Jason Delisle
Research Director
New America Foundation
March 2009
As research director for higher education for the New America Foundation, Jason DeLisle watches Washington from Washington. He shares some of his extensive knowledge of how parent PLUS loans are supposed to be offered to students and parents in 2009-10.
Parent PLUS loans are supposed to undergo a major change soon. Can you describe the upcoming choreography?
The loans themselves will not change from the parent borrower's point of view. Private lenders will still be making FFEL PLUS loans. The question is 'Which lenders?' That will be determined by a series of auctions in which lenders bid on the right to make parent PLUS loans state-by-state, two lenders per state. And the subsidy they earn on parent PLUS loans will be established from the winning bids. Interestingly, the second-best price (not the lowest) becomes the subsidy rate, and the intent of that provision is to insure at least two bidders.
How will a parent or student know from whom to borrow?
The student financial aid office at the college they attend will tell parents who the one or two authorized parent PLUS lenders are. They will have to choose from that short list. It's actually quite similar to the preferred lender list that has existed, but shorter. And it won't affect Stafford loans, GradPLUS loans or consolidation loans or private loans.
What might cause an auction in any of the 50 states to fail?
Failure could be caused by the same things that might cause the FFEL program to fail - lenders choose not to make loans. There must be at least two bidders in each state. A lender of last resort provision exists for cases of failed auctions.
If a student whose parent with a PLUS loan transfers mid-year to a school in another state, what happens?
It will mean a new lender in the new state.
What if a parent has a PLUS loan prior to the onset of auctions?
That parent may elect to continue borrowing from that lender regardless of the state in which the student attends.
Is there any other borrower choice limitation?
Yes. Once a borrower has a lender in an auction state, the borrower is committed to one of those two winners for the rest of the student's attendance.
Are there any other federal loan programs that resemble federal student loans in either scale or concept?
No. There are emphatically none.
What is the upside of all this?
A student attending in a state that has had a successful auction is assured of PLUS loan availability from a private lender for two years. Secondly, lender subsidies will no longer be set in a political process that has always involved lobbyists.
Of the 535 members of the House of Representatives and Senate, how many have an understanding of student loans?
A handful have some understanding of the politics. An even smaller number have an understanding of the policy mechanics. However, most members of Congress have at best limited understanding of any single federal program.
What do you think will happen regarding direct lending in 2009?
Schools will continue to switch voluntarily to direct lending in 2009. But I don't think a legislative change will be enacted in 2009. It's more likely to happen in 2010.