Rescue Plan Appears to Be Helping Lenders and Colleges - Chro...

After months of turmoil, life appears to be getting better throughout the land of student lending. At least for the colleges and the lenders. For student borrowers, the results of the recent federal loan-rescue plan and other changes in student-aid law may be more mixed.

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Also, the Education Department, in issuing new terms for the lender rescue plan it announced on May 21, may have set the stage for some lenders to reduce or eliminate the benefits they provide to student borrowers. The plan, based on legislation recently approved by Congress, commits the federal government to offering loan companies both low-interest lines of credit and the ability to sell their loans to the government at a rate exceeding their face value.

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Sallie Mae and other leading loan companies, including Nelnet, Chase, and Wachovia, have already cited that clarification as cause for reducing promised levels of student benefits, said Tim Ranzetta, president of Student Loan Analytics, which advises colleges on student-loan options. Total loan benefits offered to students in the coming academic year by the top 10 lenders will be about 66 percent lower than the previous year, Mr. Ranzetta said.

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Only a few weeks ago, Sallie Mae was describing the economic environment as so troubled that it might soon be out of available funds for lending, with no available buyers of its debt. It announced this week that it would offer federal loans to any eligible student at any college in the country.

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The increased federal borrowing power is an overall benefit to students, since fewer will need to resort to higher-priced "private" loans, which banks issue outside the federally subsidized system, said Roberta L. Johnson, director of student financial aid at Iowa State University

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The interest rate of 6.8 percent on federal loans is far better for students than private loans with variable rates that can run to 14 percent or higher, Ms. Johnson said. "Those are just bad loans," she said.

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"I just can't say enough kind things" about the Education Department's work on expanding the direct-lending system, Ms. Johnson said on Thursday as she prepared to board a flight back to Iowa after leading a weeklong lobbying trip to Washington by her coalition members.

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