<p>The</a> Chronicle of Higher Education</p>
<p>This is important for students who are considering private loans. Most likely, other lenders will follow SallieMae's lead on this.</p>
<p>I can't read it, can you copy and paste? Thanks</p>
<p>Students Will Start Paying Sooner Under New Private Loans
By KELLY FIELD </p>
<p>Arlington, Va.</p>
<p>With defaults rising and investor confidence low, banks and other lenders are rethinking the way they structure private student loans.</p>
<p>On Monday, the nation’s largest student-loan provider, Sallie Mae, will begin requiring borrowers who take out its private... </p>
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<p>Political move (or another attempt at coercion by threatening students and families) on SMC's part. On March 12th they made a statement to the effect that they intended to opt out of the plus loan auction. Supposedly because they cannot make enough money via those auctions. This despite holding some 40% of the student loans put through under the PLUS program. According to the March 12 "Chronicle"- "Washington Sallie Mae announced today that it would not bid in a forthcoming auction to make PLUS Loans, saying it would not be profitable to participate. In a letter to colleges, the lender said it had reached its decision with the firm belief that the best interests of parents and schools would be served by maintaining the current PLUS Loan program. </p>
<p>Essentially what's going on is another attempt by SMC to dictate government policy on student loans but within the USDOE and White House someone is actually tried to block SMC's dictates. </p>
<p>So this time the attempt by SMC will be to coerce immediate payment by students for loans taken out during school. Which is ironic because in the past they have claimed loans under deferment as being defaults which they have successfully put under remediation. They got federal additional subsidies for that little trick. </p>
<p>The claim that SMC needs to act so proactively on collecting loan amounts immediately because of 'losses' is a red herring. First this company has moved into insurance, mortgages and stock brokerage, not something a company on the brink would have the capacity for doing. Second amongst the most massively profitable subsidiaries for SMC (and others in the 'industry') is collections. In recent years the SMC board admitted how much they do profit from that subsidiary. So it's not like they can take meaningful losses no matter what is done. The laws have been sweethearted for them to such an extent that this is virtually ensured. </p>
<p>According to Dr. Warren of Harvard Law & Business Sallie Mae makes money if you pay back on time. And Sallie Mae makes money if you dont pay back on time. It shouldnt be the case that Sallie Mae gets to play every hand at the poker table while the government is the one that keeps anteing up the money.</p>
<p>So this recent policy change by SMC is little more than another attempt at political blackmail using the future of students and families as the lever. </p>
<p>Hopefully the people within the USDOE and White House who are driving behind the scenes to reform educational funding, or to get companies such as SMC out of academe keep up the pressure. And hopefully Congress as a body will finally realize that despite the massive donations Congress is not a wholly owned subsidiary of SMC...</p>
<p>private loans should be the last resort. What other type of Private loan can you get that allows you to not pay back on for several years.</p>
<p>This would discourage people from taking on too much in Private loans.</p>
<p>I do think that ALL federally backed loans, PLUS, stafford and Perkins should have MUCH lower interest rates. Why in God's name does the US govt need to charge 8% on an education loan, when I could get a mortgage for less than that, or a car loan at 0% (not that I'm buying a house or a car).</p>
<p>"I do think that ALL federally backed loans, PLUS, stafford and Perkins should have MUCH lower interest rates. Why in God's name does the US govt need to charge 8% on an education loan, when I could get a mortgage for less than that, or a car loan at 0%" </p>
<p>Sueinphilly; Good point, and the inflated interest rates are largely the result of lobbying by the various companies who have effectively controlled US policy about student lending. </p>
<p>Ironic really because when criticism is quite justifiably aimed at such as high interest rates and fees (SMC's 220% fee increases/revenue being a outrageous example)-these companies like to call it free market forces. But at the same time none of this business would have existed except for the ill advised decision by the government to privatize what had been workable government programs in regards to student funding. </p>
<p>No doubt Senators Pell, Hubert Humphrey and Barry Goldwater are all in their graves gnashing their teeth about this situation (albeit for different reasons)...</p>
<p>So does this new ruling seem like the rates will be lower???</p>
<p>FWIW, since the govt is in the money business now on so many levels, why not just ELIMINATE the third party lenders (for Plus, stafford and perkins loans, the govt backed loans). The business of making money from money is a ponzi scheme (even loans). Let the govt be the primary lender and administer the loans. Something tells me that if everything was run from ONE source without the redundant overseeing of loans by multiple banks, the rates could be lower.</p>
<p>Sorry, the link worked when I checked it, but that must have been because I subscribe - but I am at home now & can't access it!</p>
<p>Basically, SallieMae's new private loans will require students to START PAYING INTEREST IMMEDIATELY. There will be no more capitalizing the interest on SM's private loans. Their reasoning is that it will save the students thousands over the life of the loan - they say their customers want to repay their loans, and this will help.</p>
<p>The reason I think this is important is because a lot of CC posters seem to borrow private loans in addition to their federal loans. They need to be aware that interest will be payable once the loan is disbursed - so they have to be able to manage that cost.</p>
<p>I think that is a GOOD THING. Borrowing less is better. Paying something along the way is a good thing! If I was having my son take out unsubsidized loans (and I think that might be happening next year), I would want to pay the interest. Borrowing 10K a year several years in a row and not having to pay anything along the way is BAD. This is a GOOD lending practice. Anything to make people borrow LESS and see the cost of money is a GOOD thing.</p>
<p>I just want the darn rates to be lower on Federal loans</p>
<p>I'm paying the interest on my sons unsubsidized loans and it really does add up. The first year it was low but junior year, it can be a few hundred. If you let it go, you might be very surprised the amount when you begin to pay it back.
I realize they have calculators for this, but many students say they were surprised so it must not be something they want to see.</p>
<p>"FWIW, since the govt is in the money business now on so many levels, why not just ELIMINATE the third party lenders (for Plus, stafford and perkins loans, the govt backed loans). The business of making money from money is a ponzi scheme (even loans). Let the govt be the primary lender and administer the loans" </p>
<p>SueinPhilly; What you advocate was largely the system which is used in other countries and does work. But since the privatization of the student loan programs there has been substantial lobby pressure to ensure that such reforms are not enacted. </p>
<p>What's going on is a very serious battle for influence between some in the government and SMC. And no doubt SMC will haul out all the influence its money can buy, which is unfortunately quite a bit. </p>
<p>Sallie</a> Mae May Lose 74% of Loans Under Obama Budget (Update1) - Bloomberg.com</p>
<p>Perhaps it's too late for remedy with the generation which has already been fed into this monster, but it does look like some in government have finally figured out that the whole situation is unsustainable. Unlike Representative Grassley they won't openly advocate seppuku for the aristocracy in the student loan corporations, simply because these companies have pull in DC which even AIG doesn't have...but it does appear that behind the scenes someone is finally willing to take these behemoths on...</p>
<p>"Basically, SallieMae's new private loans will require students to START PAYING INTEREST IMMEDIATELY. There will be no more capitalizing the interest on SM's private loans. Their reasoning is that it will save the students thousands over the life of the loan" </p>
<p>Alas Kelsmom it's improbable that SMC has any motivation having to do with the genuine interest of students. If they did they would reform their fee structure, which since 2001 has seen fee increases of about 220%. That has been the cause of substantial and justified criticism. The reason they are making this policy is as a political threat. </p>
<p>Additionally they can read the economic projections and its no doubt obvious to them that former students will not be able to pay SMC's inflation of loans too much longer so immediately getting the interest from students is better than not getting it. </p>
<p>Granted they have incredible abilities for collections and as often do all they can do to ensure loans do default-but politically that type of conduct is now much more likely to provoke a counter reaction from the public. After all the public now has the reactions from the mortgage mess as a model. </p>
<p>Essentially SMC has read the writing on the wall (which they wrote) and are realizing that the conditions inherent to having some 571 billion in student debt in the US is not sustainable. So they will do whatever manipulations they need to keep their share of what had been an incredibly lucrative situation.</p>
<p>Since many students might not work or make enough to pay back the interest (depending on the amount) that might be something for parents to think about too. It will bring a reality to the students a bit quicker than usual.</p>
<p>"Since many students might not work or make enough to pay back the interest (depending on the amount) that might be something for parents to think about too. It will bring a reality to the students a bit quicker than usual." Gaby3</p>
<p>I'm not quite sure where you're aiming here, but there are other aspects of this situation beyond the students and parents. </p>
<p>For example yes reality will come quicker. And in might be in the form of ruining their lives completely. We do have to remember that the edudebt companies have obtained sweet heart regulations which deny most of the basic consumer protections on these loans. Simply put they can harass, and attempt to seize assets on a level which would put a rent to own or barrio pawnshop to shame. </p>
<p>There's another reality which needs to be addressed that is why is our tax money being taken (by the billions) to support a lending industry which only exists because of government abrogation of the proper support for higher education? </p>
<p>And it's not like our privatized lenders system is in any way efficient, equitable or sustainable. These entities have been an instrumental part of the 6% yearly increases in tuition. And a major contributory factor to innumerable social problems including suicides, economic marginalization, diversion of badly needed resources into their coffers and on and on.... </p>
<p>And anyway there's only so many billions which are now available to hand over to these companies. The below lists the SAP subsidies for 2007, it's in the major billions and all of it's money which could have gone for direct support of students and colleges. </p>
<p>Education</a> Policy Program | Federal Student Loan Subsidies | The New America Foundation</p>
<p>"I realize they have calculators for this, but many students say they were surprised so it must not be something they want to see." Debruns</p>
<p>Quite true but often the colleges are not exactly revealing this information with any real accuracy or interest. In the recent past I've worked for schools where the entire advising of the risks entailed handing out brochures (prepared by subsidiaries of the loan companies) or vacuous videos. Additionally students do tend to believe their educations will work for them so student loan debt tends to be a deferred concern. And profs are in a difficult bind, for some fields the most ethical statement they could make is not to attend college beyond the point where debts start to accrue. </p>
<p>Although many more students today are quite aware of the problem but the manner in which the system is structured they often have little choice but to sign for loans they know are disadvantageous. </p>
<p>Plus as what's left of our economy sinks further many who did have intentions to pay these debts quickly will not be able to do so. It's very difficult to pay a 30,000-80,000 educational debt for a professional degree when those professions are not hiring. </p>
<p>What we're heading for is a Dmitry Orlov paradigm in higher education...fortunately its not here yet but it seems to be coming upon us fairly quickly.</p>
<p>I agree. Those brochures don't sink in : ) I started a "interesting-interest" plan for my son. I drove him by real estate "bargains" in our community and said: That house costs $100,000. If you go to x school, the interest on your loan over 10 years would be the equivalent of this mortgage. This is how much the mortgage would cost if you lived at this house. Because you can only mortgage a ratio of your income, that means to live in this house, you need to make x, because your school loan will take up this much...)
I made it clear that he was worth it but I wanted his eyes open on the matter.
I did this in his junior year. My goodness did he take a sudden interest in writing excellent essays, getting good recommendations, keeping straight As, etc. And he did win a merit scholarship to his first choice school that offset his tuition.</p>
<p>There've been a lot of young posters on this board who need to go through this exercise early on to get a firm grasp on the significance of the decisions they are making in terms of where they apply and "how hard" they work on their applications. (Without scaring them off HYP etc. where need is met...)
Hi ho.
:) K</p>
<p>That's so true and a good suggestion, km! I did a version of the same on excel with mine - here's your gross, then taxes, then student loans, then rent, etc. but your way is so much more visual! I'm astonished by the number of kids my D knows, and those on CC, whose parents have not been part of the college and FA process so far. So many seem surprised and upset that they're not getting Pell and other grants for low income! I don't understand this at all!</p>
<p>I know a couple who makes many times the amount I do and whose D found out THIS WEEK that they cannot afford either of the 2 schools she applied and was accepted to without taking on massive debt. She applied to no "financial safety", they were counting on merit money and the government. The girl graduates near the top of her class and did get merit money, but not even 1/3 of the cost.</p>
<p>"I know a couple who makes many times the amount I do and whose D found out THIS WEEK that they cannot afford either of the 2 schools she applied and was accepted to without taking on massive debt" </p>
<p>sk8rmom
Unfortunately that situation is coming close to being a overall condition. Many are holding up the CC's and State Universities as a panacea for the problem of exorbitant college costs. And to an extent these might be for the population which heretofore have attended the elite privates. </p>
<p>The dilemma is that the historical population for these schools are well past the point where college is affordable for them relative to their income. </p>
<p>And academe's been simultaneously a victim and a predator in the conditions which led to this dilemma. When the lobbyists and their shills in government transitioned away from direct aid to students and colleges in favor of the corporatist lenders that meant that stable forms of funding also went away for colleges. So in order to maintain their own status and function academe soon accepted student debt as a normal condition.
As this situation developed many in academe soon divorced themselves from the consequences of student debt being the predominant form of funding. Once that occurred the fiscal discipline which was inherent to the old grants and direct federal support model also went by the wayside. Essentially the real and moral costs of educational funding were transferred to the students and parents, and once they graduated the consequences of that system could be conveniently shifted out of immediate recall. And of course since the subsidized corporate lenders benefited from the escalation of college costs their presence in the decision making process of academe became quite overt. </p>
<p>The problem is some of the administrative contingent in academe are not adversely affected all that much by the escalation of college costs as they do not deal directly with students and are often paid more than enough to compensate for the costs of their own educations. But a few have noticed the problem, to the extent of developing programs which make tuition limited or free for certain students and families.
Faculty have at time also been blissfully and deliberately blase about the consequences of burgeoning college costs. But it is much harder for them to maintain this state because for many the costs of their own education is an albatross weighing them into an avowedly second class status. Plus for the popular profs students do come back and talk when they find their education has not worked and the debts are driving them to potentially extreme acts. </p>
<p>The problem is what can be said by those who work within and are subject to a system which devours its own progeny, and is generally immune from reform because the money being made by those who don't teach, don't administer, and don't actually serve in academe also gives them the ability to obstruct badly needed changes?</p>
<p>
[quote]
"I do think that ALL federally backed loans, PLUS, stafford and Perkins should have MUCH lower interest rates. Why in God's name does the US govt need to charge 8% on an education loan, when I could get a mortgage for less than that, or a car loan at 0%"</p>
<p>Sueinphilly; Good point, and the inflated interest rates are largely the result of lobbying by the various companies who have effectively controlled US policy about student lending.
[/quote]
</p>
<p>There is a difference in security between a loan secured by a Home or Car loan vs. an unsecured loan. If you were loaning money to someone, which one would you want? Right now, there is a big gap in the bond market between high credit worthy loans (secured loans), and less credit worthy loans (unsecured loans). That is why there is a big difference in interest rate. Also, the 0% car loans are subsidized by the auto companies - in essence you get a 0% loan rather than cash back.</p>
<p>EDIT: Sorry, wrong thread</p>
<p>Opera Dad, I see your point in that you can't repossess someone's college degree.... But 8% for Plus loans??? </p>
<p>If I had to borrow anything to pay my EFC (which I won't have to hopefully) I could borrow from my 401K at less than 3% (and yes I know the repercussions of doing that and what happens if you lose your job)</p>
<h1>"There is a difference in security between a loan secured by a Home or Car loan vs. an unsecured loan. If you were loaning money to someone, which one would you want? Right now, there is a big gap in the bond market between high credit worthy loans (secured loans), and less credit worthy loans (unsecured loans)." </h1>
<p>A few caveats here, yes a degree cannot be repossessed. But unlike a car or house there is also virtually no legal remedy for a defective product. And if academe wishes to pursue the concept of student as consumer the correlation should be that the service provided should be credible. It should serve its intended purpose if the student also does her or his part. This is clearly not so, to use the notorious examples of MFA/PhD's in the humanities that crew has a less than 10% placement rate. Even a aged, blind, and senile demimonde could do better than that...</p>
<p>Obviously in many cases, American higher ed is not nearly as credible as it should be- especially for some of the advanced degrees. And quite truthfully as a little minion inside academe I can see nothing that justifies the average 6% yearly increases in tuition. Trophy buildings and glitz clearly don't benefit students or families in any substantive way. Especially since students from European countries* which don't have these things do quite well. Often to the extent of being 2-3 years ahead of their American counterparts. </p>
<p>(*Predominately Germans in my experience.) </p>
<p>And quite true that student loans are unsecured loans, but as such why does it make any sense to hand over government money to subsidize private lenders, to lend money which itself often derives from government largess. Wouldn't it make much more sense to use those government funds, to lend direct to students and save some massive subsidy payments and free up these private companies from that 'terrible' lending risk? </p>
<p>And we do have to recall that when student loans were largely privatized and subsidized back in the late 70's the rationale used was a supposedly higher default rate. Which wasn't actually that high, what was done was a red herring using the legendary 'lawyer and doctor who skipped out on their loans'. Since we've had a generation of this semi-privatized system default rates are actually much higher under the corporate lenders-in part because they have lobbied for special treatment under which they actually benefit from ensuring loans do default. The government pays them the full amount, plus enhanced subsidies, and they can still go after the student for enhanced fees, and the original amount. </p>
<p>And under any risk assessment, and especially since much of this is taxpayers money-how does any of the current situation make sense? It doesn't fiscally, morally, socially or any other "ly" one can fit in into...</p>