DATE: March 29, 2006

CONTACT: Melanie Amrhein

PHONE: (225) 922-3269

FAX: (225) 925-7449

LASFAC Voices Support for Crane Bill

The Louisiana Student Financial Assistance Commission (LASFAC) has gone on record in support of a bill by House Education Committee Chairman Carl N. Crane (R – Baton Rouge) that was pre-filed for the 2006 Regular Session of the Louisiana Legislature.

The Crane bill (HB 704) is in response to a provision in the federal Deficit Reduction Act of 2005 that requires all guarantors of federal student loans to deduct a 1% default fee from the borrower’s loan principal. Prior to enactment of the federal law, the charging of a 1% guarantee fee was optional and was waived from 1999 to 2004, for students whose loans were guaranteed by LASFAC. The bill would permit the new fee to be treated as “Louisiana income tax withheld from wages”. The withheld fee could then be applied to any state tax owed by the borrower, or refunded to the borrower upon filing a state tax return.

“Since college students typically don’t earn enough in their part-time jobs to be liable for state income tax,” explained LASFAC Chairman F. Travis Lavigne, Jr., “passage of Representative Crane’s bill should ensure that the vast majority of them are able to recoup the default fee and other wage withholdings in the form of a Louisiana income tax refund.”

Federal law requires that the fee collected from students be deposited into LASFAC’s Federal Reserve Fund and used to purchase defaulted federal student loans from participating lenders. The savings to students provided by this bill should encourage more students to participate in LASFAC’s guaranteed student loan program.

LASFAC earns federal fees based upon the volume of student loans that it guarantees, greater volume meaning more earnings. Earnings from the student loan program pay LASFAC’s operating costs, as well as the costs of administering and promoting Louisiana’s student aid programs that include START, the college savings program, and TOPS, the state’s popular merit based scholarship program. Without these revenues from the student loan program, the state and its taxpayers would have to bear the $5 million annual cost of promoting and administering the state’s student financial aid programs.

Passage of the bill would mean that students will save money, the state would benefit from increases in loan volume and federal revenues and Louisiana’s taxpayers would be the ultimate beneficiaries.