Vt. Nonprofit Lender Mulls Life After End of Student Loan Program ...

The Vermont Student Assistance Corporation (VSAC)was established in 1965 as a public nonprofit agency designed to oversee theissuing of federal education loans to Vermont students. But with the sweepingreforms to the federal student loan program that were passed in 2009, bundledin with the national health care reform bill, VSAC and agencies like it werestripped of their ability to originate new federal education loans.

As of July?1, 2010, all federal parent andstudent loans are nowprovided to borrowers directly by the U.S.?Department of Education,and VSAC is now facing a staff reduction of nearly two-thirds as it tries tofind ways to survive in the age of the Federal Direct Student Loan Program.

The agency had been a lender in the FederalFamily Education Loan Program (FFELP), which was discontinued as partof the federal student loan reforms. As part of its lending functions under theFFEL program, VSAC acted as both a lender and servicer of federal collegeloans.?

Under the new world order, with FFELP disbanded, VSACcan still manage (i.e., ?service?) all the student loans it had issued in thepast, but the agency is no longer able to issue new loans.?

Revenues from the repayment of issued loans wereused to fund new student loans as well as ongoing financial aid and studentloan education programs, so the agency faces a revenue reduction of about 90?percentas its existing loans are repaid.

VSAC still issues a small number of private student loans, non-federal loans funded byVSAC rather than by the Department of Education, but the agency is looking fora new role with the Direct Loan program.

VSAC recently submitted a proposal to the EducationDepartment to service more than the current statutory maximum of 100,000 federaleducation loans. Under the proposal, the agency is seeking permission toservice the student loans of all Vermont students and all non-resident studentsenrolled at Vermont colleges and universities. Under the new Direct Loan programrules, only four organizations have been authorized so far by the EducationDepartment to service more than the allotted 100,000 federal student loans.?

Even if VSAC?s proposal is approved, however, therevenue from servicing the federal direct loans would bring in only a fractionof the revenue the agency once earned as a lender in the FFEL program.

VSAC is also asking the Vermont state legislatureto help underwrite its administrative costs by allowing the agency to divertabout 7?percent of its $21?million state appropriation fromneed-based grants and scholarshipsfor students to the agency itself. VSAC is also asking legislators toallow its private student loan borrowers to deduct up to $500 of the intereston its private student loans from their state taxes.

The agency?s future role is unclear and is likelyto remain that way until at least April, while it waits for a determination onthe expanded servicing of federal college loans made through the Direct Loan program.The state legislature is likely to render a decision more quickly.

But even with its private student loan portfolio, afavorable decision on student loan servicing from Washington, and additionalsupport from the Vermont legislature, VSAC will still need to reduce its budgetby about 10?percent a year for the next three years in order to remainsolvent.

The agency, which currently employs about 300?people,has already cut about 60?positions through attrition. If the addedstudent loan servicing work doesn?t materialize and legislators don?t agree tosupport the agency?s administrative costs and financial aid counseling and outreachwork, the agency will likely reduce its staff by an additional 200?positionsbefore the start of the next fiscal year.

?student loans, private studentloans, scholarshipsfor students, FederalFamily Education Loan Program

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