Student Loan Rates

Recent proposals to establish an auction of the right to make student loans as discussed in your June 5 editorial raise several important issues you did not address.

First is the assumption that the student loan marketplace is currently devoid of competition. This is incorrect. In fact, competition is so fierce that lenders offer many incentives to borrowers, and over half of all borrowers either receive a discount on upfront fees or are eligible for a reduction in interest rates based on making timely repayment.

Second, an auction may produce the lowest cost for the federal government but not the best loan service for students and schools. Under an auction system, students and schools will lose the opportunity to choose their student loan provider. An auction system will eliminate the resources necessary for high-quality customer service and the technology to offer innovations, such as convenient online borrower access to account information.

The current student loan crisis was precipitated by a hastily conceived interest rate formula that experts now agree simply does not work. To avoid repeating this mistake, federal policymakers should insist on a thorough study of market-based mechanisms for determining student loan rates before taking any action.

JOE BELEW, President

Consumer Bankers Assn.

Arlington, Va.