Blogs:

After the legislation was signed by President Obama a couple of weeks back, private lenders are completely out of student loan scene. From 1st July, these loans will be disbursed directly by the government. Skilfully attaching this legislation to the health care bill, Obama administration managed to get it passed.

Now the question is whether higher education students will actually benefit from this program or not. Henceforth, students will have to rely exclusively on the federal government for their loans. As of now, the channel of delivery was quite consistent and efficient and students actually benefited to a great extent from the competition among private lenders. There were at least 2000 non-profit lenders and community lenders involved in this loan network.

In future, they will have to rely exclusively on a handful of Federal call centres for their student loan requirements. And…..all of us do have bitter experiences with the process of delivering products by the Federal Government. Remember the social security and postal service?

There has been regulatory change recently regarding the paperwork involved in the loan process. This has been made highly cumbersome making it very time consuming for the banks. Many of them have anyway been considering giving up private higher education student loans.

The gap between government financial aid and school aid has always been bridged by private education loans for many years. Many students have greatly benefited from financial aid offered by government no doubt in spite of the fact that aid has been constantly shrinking of late. They have been able to realize their college dreams with the help of student loans.

According to bankers, they completely support the application process transparency, which is pretty well intentioned. However, they completely miss the mark, they say. According to them, at three different instances, banks are required to comply with complicated disclosures according to the new rules.

These disclosures must be mailed as a printed copy each time after which the bank has to wait for response from students. This is quite a cumbersome and time consuming process that wastes a lot of valuable resources.

After approval of the loan, all the credit terms must be honoured after being locked in by the institutions. This is done to give enough time for students to decide whether they want to avail of the loan or not. If this were not enough, banks and institutions must provide students with helpful information on other federal student loan programs that are more cost effective.

Finally, the final disclosures must be provided after acceptance of the loan by students. Now again, the student is given three days to decide on going ahead or cancelling the loan. Until this period expires, the bank is again required to delay the loan disbursement and wait in a patient manner.

The same procedure applies to the loan borrower as well. They must now go through this laborious and time consuming process of disclosures at various stages and wait endlessly for money that they desperately need.