Franken seeks to bypass banks on college loans

MINNEAPOLIS -- Senator Al Franken wants to see colleges and universities take direct control of government-subsidized loans now being handled by banks. Franken Monday made his pitch for the direct lending bill at the University of Minnesota, which adopted the system in 1996.

"The federal government gives money to banks in the form of subsidies, to encourage them to lend money to students," Franken told reporters and student leaders at Morrill Hall on the Twin Cities east bank campus, "Then the government guarantees all the loans so there's no risk for the banks, just profits subsidized by the taxpayers."

Franken said direct lending, on the other hand, would say up to $87 billion over a 10-year period according to the Congressional Budget Office estimates. Those savings would be sent back to college campuses in the form of enhanced Pell Grants, Perkins Loans and other financial aid programs.

The Student Loan and Fiscal Responsibility Act, in its current form, would also increase federal funding for Early Childhood and Family Education programs.

Franken recently co-wrote an op-ed piece with former U.S. Senator Dave Durenberger, a Minnesota Republican who co-sponsored the first direct lending bill with the late Senator Paul Simon, a Democrat from Illinois.

"This is simply the right thing to do for our students, for our families, for our country and for our economy," Franken remarked, "Direct lending slashes overhead and administrative costs by cutting out the middleman and lending to students directly.

The university's president, Robert Bruininks, said the U to M made the choice to go with direct lending as part of an overall effort to create a "one-stop" system for financial aid.

"There were 550 lenders, 15 secondary markets and 45 different loan guarantors," Bruininks recalled, "So tracking these loans, especially for students and their families, was an enormous undertaking.

He said direct lending streamlined the process greatly. The University system provides $75 million annually in financial aid grants and scholarships, Bruininks said, with 30,000 students qualifying for some type of aid.

"The university's goal was to save students and their families money, but to also make this a more seamless, direct and efficient process."

Mandy Stahre, a graduate student in public health, told Franken during an informal roundtable discussion that her direct student loan is much easier to track that the ones she previously had with banks.

"The direct loan is very user friendly because you can check everything online," Stahre told KARE, "When I was an undergrad I had loans that were continually sold to other banks. And I'd get different letters. I had no idea who had my loan, how to get a hold of them or figure out what the interest rate was."

Franken predicted the banking industry will fight the legislation, which has made it through the U.S. House already. He predicted senators won't take up the measure until they've wrapped up work on health care reform.

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