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UNIVERSITY DAILY KANSAN
Thursday, April 22, 1993
7
Barbara Brown, employee in the teleprocessing department at Sallie Mae, talks with a borrower on the phone. The department answers general questions about individual loans.
Renee Knoeber / KANSAN
President Clinton has unveiled his plan to help finance college loans for students in return for national service. Clinton plans to phase in the program over four years, and will create of about 1,000 community service positions.
Clinton's national service plan
How it would work
A national fund would be set up to provide money for the program. Those who want a loan for college tuition could pay it off with one of the grants offered by the university.
Repaying with community
**Repaying with benefits**
serve a year or two, receiving benefits when necessary, along with college loan assistance. People may do service first and attend classes.
- Repaying with income:
  People would be able to repay college loans by paying a small percentage of their incomes back into the loan fund.
Where the jobs would be
Health Services
Pollution cleanup/recycling
Environmental corps
What types of jobs would be available through the national servicing program?
Community police
How much it would cost
Loan plan cuts in on Sallie Mae
Clinton plans to spend $7.4 billion over four years on the program which would come from his short-term economic stimulus package.
Cost per student: About $18,000 annually, including service job stipend and loan forgiveness.
**Program cost:** The first year,
$400 million would go into the
program. The amount would grow to
$3.4 billion in fiscal year 1997.
How many students it would help
The first year: About 25,000 youths would be participating in the beginning.
Dave Campbell / KANSAN
Over four years: About 100,000 national service positions would be created.
Story continued from, Page 1.
schools and taxpayers rather than save money.
Nelson agreed.
"This company was created because there was a direct loan program and it didn't work," she said. "It was too cumbersome. The government didn't have the capital to fund the program and it was a struggle."
Nelson said she thought students would suffer rather than benefit from the Clinton program because the federal government is not equipped to handle the student loan program on its own.
"We market on the basis of the service we can provide," Nelson said. "That is why the banks sell to us. They explain about their student loans."
Sallie Mae's service includes keeping in touch with customers through
"The bottom line is that students will get better service from us," she said. "If it becomes a government service, you won't have the service level we do."
out the loan process and always having operators available to address student concerns about repayments, deadlines and the loan process in general. Nelson takes pride in the fact that calls are answered by Sallie Mae operators in less than a second.
"Anyone who has ever tried to call a government office knows you can't get that kind of a response," she said.
"Why should we expect it to be any different if the government gets into direct loans?"
Segal says direct loans from the government would lower default rates though the service programs, and suggests the government might even consider deducting payments from paychecks via the Internal Revenue Service.
Kansas Republican Senator Nancy Kassebaum said she saw problems with the Clinton proposal.
Kassheseba also said she did not think the plan would save the government the $4 billion a year the Clinton administration estimates.
"It's going to be hard to find jobs that people can go into easily for a short period."
"I think they are way off on that figure," she said. "The Department of Education will have to contract someone to run the programs and add personnel to run the programs."
"The students aren't going to be the ones to get the savings," Kassebaum said. "If the government really wants to save money, the banks need to take cuts in interest rates."
Carol Wirthman, vice president of student loans at First National Bank of Lawrence, also expressed doubts about the Clinton program.
"I just don't see how it can work," Wirthman said. "Currently, private investment puts $15 billion into the student loan program each year. Where is the government going to come up with that money? Not only is that going to cause the deficit to rise, but it will also lower employment and increase the bureaucracy in Washington."
Wirthman also questioned the level of service the government would provide.
"The government is unlikely to match anything the current secondary markets can do," she said. "I think in the end it will ill serve the students."
KU student aid officials are sitting tight and keeping their mouths shut.
Diane Del Buono, director of KU Financial Aid, said she would not be prepared to make an official statement on the Clinton plan and how it would affect her office until she had more time to study the proposal.
Segal met with Clinton April 15 to hammer out the final details of the national service plan. He said he expected to have legislation to Clinton by the end of the month.
Right now, the future of Sallie Mae remains uncertain.
"We're moving rapidly toward the conclusion." Segal said.
Nelson said Salie Mae probably would not consider changing its type of business or working as a servicing center for the government because it was developed for a specific purpose
Even if the Clinton plan is passed by Congress, servicing current loans will allow Sallie Mae to sustain itself for at least 10 years. Students have that much time after they complete school to repay loans, and Sallie Mae would still be collecting interest and payments on them.
"Nothing is retroactive," Nelson said. "All government loans are set up on a 10-year payout cycle, and we're originating loans today."
Nelson said although the business was threatened with closure, she thought Sallie Mae would be around for a while.
"Do I think we're going to hang a closed sign on the door tomorrow? No. Right now we think we'll be in the business for a long time to come."
Sallie Mae profits from role as middlewoman for loans
BANK LOANS
Sallie Mae concentrates on buying and servicing federally guaranteed student loans including Stafford Loans, Supplemental Loans and PLUS Loans
As the system works now, a student goes to a bank and applies for a loan. The bank then writes a check that is co-payable to the student and the school. The bank collects interest on the loan from the government while the student is in school, and then collects payment with interest from the student. But banks cannot always afford to keep student loans, and that is where institutions like Sallie Mae fit in.
SECONDARY MARKET
Banks sell student loans to businesses like Sallie Mae for several reasons. When banks make more money, they invest it in order to generate more money to loan out, banks can sell the student loans to Sallie Mae and recover their money. Sallie Mae also has better technology to handle student loans. Sallie Mae's financial advisors are guaranteed by the government and they generate profit by collecting interest from the government.
Source : Kansan staff research
Renee Knoeber / KANSAN
Employees in the collections department at Salie Mae answer incoming phone calls and contact people concerning delinquent loan payments. Approximately 5,000 outgoing calls a day are placed and 1,500 calls are answered each day.
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