Amelie Mag asked:


One of the main issues related to education under discussion in the US at the moment is the single lender rule for college loan consolidation. Because the costs of higher education are so high in the US, students end up contracting several student loans during their college years. It is usually considered in their benefit to consolidate these loans, meaning that they will replace all their loans contracted with different interest rates with a single loan that has a unique, fixed interest rate. Up to the current debates, loan consolidation came together with the single lender rule. The single lender rule means that students can only consolidate their loans if they are all contracted from the federal government or from the same private company. While consolidation of loans is considered to be highly beneficial for college students and graduates, the single lender rule is often argued to be restricting some of these benefits.

Because not many college students have the time to follow the congressional debates on the single lender rule, many colleges and websites for students offer single lender updates. Given the intricacies of congressional debates, a single lender update may be more helpful than one can imagine. The text of the original bill may change numerous times between the time of its proposal and the time of the final passing of the legislation and a single lender update can keep students informed about the main transformations in the text of the bill regarding the single lender rule. In addition, the single lender update can provide the essential information about the debates on the single lender rule cleansed of the technical legal or financial language that can be too tough to follow and understand for students.

The single lender rule is being discussed under the framework of a larger bill on financial issues related to higher education in the US. This has been a very contentious bill, supposedly opposing the Democrats to the Republicans and the big business interests of the main financial lending institutions to the interests of the students and their families. Among the many aspects hotly debated in the congress, the single lender rule has fared as one of the least controversial, surprisingly enough.

Under the original text of the bill, introduced by a Republican congressman, the single lender rule was supposed to be maintained, in spite of the call for its elimination. Because the congress is Republican- dominated at the moment, there were suspicions that the bill would face a single lender congress and that the cancellation of the single lender rule would not be taken into consideration. In addition, strong lobbying from the main financial lending institutions could turn the congress into a single lender congress. It is in the best interest of these corporations to keep the single lender rule, as it would force the students interested in taking advantage of the consolidation option to contract all their college loans from the same financial institutions. This is likely to be one of the main corporations, whose financial packages receive much better publicizing. These financial institutions have been very present in the debate on the education bill, causing the fears of a single lender congress.

However, even though the bill was introduced by a Republican, whose office has been sponsored, and it faced a Republican-dominated congress, its text was altered to include the cancellation of the single lender rule. The fears of a single lender congress were thus appeased. It was a Democrat congressman that proposed an amendment about the repelling of the single lender rule. While there was some debate about this, finally both Republicans and Democrats agreed that the single lender rule should be eliminated.

It cannot be said, however, that the voice of the financial corporations is not felt in the current form of the bill though. The cancellation of the single lender rule can come into effect only after July 1st, 2004. This means that in this period, the financial corporations will still profit from the enormous benefits of the single lender rule. Because during this period the interest rates are extremely low for student loans, the corporations have the best motive to advertise and push forward their financial packages. The students are constantly told to consolidate now because of the low rates. Consolidating now, however, means doing it under the single lender rule and thus having to deal with a corporation in most cases. Things are not as clear-cut as they appear to be and the consensus of the Democrats and Republicans for the good of the American students is perhaps not as interest-free as it appears to be.

Amelie Mag asked:


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.