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The Guarantor of Choice SM |
TG's Legislative Report
May 3, 2004
Sunset Advisory Commission Review of TG Begins
TG's review by the Texas Sunset Advisory Commission has begun. The Sunset staff held its entrance interview with TG's senior staff on April 27th and a corporate overview meeting on the 29th.
The following is a notice published and issued by the Commission to all interested parties.
The Sunset Review of the Texas Guaranteed Student Loan Corporation
The mission and performance of the Texas Guaranteed Student Loan Corporation (the Corporation) are currently being reviewed by the Legislature as required under the Texas Sunset Act. The Act provides that the Sunset Commission, composed of legislators and public members, periodically evaluate certain state agencies and entities to determine if they are still needed, and what improvements are necessary. Based on the recommendations of the Sunset Commission, the Texas Legislature ultimately decides whether an entity continues to operate into the future.
The Sunset review involves three steps. Sunset Commission staff will evaluate the Texas Guaranteed Student Loan Corporation and, in October, 2004, will issue a report recommending solutions to problems found. The Sunset Commission will then meet to hear the recommendations of the Sunset staff and public testimony on the Corporation. This meeting is tentatively scheduled for November, 2004. Based on public input and the Sunset staff report, the Sunset Commission will adopt recommendations for the full Legislature to consider when it convenes in January 2005.
Through the Sunset review, every Texan has the opportunity to suggest ways in which the mission and operations of the Corporation can be strengthened. If you would like to share your ideas about the Corporation, please contact Lori Hartman of the Sunset staff. Suggestions are preferred by July 30, 2004, so they can be fully considered by the Commission staff.
Sunset Advisory Commission
P. O. Box 13066
Austin, Texas 78711
Phone: (512) 463-1300
Fax: (512) 463-0705
Email: sunadmin@sunset.state.tx.us
Information about the Sunset process, including more information on Sunset Commission meetings, can be found at www.sunset.state.tx.us.
The Sunset Commission's Feedback Form can be accessed at www.sunset.state.tx.us/question.htm.
TG's Self Evaluation Report can be accessed at www.sunset.state.tx.us/79threports/tgsl/ser.pdf.
Letter to Texas Congressional Delegation
The following memorandum concerning student loan consolidation issues was sent by the Texas student financial aid community to the Texas Congressional Delegation this month.
TO: |
Members, Texas Congressional Delegation (TCD) |
FROM: |
The Texas Student Financial Aid Community |
RE: |
Student Loan Consolidation Issues |
Many TCD offices have requested our position on student loan consolidation issues currently being discussed in Congress as a part of the Reauthorization of the Higher Education Act.
The Texas Association of Student Financial Aid Administrators (TASFAA) and the Association of Texas Lenders for Education (ATLE) are organizations composed of student financial aid professionals from postsecondary institutions across the State representing public, private, community colleges, and proprietary sectors and of student loan professionals representing Lenders across the State that participate in the Federal Family Education Loan Program (FFELP). These two organizations in conjunction with the Texas Guaranteed Student Loan Corporation (TG) are submitting these recommendations to the TCD.
We have already submitted comprehensive recommendations concerning the Reauthorization of the Higher Education Act. This memorandum is specific to student loan consolidation issues and, for the most part, reiterates the recommendations made in our comprehensive submission which can be accessed at:
www.tgslc.org/reauth/reauth_txfinaid.cfm
www.tgslc.org/lege_report/2004/lr_040312.cfm.
Student loan consolidation issues should be reviewed thoroughly by looking at all aspects associated with this program. These issues should include the original purpose, benefits, and conditions of the 1985 student loan consolidation program, cost to lenders and holders, parity with the Federal Direct Loan Program, and, most important of all, the appropriate level of taxpayer subsidization for consolidated student loans after the borrower leaves school. All of these issues must be considered while balancing the interests of the borrower (convenience and cost) and the provider (cost of funds and student loan portfolio valuation volatility).
However, in balancing the interests, we urge the Congress to consider the cost to the federal government and to the other need-based student aid programs. The central issue here is whether it is better public policy to spend marginal public dollars to continue to subsidize former students, or to spend these funds assisting current and future economically disadvantaged students with need-based student aid.
This last concern is of special importance to Texas because Texas has embarked on an ambitious and very necessary program to enroll 500,000 new students in postsecondary education. Most of these are first generation college students coming from economically disadvantaged minority families who, while academically prepared, need student financial assistance to pursue and obtain a college degree.
Of the loan consolidation-related issues, the issue of moving to a variable interest rate for consolidated student loans to mirror the regular Stafford Loan rate seems the most logical and reasonable for new borrowers. If a variable rate were in place for consolidated loans, the issues of single holder and reconsolidation would be marginalized or, moot. Simply put, in the current environment, all variable interest rate consolidated loan borrowers would be benefiting from the current low interest rate paid by regular Stafford Loan borrowers.
Several bills before Congress address what is referred to as the single holder rule. Under the single holder provision, a borrower who has all his student loans with one lender and who seeks to consolidate his loans must attempt to do so first with that lender. In recent years there has been enormous growth in companies that specialize in making consolidation loans. It seems that these companies are the primary proponents for repeal of the single holder rule since it would greatly enhance their opportunity to market their product.
While some of these companies may have recently begun originating conventional student loans, none have the experience that traditional student loan lenders have in originating and servicing student loans in Texas. Because they are fairly recent arrivals to the student program, these entities do not have the decades of experience in providing support services, outreach activities, and default prevention programs for students, parents, and schools that the conventional FFELP lending community has developed over the years. The focus of these companies' marketing materials targets how the borrower can lower his monthly payments, but some do not mention or thoroughly explain how consolidating can lengthen the repayment terms on the student's loan debt from the standard 10 years to 20 or 30 years. Although the borrower may have, in the short run, lower monthly payments, the long term costs could be excessive due to the extended repayment terms. It is not clear whether all of these consolidators provide the borrower information about the loss of certain borrower benefits that may occur with consolidation loans since some of these companies are in the business of student loan consolidation and, in some cases, this may be their only purpose.
Another aspect of the single holder rule that is not talked about very often, and that is also of special importance to Texas, is the possible effect on the school default rates and the consequences that can occur. Schools generally have no control over the final holder of a borrower's loan since most lenders sell their loans when they reach repayment status so they can recycle the repayment funds into additional loans. Therefore the final holder of the loan or the servicer they use to service these loans in repayment status can have an effect on the school and ultimately the student. Schools with high default rates could lose funding for all Title IV funds or could have restrictions placed on the handling of the funds to students for certain default rates.
In Texas, the schools, lenders, secondary markets, servicers, and state guarantor have successfully worked in a collaborative manner over several years to develop and maintain a statewide default prevention model which uses a variety of methods to control and lower student loan delinquencies and defaults. One tool used in this model is dependent on the single holder rule in that most schools maintain a lender list for students that indicates which lenders have a good record of servicing loans or lenders that use servicers that do a good job of servicing the loans in repayment. This is one of the few ways a school can impact its default rate. Currently schools with a default rate of 10 percent or higher must put a 30 day delay on the issuance of the first disbursement of a student loan for first-time, first-year borrowers and also have multiple disbursements for students who will be attending one semester of a loan period. Prior to October 2002, there was a provision that allowed schools with a default rate below 10 percent in the most recent three-year period to be exempted from this provision. This provision expired, but is being proposed to be reauthorized in several bills, including the Administration's initial set of Reauthorization proposals. The removal of the single holder rule may make the research concerning lender's and service's default and delinquency prevention performed by Texas schools to maintain low default rates less effective.
These same concerns apply similarly to the issue of reconsolidation of consolidated student loans, including the Texas default prevention concerns.
We hope these positions are clear. Please feel free to contact either Jimmy Parker at (806) 324-4115 or George Torres at (512) 219-4503 if you have questions or need additional information.
TG Congressional and Legislative Relations
(512) 219-4503
P.O. Box 83100
Round Rock, TX 78683-3100
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