Magazine article American Banker

U.S. Giving Itself Unfair Advantages, Student Lenders Say

Magazine article American Banker

U.S. Giving Itself Unfair Advantages, Student Lenders Say

Article excerpt

The Department of Education has student lenders caught between a rock and a hard place.

At least that's what a number of industry representatives said during a student lending conference sponsored last week by the Consumer Bankers Association.

How, they asked, can an agency that competes with us through the direct loan program also expect to regulate us fairly?

"I believe that the Department of Education has good intentions, but no one can successfully be a regulator and a competitor," said Peter Mino, senior vice president of operations for the New England Education Loan Marketing Corp., or Nellie Mae, an originator and secondary market for student loans.

Mr. Mino said student lenders are in the same boat as banks competing with their regulator, the Federal Reserve, in payment services.

"There's clearly an uneven playing field, and the inequities are unbelievable," he said.

The government's conflict of interest becomes apparent in forms required for loan applications, lenders said.

Students applying for a direct loan from the government fill out one simple computerized application. Those who apply to banks fill out as many as three forms - and all are much more complicated, they charged.

While the industry has been working to introduce an electronic loan application system, the current regulatory scheme simply doesn't allow them to use forms as simple as those available for the government program.

"We can only utilize technology and marketplace efficiencies to the extent that the regulations allow us to," said W. Clark McGhee, vice president of Crestar Bank's student lending department.

Student lenders said they would even be willing to take on more risk in the federally guaranteed program, in exchange for a little more equity with Uncle Sam.

Under budget legislation pending before Congress, financial institutions would share 5% of defaulted loans. Currently, the government guarantees 98 cents of every dollar of a loan. …

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