Wyoming’s Largest Student Lender to Stop Making Student Loans

Nonprofit Wyoming Student Loan Corp., the state’s largest student loan lender, has announced that, as of April 1, 2010, it will no longer be issuing any new parent or student loans.

In a statement from president and CEO Phil Van Horn, the company, also known as WyoLoan, said that it will continue to fund any student loans that are already approved for the current 2009–10 academic year and for which all loan proceeds will disburse by March 31, 2010 (WyoLoan announcement of student loan suspension, Oct. 20, 2009).

“WyoLoan is making this announcement at this time so that any student who has applied or who may apply for a loan and for which funds would be released after March 31, 2010, can make other arrangements through their respective school financial aid offices,” the statement reads. “At the present time, we estimate the number of students who will have to resubmit applications to be less than two dozen.”

The company will also continue servicing its current 25,000 customers who already hold student loans, which total $350 million, The Associated Press reported (“WyoLoan to Stop Making Student Loans,” Oct. 30, 2009).

In the lender’s 30-year history, the company website says, WyoLoan has issued over $1 billion in education loans to more than 75,000 students and parents.


Congress Considers the End of the Road for Student Loan Lenders

The company’s decision comes in response to proposed federal legislation moving through Congress that would put an end to the federal student loan program known as FFELP (Federal Family Education Loan Program), which allows private third-party lenders like WyoLoan to issue government-backed student loans.

Currently, the government pays these private FFELP lenders a subsidy for the federal parent and student loans they originate. A second federal student loan program — the Federal Direct Student Loan Program, begun in 1992 — issues federal student loans directly to borrowers through the U.S. Department of Education, with no third-party involvement from a bank or other FFELP lender.

Under the proposed legislation, known as the Student Aid and Fiscal Responsibility Act (H.R. 3221), all federal parent and student loans would become Federal Direct loans, issued directly to borrowers through the government rather than through third-party FFELP lenders — effectively putting most private lenders like WyoLoan out of business.

President Obama has been a vocal backer of the SAFRA bill, maintaining that FFELP subsidies funnel government money to banks and away from students. Supporters claim that the elimination of FFELP subsidies will generate $87 billion in savings to taxpayers over the next decade.

Critics, however, dispute this savings figure and say that the legislation amounts to a government takeover of student loans, stripping students of their right to choose their own lender.

Wyoming’s congressional delegation has come out alongside WyoLoan against the SAFRA bill.

The bill was approved by the House of Representatives on Sept. 17 and now awaits a Senate vote.

Should the measure fail to pass, Van Horn said, WyoLoan will consider lifting the suspension of its student loan program.

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A regrettable proposal for student loans

Health care isn't the only system on the verge of being overhauled. Federal student loans, which six out of 10 families rely on to pay for college, could soon see their most dramatic changes since 1965. Given the stakes, it would be wise for policymakers to heed some of lessons found right here on these pages.

Since February, the Star Tribune's "Streamlining Minnesota" series has examined ways to achieve a more efficient public sector. Its blend of ambitious goals, idealism and pragmatism could teach national policymakers a thing or two.

A plan is now before Congress to eliminate the Federal Family Education Loan (FFEL) Program, which serves 90 percent of Minnesota schools. Replacing it would be the Federal Direct Loan Program, which come July 1 would be the only federal student loan program.

It's truly unfortunate that the proposed Student Aid and Fiscal Responsibility Act hasn't been subjected to the kind of evidence-based analysis advocated by "Streamlining Minnesota." Had it been, a strong case would have been made for preserving a program model based on consumer choice and borrower service.

Take two principles advanced in an article from March:

First, focus on results, not dollars. "The bottom line of government isn't dollars," Public Strategies Group cofounder Babak Armajani said. "It's results per dollar."

Yet it's exactly the dollars that have most influenced the thinking on the FFEL elimination proposal. Too many have been unduly swayed by the government's claims of gargantuan (read unrealistic) cost savings from eliminating the program.


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