U.S. Chooses 4 to Service Student Loans

June 18, 2009

Congress could formally begin its work on President Obama's proposal to restructure the student loan programs to free up money for Pell Grants and other financial aid as soon as next week, with the House of Representatives scheduled to mark up legislation that (by most accounts) would end all loan originations out of the lender-based Family Federal Education Loan Program but would not call for providing a consistent, permanent source of funding for Pell Grants. With that major development looming, the U.S. Education Department made an announcement Wednesday that could help lay the groundwork for the larger changes. The administration said that four lenders had emerged from a months-long competition to see who would "service" the existing portfolio of federal student loans, but the competition was also seen as a step toward testing the department's plan (as part of its larger loan proposal) to have lenders compete for "performance-based contracts" to service all federal loans when the FFEL Program vanishes. The four lenders that won the department's competition were AES/PHEAA, Great Lakes Education Loan Services, Inc., Nelnet, Inc., and Sallie Mae Corporation. The competition was controversial in part because the department limited it to lenders of a certain size, freezing out smaller nonprofit and other lenders.

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