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 compete.

“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.”

Barmak 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.”

© Copyright 2008 by DiverseEducation.com

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