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Congress OKs Budget, Eliminates Set-Aside for Some Loan Servicers

Congress OKs Budget, Eliminates Set-Aside for Some Loan Servicers
December 19, 2013

The U.S. Senate on Wednesday gave final approval to a compromise budget bill that sets federal funding levels for the rest of this fiscal year and next year.

Lawmakers passed the deal on a 64-36 vote and sent it to President Obama, who supports the measure and is expected to sign it into law.

Higher education advocates supported the legislation because it is expected to alleviate automatic, across-the-board cuts to research funding and campus-based student aid programs. The bill increases the overall pool of money available to those parts of the budget, but Congressional appropriators will now have less than a month to hammer out funding for individual programs and agencies.

Part of the legislation passed Wednesday immediately eliminates part of a 2010 student aid law that allowed certain not-for-profit entities eligible for no-bid contracts from the Education Department to service federal student loans. The program entitled those servicers to a minimum of 100,000 borrower accounts, for which the department pays more compared with its accounts with its other, larger loan servicers.

Critics of the program, which included Rep. Paul Ryan, the Wisconsin Republican who helped craft the budget deal, say it is wasteful of taxpayer funds to provide those loan servicers with “special treatment.”

Although Congress has now ended the program, the Education Department announced Wednesday that its existing contracts with the several dozen not-for-profit servicers would remain in effect, meaning there would be no immediate changes for the approximately 3.5 million borrowers whose loans are managed by those entities.

The department also said it would continue plans to allocate another batch of student loans to the not-for-profit servicers next year, so long as Congress allocates the agency enough money to do so. Those allocations will be based on whether the servicers receive yet-to-be-determined minimum scores on their quarterly performance evaluations.  

The Education Finance Council, the trade association representing not-for-profit servicers, said it was pleased with the department’s announcement.

“We’re glad the contracts won’t be canceled and will be working with appropriators to ensure sufficient discretionary funds are appropriated,” said Samantha DeZur, the group’s spokeswoman. 

A separate provision in the legislation passed Wednesday would cuts the amount of money that guaranty agencies receive for rehabilitating loans in the now-defunct Federal Family Education Loan program. 

 

 

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