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Small, Minority Student Loan Providers Cry Foul Over Subsidy Cuts

Officials at Urban Ed. Express, a
minority-owned newcomer to the student loan industry, say legislation before
Congress designed to make college more affordable hurts their efforts to help
minority students fund their college educations.

The government
pays a subsidy to lenders for providing student loans, but Congress is poised
to cut those subsidies by $19 billion and redirect much of that money back into
federal financial aid programs like the Pell Grant.

In a conference
call Wednesday, Dwight L. Bush, president and CEO of Urban Ed Bank, said the
proposed reduction in lender subsidies will hurt his company’s ability to
provide incentives and other benefits to the minority borrowers his company
targets. He also said the changes will make it difficult for smaller lenders to

“The origination
fees that are being cut make it very difficult for lenders such as ourselves to
pass on borrower benefits to students,” said Bush, noting that one perk allows
students who make their payments on time to reduce future payments. The loss of
revenue from the federal subsidies “makes it very difficult for us to engage in
outreach efforts such as financial literacy. It hurts the same constituents
they wanted to help in the long term.”

Kevin Bruns,
executive director of America’s
Student Loan Provider, a coalition of lenders that includes Sallie Mae, said
all lenders, big and small, will suffer if the legislation becomes law.

“The cuts are
pretty severe; larger lenders will be left with marginal profits as low as .05
percent on federal student loans, and smaller lenders will be left
unprofitable,” said Bruns. “[The acts are] really unnecessary and are wiping
out a margin of lenders.”

Nassirian, the associate executive director of the American Association of
Collegiate Registrars and Admissions Officers, disagrees, however. He says
that, with the legislation, Congress is making its best investment yet in
minority college students. 

While Nassirian
acknowledges that the proposed rules will make things difficult for small,
minority lenders, he says that it will also boost Pell Grants by stemming the
flow of subsidies to million-dollar corporations, some of which do a poor job
of serving minorities. 

“Congress is
attempting to distribute [funds] to students. As citizens and taxpayers we
should be happy,” he says. “We should be happy that … minority students will be
given additional support other than loans.”

– Margaret Kamara

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