Kennedy Spearheads Loan Initiative

National legislators introduced a bill yesterday which aims to broaden colleges’ participation in federally funded loan programs and lure institutions away from employing commercial loan firms.

Spearheaded by Sen. Edward M. Kennedy ’54-’56, D-Mass., the Student Aid Reward (STAR) act would give universities across the country incentives to join the William D. Ford Federal Direct Loan Program (FDLP), which the federal government manages.

Kennedy, along with STAR proponents Rep. Thomas Petri ’62, R-Wis., and Rep. George Miller, D-Calif., addressed reporters from college newspapers across the country in a conference call yesterday, detailing the new incentives in the proposal.

Kennedy said that, if passed, the bill would offer colleges an additional $1,000 for each student receiving a Pell Grant—a government-backed scholarship for low-income students—if the institution switches from the privately funded Federal Family Education Loan Program (FFELP) to the federally managed program.

Kennedy projected that this will give colleges across the country a total boost of $17.2 billion in scholarship money.

“This is a win for the students, it’s a win for the colleges, it’s a win for the taxpayers, and it’s obviously at a critical time,” Kennedy said, adding that the STAR act responds to an “explosion of costs” for higher education.

Proponents of the STAR act brought the bill to the floors of the House and the Senate yesterday, saying that by cutting back on the use of commercial loan firms, the government can generate increased profits to use for scholarships, without any cost to taxpayers.

Yet since 1998, 500 universities have left the federally managed loan program for private-sector student loan firms, according to America’s Student Loan Providers (ASLP), an organization representing more than 80 firms that use the privately funded FFELP.

Opponents of the bill point to recent studies by PricewaterhouseCoopers and the Congressional Budget Office, which they say indicate that the federally managed loan program is actually costing the government more money than is being advertised.

Kevin T. Bruns, a spokesman for ASLP, said that lawmakers are omitting the costs associated with administration of the loan program.

But in a statement, Miller said the PricewaterhouseCoopers study was funded by corporations associated with the FFELP. Bruns said these charges were unsupported.

Director of Financial Aid at Harvard College Sally C. Donahue said that while she has not seen the legislation, she feels that both federally managed and privately funded aid is important to universities.

“We’ve been very happy with the Direct Loan Program. But it’s critically important that both programs be preserved,” Donahue said.

Harvard is enrolled in the FDLP but also offers its own independent program—unrelated to the FFELP—for students who do not qualify for federal funding.

Unlike Harvard, some universities rely exclusively on private firms to distribute student loans.

For that reason, Bruns said he was concerned that the program would result in economic discrimination at universities nationwide.

“For the first time, the federal government would be treating needy students differently—not on a basis of need, but on the basis of which student loan programs colleges happen to choose,” he said.

But Kennedy reiterated the need to switch to FDLP.

“This is a real struggle,” Kennedy said, adding that he hopes students will rally their colleges to join the program. “We can’t underestimate the power on the other side.”

—Staff writer Javier C. Hernandez can be reached at jhernand@fas.harvard.edu.