ISAC to Pay Half the Federal "Default Fee" Charged on Student Loans

Action will protect key borrower benefit and save $60 annually for typical Illinois student; borrowers using ISAC’s in-house lending service will avoid fee completely

DEERFIELD, IL –  Illinois student loan borrowers can save an average of $60 annually due to an action taken by the Illinois Student Assistance Commission (ISAC), the state’s central provider of student assistance.

In a move approved unanimously by ISAC Commissioners this past Friday, the agency will pay half of the one percent “default fee” mandated by federal law.

The agency will subsidize 50 percent of the default fee on all loans it guarantees with the condition that the lender of the student loan pay the other 50 percent.  The subsidy will apply to loans guaranteed on or after December 1, 2007 for the 2007-2008 academic year.  The agency’s action is designed to encourage lenders and guarantors to equally take on the cost of the default fee, rather than require student borrowers to take on the burden.

Recent Congressional passage of the College Cost Reduction and Access Act of 2007 – now on President Bush’s desk awaiting signature – will result in reduced payments from the U.S. Department of Education to ISAC and other guarantors.  Industry participants have already responded to the new law by removing some of the borrower benefits offered to students in the past, including payment of the default fee.

In the face of the changes the new law will bring about, ISAC’s action will protect a key borrower benefit, reduce the cost of borrowing by Illinois college students and their families, and re-position ISAC in the student loan industry.

Agency officials say ISAC is able and willing to take this action due to its recent restructuring and refocusing on Illinois students.

”We are happy to be able to put money in the pockets of these student loan borrowers,” said ISAC Chairman Donald McNeil.  “Tuition, fees and textbook costs continue to rise.  This extra cash from ISAC will help pay for textbooks or lab fees.”

Once ISAC’s new policy takes effect, ISAC’s in-house lending service known as IDAPP (Illinois Designated Account Purchase Program) will be shouldering the other half of the default fee for loans made by IDAPP.  Other ISAC lender partners are being asked to do likewise.

“For 50 years, ISAC has been putting students first, and this action signals our resolve to continue to do so,” said Andrew Davis, ISAC Executive Director.  “One unintended consequence of the new federal legislation is that many students will be forced to pay the default fee.  We will continue to stand up for students and their families by protecting this borrower benefit.”

Aiming to help the federal government with default aversion efforts, a 2005 federal law replaced an optional “guarantee fee” with a mandatory one percent default fee for all FFELP loans guaranteed and disbursed beginning July 1, 2006.  Since then, ISAC waived or covered the entire default fee.  The new legislation is being followed by a national trend of forcing the borrower to absorb the default fee.  By voting for the guarantor to pay half the fee and with ISAC’s IDAPP paying the other half, ISAC is bucking this trend.

About ISAC
The Illinois Student Assistance Commission is the State’s centralized provider of financial assistance aimed at helping students and families access postsecondary education and/or training. Each year, the Commission awards an estimated $400 million in scholarship and grant aid to nearly 185,000 qualified students, and also provides an additional $740 million to borrowers through its student loan programs. The agency offers credit-based alternative loans, a 529 prepaid tuition program known as College Illinois!, and a broad array of outreach and informational services to ensure that families have access to the information they need to pay for a college education. More information is available by calling toll-free 800.899.ISAC (4722) or visiting the agency’s Web site at www.collegezone.com.