Trenton, NJ – Last week, President Obama released his proposed budget for 2009-10. Among the numerous proposals is a controversial provision to combine the Federal Family Education Loan Program (FFELP) with Direct Lending, beginning in FY 2010-11. For over 43 years, FFELP has efficiently and effectively assisted millions of students attain the dream of a higher education. Funding for FFELP is obtained by leveraging the private financial markets and does not increase the national debt. Competition between lenders, servicers, and guaranty agencies then drive down the costs to students through value added benefits and services. Those benefits come in the form of reduced fees, improved life of loan servicing, default prevention programs, and public outreach activities.

This past year, FFELP has been challenged by the global financial crisis. However, due in part to support by Congress who recognize the value that FFELP provides, FFELP remains strong and continues to provide uninterrupted funding and services for millions of students nationwide.

While HESAA applauds President Obama’s strong commitment to increasing financial aid, such as the Pell grant, to assist students, we are concerned that the proposed elimination of FFELP would add roughly one-half trillion dollars to the national debt over the next five years. Moreover, the purported savings to tax payers from the use of the Direct Lending program has long been debated. Indeed, a May 2006 report from American Student Loan Providers, entitled “Guaranteed Student Loans Cost Taxpayers Less” found that the costs of the Direct Lending program are slightly higher than the FFEL program. The report can be found at http://www.studentloanfacts.org/resources/.

Since the inception of the Direct Loan program 15 years ago, students, parents and institutions have overwhelmingly preferred the FFEL program. Only this past year, due to the recent decline in the national economy and the freezing of the credit markets, has the Direct Lending program experienced increased school interest. Nevertheless, the value of the services provided by FFELP providers, servicers and guarantors cannot be underestimated.

For 2009-2010, students, parents and financial aid professionals should remember two key points:

1. The budget is a proposal and is not final yet. It will need to go through the normal deliberation process in Congress and is subject to revision.
2. The proposed budget calls for changes to be effective for 2010-11.

The 2009-2010 school year will not be affected.

As the in-state resource for financial aid assistance, HESAA is committed to serving the students and families supported by the FFEL program. We will be working with national trade organizations, business and community organizations, colleges, and Congress to ensure a thorough and thoughtful discussion, ensuring that students and families are protected from any adverse unintended consequences.

About HESAA

Since 1959, HESAA, a non-profit, state designated Authority, has delivered over $18 billion in financial aid. Each year, over 1 million students receive assistance from outreach programs and aid programs HESAA administers including Tuition Aid Grant (TAG), the Part-time TAG for County College Students, NJSTARS and II, the Garden State Scholars programs, the Federal Family Education Loan program, NJCLASS, and NJBEST. For additional information about HESAA please visit our website at www.hesaa.org or call our Customer Care Center at 609-584-4480.