The history of American Student Assistance® (ASA) spans several decades, from our origins as primarily a fundraiser in the community to create an insurance pool for guaranteed student loans, to our work as a guarantor in the federal student loan program, to our current game-changing program to equip college students and alumni with financial skills for life. Below is an in-depth look at ASA® through the years:
The Early Years
Concerned with college affordability in the wake of the GI Bill’s expiration, Massachusetts state senators Philip Graham and John Glovsky sponsored legislation in 1956 to create the Massachusetts Higher Education Assistance Corporation (D/B/A American Student Assistance). Together with the Massachusetts Bankers Association, Graham and Glovsky sketched a model whereby a guarantee fund, raised by the tax-exempt private entity MHEAC from charitable donations by local banks, businesses, and wealthy individuals, would function as a form of insurance to mitigate lender risk. Banks would lend money to needy students to pursue postsecondary education. The student would repay the debt after graduation. If the student defaulted on the debt, the bank would be indemnified for its principal from the guarantee fund. Since most students were expected to repay their debts, banks felt comfortable lending 10 times the amount of the guarantee fund.
The legislation was passed with overwhelming bipartisan approval, and Chapter 298 of the Acts of 1956 created MHEAC as the first student loan guarantor in the nation. The legislation established MHEAC’s purpose: “to aid and assist students to fulfill a program of higher education.”
By March of the following year, 170 banks had signed on as part of the groundbreaking program, and the first loan was disbursed to an Endicott College student. Over the next several years, MHEAC worked to build fundamental, solid, and long-lasting relationships with academic institutions, lending corporations, policymakers, borrowers, and other community establishments. These connections helped to formulate a cohesive and successful web that represented the common goal of assisting students financially. In fact, by 1965, the Corporation had guaranteed 30,000 loans and was no longer seen as a new initiative, but rather a credible, thriving entity worthy of national recognition and institutional replication.
The MHEAC model, financing for a socially and economically worthwhile cause being arranged with private money through a tax-exempt, private organization, suited the policymakers and the business community of the 1950s. Guaranteed student loans presented an attractive investment for banks, allowing them to expand capital, put forth a positive image, and create relationships with students and their families. The model also appealed to several other states. Within only a few short years, other states began to recognize MHEAC’s achievements and aspired to duplicate such a program. Nine other states, mostly in the East, soon set up similar organizations and in 1960, the United Student Aid Fund, a guarantor that operated on a national rather than state level, was formed.
In general, the 1950s federal government under President Eisenhower did not attempt to find a solution to the problem of financing higher education because it believed that it was an area in which the states or private individuals should take the initiative. But the Russian launching of Sputnik in October 1958, which highlighted American vulnerabilities in science, mathematics, and knowledge of the outside world, sparked the National Defense Education Act as the first major federal student loan and scholarship program to follow the expired GI Bill. This program lent federal money to students directly through the colleges without involving banks or guarantor agencies.
The Higher Education Act of 1965: Becoming a Federal Student Loan Guarantor
By the early ‘60s, the demand for student loans had begun to outstrip the ability of charity-based organizations like MHEAC. In 1965, under President Lyndon B. Johnson, Congress passed the Higher Education Act, which instituted a federal guaranteed student loan program. The bill proposed an insurance fund, provided by the government, to promote private educational loans of an aggregate loan amount of $700 million in the first year, rising to $1 billion in 1967 and $1.4 billion in 1968. (By contrast, existing state and private guarantors had guaranteed a loan volume of about $100 million in 1964. Clearly, state and private guarantees could not meet the demand.)
Initially, such a program would be set up only in those states that did not already have state or private nonprofit organizations that provided at least as beneficial terms as the government insurance. Eventually, though, through administrative agreements, a federal reinsurance scheme and reauthorizations, a federal guarantee replaced the private guarantee funds of the state organizations like MHEAC. However, based on the positive reputation, maturity, and momentum that MHEAC and its guarantor counterparts had already earned, the law established that, wherever possible, the federal program would be administered by existing student loan guarantor agencies.
The program succeeded in the coming years because it was based on a mutually beneficial arrangement. The administration gained the cooperation of the banks; the guarantors were strengthened financially and given a new role in administering the government’s program; and the federal government was relieved of administering a program that it didn’t feel competent to administer. MHEAC thus began its transformation from a privately funded guarantor operating on a fairly small, and ultimately inadequate scale based on charity, to a still private entity but one administering a larger and increasingly complex system of federally guaranteed student loans.
The 1980s: Combining Innovation and Public Purpose
Throughout the ‘70s and ‘80s, MHEAC built core competencies in operational efficiency and customer service for schools and lenders. As lenders began to feel more confident in the security of the federal student loan program, volume grew and MHEAC developed several operational processes and technologies that eased loan origination and disbursement. MHEAC also began to develop deeper relationships with higher education institutions, adding school representatives to its Board, setting up trainings and conferences for financial aid professionals, and placing people from all facets of the education system in key leadership positions within the organization.
As the company grew, MHEAC branched out and began providing other services. In January of 1981, Congress established Parent Loans for Undergraduate Students (PLUS loans), and MHEAC became the first agency to guarantee such a loan the very next day. In July of that same year, MHEAC assisted in the development of Nellie Mae, which became a regional secondary market for federally guaranteed student loans. MHEAC also formed Education Loan Services, Incorporated in 1983, which became a wholly owned subsidiary to handle loan repayments, as well as the first alternative loan program, The Education Resources Institute, Inc., in 1985.
Realizing a growing need to educate urban students about higher education and available funding opportunities, MHEAC established the Higher Education Information Center at the Boston Public Library and assembled a group of capable advisors to promote college access and awareness for people of all ages, especially first generation college students. ASA provided a grant to TERI to oversee the HEIC (now called College Planning Centers), and in recent years, thanks in part to staff resources provided by ASA, the Centers expanded to additional locations throughout inner Boston, Brockton, and Chelsea. Through a recent agreement initiated by TERI and awaiting approval by the Massachusetts Attorney General, ASA has agreed to once again assume operation of the Centers and TERI’s College Access Programs to preserve this essential public service in the community.
MHEAC continued its commitment to student-focused efforts and in 1985 helped create ACCESS scholarships. The Action Center for Educational Services and Scholarships (ACCESS) program, which is an affiliate of the Boston Plan for Excellence in the Public Schools, provides financial aid information and scholarship money to needy high school seniors. ACCESS Advisors work directly with students, assisting in researching and applying for a variety of financial aid options. There are early awareness workshops, classroom presentations, and even one-on-one advising. Once an application for all available financial aid has been constructed, ACCESS helps to provide any additional “last-dollar” funding that a student might need in order to go to college. Since its establishment, ACCESS has provided instructional aid to over 30,000 Boston public high school seniors and contributed close to $5 million.
In 1987, MHEAC created the Loan Counseling Task Force, a groundbreaking committee focused on debt counseling and early awareness for colleges and universities. The group, comprised of lender representatives, school contacts, and MHEAC employees, published Be a Wise Borrower. This brochure proved to be a huge initiative that was widely distributed to schools eager to inform their students of the proper steps to successful loan repayment, and laid the groundwork for ASA’s future work in educating students toward proper debt management.
1990-2010: National Scope, Redefined Mission, and a Student Borrower Focus
In 1990, the U.S. Department of Education designated MHEAC as the guarantee agency for Washington, D.C. Having moved beyond Massachusetts and increasingly serving students, lenders, and colleges across the nation, MHEAC changed its DBA name in 1992 to American Student Assistance.
Throughout the ‘90s and 2000s, ASA continued it its role as a Federal Family Education Loan Program guarantor. In addition to developing cutting-edge technologies to streamline loan origination and processing, ASA also began to learn firsthand that the majority of student loan payment difficulties could be prevented or reversed by connecting struggling borrowers with the multiple payment solutions that already existed. The problem was that the federal student loan program had grown too complex and bureaucratic for student borrowers to navigate—borrowers simply didn’t know how to take advantage of the available options to make the debt manageable. At the same time, student debt levels continued to rise as the cost of higher education outpaced increases in family income.
Recognizing this troubling trend, ASA, by the late ‘90s, began its transformation from an agency devoted to default collection (60% of a traditional guarantor’s revenue is derived from federal funding to support collection activities) to one whose primary objective was preventing loans from defaulting in the first place. ASA also redefined its public purpose mission as “to assist students and parents in successfully completing a program of higher education financing and repayment.” The added emphasis on “and repayment” reflected what ASA had come to see as its true purpose: a debt management resource for borrowers throughout the life of their loan. The financial “wellness” of every borrower in ASA’s portfolio became the corporate goal.
Re-energized by its new business outlook, ASA and a few other like-minded guarantors advocated for legislation that would better align guarantor funding incentives with keeping loans in good standing. In 2001, ASA became one of only a handful of guarantors to enter into a Voluntary Flexible Agreement with the U.S. Department of Education and began to research several different methods of proactive outreach and communication for teaching borrowers financial literacy and debt management skills. The organization sought to find best practices in borrower communication, from message, to timing, to delivery method. Borrower forms and letters were constructed and reworded to be more friendly, appealing, and less technical in nature, while ASA employees shifted to counseling techniques that would build relationships with borrowers as customers and grow their trust in the organization as a resource throughout repayment.
ASA’s VFA assumption, that giving borrowers the right information at the right time is crucial to default prevention, spawned several successful programs targeted to distinct segments of student loan borrowers as they faced key decisions regarding their student loan payment. Examples of targeted borrower populations included severely past-due borrowers who were eligible to rehabilitate their defaulted loans, borrowers who had withdrawn from school before graduation, and borrowers just about to make their first student loan payment. Through a combination of direct mail, email, personalized phone counseling, newsletters, and more, ASA helped these borrowers not only better understand their student repayment options but also start to develop the proper financial competencies so they could build a healthy financial lifestyle.
Today: SALT—The Movement to Incent Financial Savviness
Through the successful implementation of its Wellness initiatives, ASA helped borrowers avert over $120 million of loan defaults between 2001 and 2008; increased the number of loans in good standing in its portfolio; and consistently achieved delinquency and default rates lower than the national average. But in 2007, the College Cost Reduction Act made changes to FFELP and the standard guarantor payment structure. Because of this change, the four VFAs were terminated as it was determined that the VFAs were no longer “cost neutral” as required by the enabling legislation. Despite the termination of its official VFA agreement, ASA continued its innovative borrower outreach and default prevention efforts and even expanded provision of proactive education debt management and financial education services. Additionally, some of the lessons learned through the VFA experiment were incorporated into FFELP or voluntarily adopted by other guarantors.
In addition to completing our duties as an administrator of the remaining Federal Family Education Loan Program portfolio (the FFELP was replaced by the Federal Direct Loan Program in 2010), we have submitted a second-generation VFA proposal to the Education Department to continue to provide services in the areas of Delinquency and Default Prevention and Management; Community Outreach, Financial Literacy, and Debt Management, School Training and Assistance, and School Oversight; and Lender and Servicer Oversight.
These proposed services correspond to ASA’s innovative financial literacy and default prevention program known as “SALTSM.” With SALT, ASA intends to help address the growing national student debt problem by sparking a movement to incent financial savviness in students and alumni. ASA is building a coalition, made up of like-minded colleges and universities, federal and state government entities, foundations, nonprofits, and corporate sponsors, to power SALT and thereby revolutionize the way that current and former college students learn not just about student loans, but about money matters in general. Through a variety of mediums and the latest communications channels, SALT uses student loans and the higher education experience as a series of “teachable moments” to develop financial competencies that lead to long-term success and positively influence behavior. Our vision is for a more financially literate citizenry and a nation made stronger through education and fiscal responsibility