School-Based Vs. Student-Based Certification
This post was written by Michael Bennett
April 1, 2008 2:15 pm College Access, Credit Crunch, LoansNASFAA President and CEO Dr. Phil Day recently sent a letter to Secretary Spellings urging her to proactively implement steps to ensure an uninterrupted supply of low-cost federal student loans. Dr. Day advocated three “safety nets” that should be put in place: lender of last resort (LLR), ease of access for schools that want to enter into Direct Loans, and an increase infusion of liquidity in the student loan market.
An infusion of liquidity into the student loan market would arguably provide the most seamless access to student loans for FFELP schools and their students, but it is important to have as many options prepared as possible.
LLR provisions could provide a realistic option, but some additional guidance from the Department of Education is still needed. At issue is whether borrowers would be required to prove they have been denied a conventional FFELP loan, which would add another complex step in an already overly complicated financial aid process. This would have the greatest negative impact on low-income students and could mean the difference between attending and not attending college.
In the letter to the Department, Dr. Day suggests that guarantors be granted flexibility to work with schools where large numbers of students are being denied access to conventional FFELP loans and provide the institutions with a school-based LLR certification that would allow all borrowers at that institution to use LLR loans.
That would remove any additional burden on borrowers. Since the students most likely to be effected first by any disruptions in federal loans would be from schools with low graduation rates and higher numbers of low-income students, a school-based certification makes seems to be a practical solution. Current law and previous Department guidance appears to give the Department authority to allow school-based LLR certification. However, the Department has yet to say whether it will allow this type of certification.
What is your view of school-based LLR certification? How do you see it working? What criteria do you think should be used for a school-based LLR certification process? Are there any other steps institutions, guaranty agencies or the Department can take to ensure LLR is not an additional burden for students? I look forward to your thoughts on this!
April 2nd, 2008 at 7:53 am
Michael: I appreciate your comments. School based certification would definitely be the way to go. However, if the school knows of lenders who are still processing where approval will happen, then wouldnt the school still have to go back to the student to allow them the opportunity to select the new LLR (assuming their are more than one LLR’s designated) since we cannot select a students lender, would we have the right to select their LLR? Another complexity is if we have to pass a code to the LLR as the proof of our certification of denial of previous loan then that addes a layer of complexity to the system transmissions to the LLR or through ELM, Common Line, or serivcer proprietary product like Opennet (Sallie Mae) or Scholarnet (Great Lakes). It would make more sense to say that the act of tranmitting the loan to the LLR is “certification” from the school that the student was denied the loan. Depending on the volume of loans denied at a particular school, it might make more sense to just switch to Direct Lending if the LLR is too complex.
This LLR has to be handled as streamlined as possible or choices will be reduced for what schools can do.
Joyce Hall