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Student Funding Debate Continues

By Dan McGuire

On Friday, the student-backed Committee for Social Justice presented Chairman of the Corporation Paul E. Gray '54 with a petition demanding the ouster of two lifetime corporation members.

The group recommended that both Lawrence A. Hough '72, president and CEO of Sallie Mae and John S. Reed '64, chairman of Citibank be removed from their positions because of their firms' role in moving away from the currently used model to get federal loans awarded indirectly.

That indirect method would see the loans administered by the Family Education Loan Program, whereby the federal government guarantees loans made by banks.

As part of its re-engineering effort, MIT has been trying to move in the opposite direction - toward Stafford direct loans, in which the government gives funds directly to institutions and states - in order to save time and money, said Stanley G. Hudson, director of student financial aid.

"Citibank and Sallie Mae have both been in favor of ending direct loans," said Nina C. Shapley G, a member of the Committee for Social Justice.

At issue is the relationship of Hough and Reed to the national debate on how to allocate the $6.1 billion dollars the federal government spends each year on student loans, not whether those funds will be distributed, as posters in Lobby 10 may have suggested a few weeks ago.

"There's nothing in this debate between the Administration and the Republicans that threatens access to educational loans," Hough said.

Conflict of interest cited

"We feel that there's a direct conflict of interest," Shihadeh said.

Direct lending "forces the banks giving students loans to be more competitive with the government program it keeps the costs down and improves service for students," said Shapley, a member of the Committee.

"We chose to go into direct lending because the process [to obtain indirect loans] was too cumbersome and had too many players," said Hudson, director of student financial aid.

"We saw [moving to direct loans] as part of the re-engineering process that would make our life easier it saves hundreds of thousands of dollars," Hudson said. He added that the procedures governing indirect lending have been streamlined since the Institute switched to direct lending.

"There is not a conflict of interest in my mind," Hough said. "Sallie Mae offers a lower interest rate for those who make their loan payments on time than the direct loan program and it's lower by two percent after the first 48 payments," said Hough. Private loaners "can build in incentives that the federal government" cannot match, said Hough.

Hough cites federal regulations that favor direct lending over indirect lending, giving what he calls an unfair advantage to the direct lending program. Hough said Sallie Mae was lobbying congress to adopt a stance that would make "the rules that control delivery and the rules that control repayment programs the same."

"The Department of Education and the last Congress advantaged direct lending at the expense of the private programs. [We want to] level the playing field," he said.

"Any discussion has to build from a basis of facts it is not clear that the debate is proceeding making full use of the available facts," said Hough.

Posters cause confusion

Several weeks ago, the Committee for Social Justice placed posters in Lobby 7 and the Infinite Corridor informing students that direct Stafford loans were in danger of being cut.

"The posters are very misleading. They suggest that students are going to lose 75% of their loans," Hudson said. "If direct loans went to 10 percent [of the total volume of loans issued by the government] students would get the same loans and the same rates," he said. The posters do give a definition for direct loans.

"The posters simply state that direct lending has been cut by 75 percent," said Alan L. Shihadeh G, a member of the Committee for Social Justice. "There was never any question over whether we were confusing Stafford direct loans with Stafford loans."

At the meeting advertised by the poster "we specifically pointed that out," Shihadeh said. "We said that One is direct and one is indirect.'" The posters, however, do not define the distinction between the two terms.