The story with the single lender rule

By: Amelie Mag

What is the single lender rule and why is there so much talk about it in the press nowadays? Is the US congress a single lender congress or is it concerned with the best interests of the disadvantaged students, as it claims to be? The following single lender update will try to settle some of these questions and place the debate on the single lender rule in the larger context of its impact on the financial well-being of American students and also in the even larger framework of the direction of American education. Will it become more people-oriented or more-business oriented?

First of all, what does the single lender rule mean? When we talk about student loans and student loan consolidation, the single lender rule immediately comes to mind as a limitation placed on the benefits that the students and their families can derive from consolidation. Under the single lender rule, the students do not have the freedom to choose among different schemes of loan consolidation provided by different financial agents. With the single lender rule in effect, the students can only consolidate if they have contracted all their loans from the same company or governmental agency. The existence of the single lender rule actually affects the decisions about which companies to contact college loans from in the first place. If a student has contracted a loan with "X" for example, knowing that the single lender rule is in place will make him or her contract any additional loans from the same company, so as to keep open the option of loan consolidation.

In fact, this scenario is quite common because a young college student is very likely to take up their first college loan from a large corporation. These companies control the market for student loans, they invest considerably in advertising their financial packages and they keep close ties to the colleges where they often make presentations of their offers. A young college student does not usually have the capacity to understand all the implications of contracting a first loan with a specific company. He or she may not even be aware of the existence of the single lender rule in the first place. Or, even if he is aware of it, he will not be able to understand all the implications of the single lender rule. Moreover, the student is likely to get most of his information on student loans precisely from the presentations organized by a large company. Thus, while the student will be told about the existence of the single lender rule, he will probably not be explained all its implications.

Single lender updates, such as this, are meant to bring to the fore both sides of the debate on the single lender rule. In this single lender update, we also raise the question of whether the US congress proved to be a single lender congress, as it was expected, given the domination of the Republicans and of the strong lobby coming from the financial corporations which have business in education. A single lender congress would not have changed the original text of the bill on the issue of the single lender rule. The original text of the bill would have left this rule in place, but the congress accepted an amendment proposed by a Democrat which argues for the cancellation of the rule. It was not only that the Democrats fought so hard for the cancellation of the rule that they won over the Republicans in the congressional debate. This would not have been possible in the first place, given that the distribution of the seats in both houses favors the Republicans. It is just that both parties managed to agree the cancellation of the single lender rule is unavoidable.

While the US congress cannot be called a single lender congress, it is the conclusion of this single lender update that the congress can be considered to be sensitive to the interests of the corporations. On the one hand, while the cancellation of the rule does affect the interests of the big financial institutions, on many other aspects of the bill (such as flexibility of interest rates or charges for contracting a student loan), the corporations have made important gains. In addition, regarding the cancellation of the single lender rule, the congress decided that it will come into effect only after a specific grace period. In this period, the companies can give a big last push to sell as many consolidation packages as possible. This final push is likely to be extremely profitable as students are being encouraged to consolidate from all sides now, given the low interest rates for student loans.

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