Both candidates support loans as a way to help students pay for college. Obama’s plan seeks to increase loan forgiveness, a federal program that cancels all or a portion of a student’s loan, most often in exchange for some form of public service. McCain, however, has voted against programs to provide loan forgiveness on two occasions.
See more on how the candidates plan to work loans into their overall plans to help students pay for college in Part 4 of Mason Votes’ series on college affordability.
Obama’s plan is to provide partial loan forgiveness for students who choose to pursue public service after college. His only opportunity to vote on loan forgiveness during his time in the senate was the College Cost Reduction Act, which he did not vote on.
Though McCain is against loan forgiveness, he does seek to change the system by increasing the availability of loans to pay for higher education.
“As far as college education is concerned, we need to make those student loans available,” McCain said, in the last presidential debate.
“John McCain has proposed an expansion of the lender-of-last resort capability of the federal student loan system and still demand the highest standard of integrity for participating private lenders,” according to the McCain campaign website.
What does that mean? A lender of last resort is an institution that only deals with clients who have the highest risk. A lender of last resort charges high interest rates to take on credit that may never be repaid. American Student Assistance, one of the largest and oldest Federal Family Education Loan agencies, sees this type of program as a last ditch measure. According to NPR, the Federal Reserve hasn’t used its powers as a lender of last resort since the 1930s, until the economic crisis now.
Private loans are used by 8 percent of students and average $7,694, according to Sallie Mae, a student lending giant. However, private student loans, known for high interest rates, have been decreasing, with more then two dozen lenders decreasing the amount available to students or cutting their programs entirely late this September. Alarmingly, a number of the major private lenders are the same banks who have collapsed in this year’s economic crisis.
Sallie Mae itself has had its stock plummet and been forced to close 20 loan offices just last week. One of the largest and best known student lenders, Sallie Mae announced this week that it will be providing fewer loans at higher prices, leaving many students wondering where else they would go to find student loans.
I work for American Student Assistance – thanks for mentioning us in your blog! While it is true that we don’t anticipate a need for lender of last resort for federal student loans in the immediate future, I just wanted to point out that lenders of last resort would not be able to “charge higher intererst rates.” Federal student loans currently have fixed interest rates and, even if the lender of last resort program were to be implemented, these lenders could not charge borrowers a higher rate.