December 30, 2009 12:01 AM ET
In response to Education Secretary Arne Duncan’s “Banks Are Not in the Student Loan Sector,” (Editorial, Dec. 18): Secretary Duncan criticizes part of the student loan program that encompasses federal loans for family education (FFEL)). He advocates for the elimination of the FFEL program and says it will save the federal government $ 87 billion in subsidies to banks participating in the program over the next 10 years. He wants this money to be used for scholarships and other financial aid for low income students and early childhood education. He also claims that $ 10 billion in savings can be used to reduce the deficit.
He states that the federal government pays interest on FFEL loans while a student is in school. This is true, but only for students who receive subsidized loans as needed. The vast majority of students either receive unsubsidized loans and pay the interest during their studies or choose to capitalize it and add it to the overall amount they will have to repay after graduation or the end of their studies. If the government fully preempts the field, this situation will not change at all, so there is no savings related to pre-graduation interest payments.