College aid reform could be costly for some Utah banks, credit unions

SALT LAKE CITY (Deseret News) — Utah's banks and credit unions are assessing the impact if and when historic sweeping changes to the current college student loan program take effect.

Reforms contained in separate legislation bundled with the House's health care bill that passed Sunday night would overhaul college aid for millions of students.

The House bill, which still must pass muster in the Senate later this week, eliminates private lenders from their role as middlemen in the process. Instead, student loans will be directly administered by the federal government.

Lenders currently supply low-interest loans to college students which in turn are guaranteed against default by Uncle Sam. The government also subsidizes private lenders whenever necessary to keep interest rates low.

"I think time will show it was the wrong move," said Howard Headlee, president of the Utah Bankers Association. "Either way, it's hard to understand what (this) has to do with health care. The only thing that's consistent is that we're pulling more activity out of the private sector and moving more activities to the public sector, and the associated risks. And that's what I don't think the government is good at."

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