CHICAGO – After hearing the results of a General Accounting Office review indicating the federal Department of Education has paid as much as $1.7 billion in unnecessary subsidies to companies that provide low-interest loans to students, Gov. Rod R. Blagojevich today sent a letter to Education Sec. Rod Paige urging him to close the loophole that allows student loan companies to take money that should be going to students.
“In your role as an advocate for student access and affordability, I ask that you move quickly to close the loophole that allows student loan companies to get a disproportionate amount of the Family Education Loan Program funds. This decision has a real impact on students in Illinois and the rest of the country,” the Governor wrote.
“In this fiscal year alone, the U.S. Department of Education has already paid a total of $634 million from the Federal Family Education Loan Program to the loan companies. If this $634 million had instead gone directly to students across the country, federal loans could have been extended to an estimated 5,700 additional Illinois students.”
The Family Education Loan Program pays subsidies to loan companies so that they can offer low-interest loans to students. A loophole in the program allows lenders to receive a guaranteed rate of 9.5 percent when students pay less that 3.4 percent.
“With unprecedented low interest rates, a guaranteed rate of 9.5 percent for these companies is clearly out of sync with current market rates. As a result, students are receiving less and the companies are receiving more,” the Governor pointed out. “I hope that we can work together to ensure that federal education dollars are maximized for those who need it the most.”