SOURCE: NextStudent

March 02, 2007 12:30 ET

NextStudent Explains the Benefits of the Federal Family Education Loan Program

PHOENIX, AZ -- (MARKET WIRE) -- March 2, 2007 -- NextStudent, the Phoenix-based premier education funding company, is a Federal Family Education Loan Program (FFELP) lender that believes that H.R. 5, also known as the "College Student Relief Act," may result in a decrease in competition among lenders that will, in turn, be detrimental to students attempting to access funding for higher education.

This proposed legislation, already approved by the House of Representatives, now is being debated in the Senate. Although touted as a bill that will increase competition, it could, in fact, cripple the FFEL Program by offering colleges what amount to incentives to go with the Direct Lending Program. There is no guarantee that these incentives will make their way back to students. The proposed bill also doubles the fees it costs FFELP lenders to pay to provide federal student loans, thus abolishing the benefits these lenders traditionally pass along to students in the form of interest rate reductions. If H.R. 5 becomes law, it may cost student loan borrowers thousands of dollars.

Additionally, some legislators are leading taxpayers to believe that H.R. 5 works to their benefit. However, as of 2006 it was estimated by the Department of Education that the Direct Lending Program owes the federal government $105 billion but only has $89 billion in performing student loans with which to repay. This leaves a shortfall of $16 billion in the Direct Loan Program, a cost that must be paid by someone, and that someone will be the taxpayer.

More than 40 years ago Congress created the Federal Family Education Loan Program to allow students to pick the lender of their choice. This program traditionally has been seen as a partnership between the government and the private sector. This unique partnership connects the federal government, lenders, guarantors, students, schools and taxpayers. The student loans offered under this program include the Federal Subsidized Stafford Loan, the Federal Unsubsidized Stafford Loan, Parent Loans for Undergraduate Students (PLUS), and Federal Student Loan Consolidation. Currently, the government gives private lenders such as banks, credit unions, and savings and loan companies subsidies to market and fund these federally secured low-interest student loans to college students and their parents.

FFELP lenders compete with each other for market share by extending these subsidies to students in the form of benefits, including interest rate reductions. For example, NextStudent provides some of the most aggressive benefits in the business, including a 1 percent LOCKED interest rate reduction after 36 consecutive on-time payments. These benefits save students thousands of dollars over the life of their student loans.

H.R. 5 will reduce the number of FFELP lenders and essentially reduce competition in the student loan industry, which will have a negative impact on customer service, financial aid information and student loan benefits. This bill proposes to hurt the integrity of financial aid in the United States by lowering the amount of subsidies paid to FFELP providers by one-half, essentially doubling the amount it costs these lenders to provide federal loans and increasing student loan debt.

About NextStudent

NextStudent, federal lender code 834051, is dedicated to helping students and their families find affordable ways to pay for college. NextStudent offers one-on-one education finance counseling and has a portfolio of highly competitive education finance products and services including a free online scholarship search engine, federally guaranteed parent and student loans, private student loans, both federal and private student loan consolidation programs, and college savings plans.

The NextStudent Scholarship Search Engine, one of the nation's oldest and largest scholarship search engines, is updated daily, available free of charge, completely private -- and represents 2.4 million scholarships worth $3.4 billion.

For more information about NextStudent and its student loan programs, please visit the company's Web site at http://www.nextstudent.com/.

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