americans) to help pay down borrowers’ debt levels and raise capital for a self-sustaining loan fund.

NASFAA has been receiving questions from members about the proposed loan model and has posted some common questions and answers. We will continue to post answers to common questions as we receive them.

The proposed loan program would:

• Subsidize student loan borrowers during repayment - instead of while they are in school
• Decrease student loan burden by strengthening the Income-Based Repayment program so students never pay more than 10 percent of their discretionary income and loans are forgiven after 20 years of repayment.
• Provide consistent and equal terms, conditions, and benefits to all borrowers
• Offer a seamless loan origination, disbursement and repayment experience for students
• Ensure a predictable and continuous source of capital for student loan funding that isn’t dependent on any single entity
• Reduce federal expenditures by creating a self-sustaining funding source that relies on new, safe investment vehicles
• Leverage technological and business innovations in the private sector by creating a common servicing platform that relies on a centralized database of all borrowers and can be used by multiple servicing agents
• Creates new incentives for businesses, individuals, and states to help students repay student loan debt
• Capitalizes on the expertise and best practices developed by all entities currently participating in the existing loan programs
• Is not the FFEL, Direct Loan, or Perkins Loan program, but rather an entirely new loan program created from the most positive aspects of all three

We are curious about what you think of NASFAA’s proposed loan model, so please post any comments, questions or concerns you have about the proposal.

Some aid administrators view borrowing as a good thing for students, regardless of their background, because it teaches fiscal management and makes a student feel invested in his or her education. Others argue that borrowing creates inequity by placing a heavier burden on lower income students and say loans should be replaced with grants for students with financial need. Still others think borrowing to pay for college is inappropriate regardless of income and should be phased out.

Now it’s your turn:

• What role should loans play in helping students pay for college?
• Should all undergraduate students be expected to borrow? None?
• What about graduate students?

During recent NCI Listening Sessions, some have suggested a reform and reconfiguration of the existing Title IV programs. Several of these ideas appear below. Please review these ideas, and then express your thoughts on the current structure of the Title IV programs, whether it should be changed, and if so, how it should be changed?

• Some feel that the Title IV programs should be reformed to provide one grant, one loan, and one work assistance program. This would mean the elimination of the FSEOG and Perkins Loan programs, and possibly redirecting the funding to a larger Federal Pell Grant program. How do you feel about this idea?
• Alternatively, some suggest the campus-based programs be modified to combine the monies and provide those funds to schools in a “block grant” to be used any way the school desires for student aid or student retention and/or graduation enhancement programs. Do you agree?
• Those who argue against these consolidations of aid programs into single types or provision of block grants suggest it would result in a total loss of these federal appropriations or make them a juicer target in times of budget crises. What do you think of these arguments?