Local view: Direct student loans come with higher price

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BY JEFF NOORDHOEK

The Lincoln Journal Star’s May 5 editorial, “Direct college loans get welcome boost,” discounts the essential role that lenders, such as Nelnet, play in helping millions of students and their families who need funding to achieve their educational goals.

Since its inception in 1965 as a part of President Johnson’s Great Society, the Federal Family Education Loan (FFEL) Program has provided affordable funding to help more than 50 million Americans go to college. Another 5 million to 7 million students and their parents will seek FFEL Program student loans over the summer to pay for their education this fall.

The FFEL Program provides competition, choice and access. Lenders compete against each other to attract student participation. This translates into lower costs for students and better customer service. Students evaluate many lenders and select the one that best meets their needs. With the Direct Loan Program, students have only one choice when it comes to their lending needs: the federal government with all of its limitations.

Unfortunately, the political misrepresentations of the good intentions of thousands of financial aid officers and lenders, alluded to in the editorial, have shaken investor confidence in the student loan market. This is contributing to the liquidity crunch, which is leading to a college access problem for hundreds of thousands of students who plan to attend college this fall.

The Direct Loan Program’s track record suggests it is not nearly as efficient as some have argued. Several reports, including this year’s budget data from the Department of Education, show that the program costs taxpayers more than the FFEL Program — 2.26 cents per dollar loaned versus 1.44 cents per dollar loaned through lenders. Furthermore, if the Direct Loan Program grows, so does the national debt. If all federal student loans were funded by the Direct Loan Program, our national debt would grow by $500 billion over the next 5 years.

In addition to the costs felt by taxpayers, students have felt a blow from the Direct Loan Program. Students have historically paid more in fees for their student loans when attending schools that participate in the Direct Loan Program.

The FFEL Program is overwhelmingly preferred by the schools of Nebraska; it far outperforms direct lending in the areas of competition, service, choice and cost.

Jeff Noordhoek is president of Nelnet.