SNHU’s Louisa Martin Discusses Student Loan Programs

Friday, June 05, 2009
New Hampshire Business Review

Student loan agency fights for survival
NHHEAF says Obama’s proposed changes ‘will put us out of business’

By Michael McCord

As Congress begins hearings on an Obama administration proposal to radically alter the college student loan program, the outcome could prove the end of a longtime New Hampshire institution — and the potential loss of more than 200 jobs. 

“We are on life support,” said Rene Drouin, president and chief executive of the New Hampshire Higher Education Assistance Foundation, a private nonprofit agency founded in 1962 that is the main source of student loan funding and servicing in the state.

Drouin, who testified before a U.S. House panel on May 21, said the Obama proposal “will put us out of business.” 

NHHEAF lends and services millions of dollars in student loans each year for New Hampshire college students. It also helps to guide 30,000 students and their families every year through the labyrinth of student loan regulations and obligations, said Drouin.

The fight in Washington is a battle over how best to allocate resources. Congress has already passed an overall blueprint approving President Obama’s plan to make the federal government, which guarantees billions of dollars in student loans annually, become a 100 percent direct lender, in effect eliminating the need for private agencies, including for-profit banks, the student loan giant Sallie Mae and such nonprofits as NHHEAF.

The battle over the details to eliminate subsidies to lenders and what architecture will emerge for the $85 billion a year system will be a fierce one. 

Obama’s goal is to save as much as $94 billion over 10 years and redirect that money in federal grants to make a college education more affordable for lower-income students. The proposal has drawn criticism from lenders and agencies such as NHHEAF which say it would be counterproductive to jettison institutions that have a long track record of success — and they are dubious about the exact amounts that might be saved and redirected to grant programs.

“I’ve seen three of these nationalization reform plans before with the National Direct Student Loan program. President Clinton tried it and they found out it doesn’t work and leads to higher default rates,” said Drouin, who has worked at NHHEAF for more than three decades. “The more things change, the more they stay the same.” 

Major impact

Drouin said that NHHEAF, which works with almost every college and university in the state, has proven itself over the years with its lending, servicing and education functions (NHHEAF is actually four agencies under one umbrella, the NHHEAF Network Organizations).

The $17 million agency has 211 employees and receives no state funding. Its default rate of 2.1 percent is far below the national average of 5.7 percent and its servicing model has been so successful that states such as Connecticut and Rhode Island have hired NHHEAF to service its student loans.

But Drouin concedes that this reform effort has a different context, both politically and financially. After the credit markets dried up and the recession hardened, NHHEAF was left greatly vulnerable — for the first time last year it was unable to sell taxable and tax-exempt bonds that underwrites its lending, despite a top Triple A rating.

The freeze in the bond and credit markets was so serious that Congress had to step in last year and provide direct money to agencies, in part because banks were making a full-scale retreat from student loan lending. Proponents of the Obama plan believe this latest crisis shows the vulnerability of the private system.

If Obama’s plan goes through, it will have an impact on the financial aid departments of every school.

Louisa Martin, financial aid director at Southern New Hampshire University in Manchester, said a direct-lending model “would take more people to process, and it will be an administrative burden. It could also lead to twice the work for students.”

Martin also said she believes it would be a loss for everyone if NHHEAF was pushed aside.

“Direct lending has it advantages, and of course we would like to see more grants to help make education affordable,” she said. “But one of the big issues I see is how is the government going to support the entire loan program. They (NHHEAF) provide a very valuable service and do much to help the process in general. If that resource is not available anymore, then those kinds of (educational) services dry up.”

Susan Allen, director of financial aid at the University of New Hampshire in Durham, said the current system has worked out well for UNH and its students for a long time.

“Our system would have to be converted to a new process, which would likely entail a good deal of work. The software we currently use can certainly be set up for direct lending, but it would involve work to make the switchover,” Allen said. “Our students would all have to sign new promissory notes, but other than that, they would see little difference.”

But Drouin said, “It’s easy to give the money out, but it’s much harder on the (servicing) back end,” he said.

Drouin said NHHEAF has $250 million available for lending in 2009-2010, but after that, it’s unclear what will happen. He has asked the members of the state’s congressional delegation for help, and so far they have been responsive to his concerns. Help might come in the form of a compromise.

SNHU’s Martin said she believes that the administration would be wise to consider a wide range of alternatives — including one put forth by Sallie Mae, the largest student loan provider in the country that includes direct lending and agencies such as NHHEAF, which would handle origination and servicing and would be contracted by the government to do that work.

“Let’s have something that is a good mix of successful programs,” she said.


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