Govt taking action on student loans

Paying for College
1

<p>If they increase the max amount for stafford undergrad loans (from 23 to 31K), will they increase the yearly amount you can borrow???</p>

<p>Ahead</a> of the Bell: Student loan aid: Financial News - Yahoo! Finance</p>

<p>House to vote on bill to ease crunch on federally guaranteed student loans</p>

<p>WASHINGTON (AP) -- A credit crunch affecting federally guaranteed student loans is pushing Congress to help shore up the stricken market.</p>

<p>The House is voting Thursday on legislation that would give the Education Department temporary authority to buy loans from student lenders to ensure their access to capital. The bill sponsored by California Reps. George Miller, the Democratic chairman of the House Education and Labor Committee, and Howard McKeon, the panel's senior Republican, also would let the education secretary advance federal money to designated companies that would operate as "lenders of last resort" if they run out of capital to make new federally backed loans.</p>

<p>The legislation cleared the committee last week on a unanimous vote. A similar measure is pending in the Senate.</p>

<p>It also would:</p>

<p>--Give parent borrowers more time -- up to six months after children graduate -- to begin repaying the federally guaranteed loans known as PLUS loans that allow them to borrow up to the full cost of attendance, including room and board and books.</p>

<p>--Temporarily classify as an emergency circumstance delinquencies on home mortgages of up to 180 days, enabling parents in that situation who have a negative credit history, and would therefore be ineligible, to take out PLUS loans for their children's education.</p>

<p>--Increase from $23,000 to $31,000 the total amount of federal student loans that dependent students can receive to pay for college.</p>

<p>The subprime mortgage crisis has shaken the market for student loans in recent months, just when students headed to college next year must begin to lock in their loans. More than 50 student lenders have stopped making federally guaranteed student loans, either temporarily or permanently.</p>

<p>The exiting lenders, which include college loan agencies in several states, account for around 13 percent of the federally backed student loan market, according to FinAid.org, a Web site focused on student lending.</p>

<p>The student lending industry and investors are pressing Congress for help, and Democratic leaders say a potential crisis in access to money for education should be averted by government action in the way that the mortgage foreclosure disaster was not.</p>

<p>Without government help, "we're looking at a material shortfall in access to student loans this year," John Remondi, the chief financial officer of Sallie Mae, the nation's largest student lender, testified at a Senate hearing Tuesday.</p>

<p>Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, said at the hearing he would ask Treasury Secretary Henry Paulson to consider using a Treasury financing agency to pump cash into the student loan market so lenders will make new federally backed loans.</p>

2

<p>the effect of raising the ceiling to $31,000 will mean
increased loans for low and moderate income students
Over the next few years today's indebtedness average
of about $25,000 will rise probably to the low $30's.
In the long run this kind of legislation will continue
the current trend - the concentration of resources
in the top schools and continued lack of access for
less affluent students. This is a bill the colleges, lenders
and affluent parents will love.</p>

3

<p>They have already increased the maximum's a student can borrow per year. Right now, the problem is that they did not increase the lifetime limit so many 4th and 5th year students are finding they do not have enough funding to finish their degrees. Currently, freshman receive $3500, sophomore $4500, junior $5500, senior $5500, 5th year $5500. That totals $24,500...1500 more than is currently allowed. This means more funding from private loans. The problem is worsened if the student began their education at a technical school or one that lacks appropriate accrediation for the credits to transfer. In fact, just last week I told a Junior that she was ineligible for Subsidized Loans because she had already reached her lifetime limit....despite the fact that she had a ZERO EFC.</p>

<p>Increasing the limit from $23k to $31k is a blessing for those who need loans but are coming very close to their limits. Maybe they will be able to limit their dependency on private loans.</p>

4

<p>does anyone know what the loan aggregate limit for independent students is going up to? i had heard rumors that the lifetime maximum will be about $56000 to $58000...</p>

5

<p>Rather than indirectly infusing large amounts of money into the coffers of companies such as M. Remondi's, just perhaps the Congress should consider establishing and enhancing programs of direct lending. The funds diverted as part of the federal guarantees to lending institutions, could as easily be directed to the states to provide for direct institutional or governmental loans.
At least if it was not for the massive lobbying efforts, and the back room deals of the various companies which have co-opted US higher education. Perhaps the billions spent on 'middle men' such as SM, has the major beneficiaries being those companies and not the students or their families. Or just perhaps, as a radical idea, give that money directly to the collegiate system, with the specific condition they use it to support academic programs and accordingly reduce tuitions. And we're not talking pocket change here, one subsidy last year, to just one company (who'd incidentally over billed the federal government), was some 250 million. Checking the numbers, that would have paid the first first years tuition for every 2 year student in a medium sized state like Colorado.
Increasing the loan amounts will only mean disaster, because various special interests including SM's officers Lord and Remondi have lobbied for unprecedented and unique privileges in their realm of the credit industry. So students will borrow more, the loan amounts may triple (or worse) if full payment cannot be made, and eventually in itself will lead to an economic disaster. Additionally, one of the aspects causing the 'crises' in student loans, was simply that Congress made some small cuts in the subsidies and these companies have panicked because their suckling at a apparent cash cow had provoked a congressional reaction. And its profoundly interesting that no aid, assistance, or alternatives are being even discussed for those students, graduates and etc who have been unable to pay the appalling loan tolls attendant to escalating college costs. They have no protections, but ironically Congress is considering massive inflow of cash to corporations which have made unparalleled profits by co-opting the financing of what should have been a governmental and academic matter. In many regards SM's recent statements are intended more as a threat to continue their unique sweetheart deal with the federal system, than by any intent to actually serve students or the betterment of the educational system in the US.
Is there any reasonable person who actually believes that there is long term
benefit to subsidizing a system which has already demonstrated an inability to meet student needs, with an ability for massive corporate profit at the expense of students and colleges.
Perhaps that mess needs to be cleaned up, student lenders protected, and these companies finally driven out of academia. There are systems such as Australia's, Sweden's, and even Ireland's which have not fallen into the mire which the US currently find itself.</p>

6

<p>"Other officials involved in student lending said they also understood Ms. Spellings and Mr. Paulson were nearing an agreement on a plan for using the federal agencies to direct more government funds toward private student-loan companies, but did not yet regard it as imminent. A department spokeswoman, Samara Yudof, said that Ms. Spellings had no plans for an announcement on the matter “at this time.” —Paul Basken (Chronicle of Higher Education, April 18th 2008) </p>

<p>This morning in the Chronicle of Higher Education, an implied admission that there is going to be little effort to actually establish lending systems outside of the large companies which control access to much of student loan funding.</p>

7

<p>
[quote]
This morning in the Chronicle of Higher Education, an implied admission that there is going to be little effort to actually establish lending systems outside of the large companies which **control **access to much of student loan funding.

[/quote]
</p>

<p>As the evidence of the ability of people to afford their own golf course after a few years at corporations such as Sallie Mae.shows, the term "control" seems to correspond to the outright right to fleece everyone except. </p>

<p>Nothing that great lobbying of the democrat leadership can't hide.</p>

8

<p>To paraphrase Will Rogers: It's an election year....better watch your wallet. :D</p>

9

<p>It has been both of parties of our alleged leadership, there is virtually no one in the Senate, House or executive branch who has not taken money from these people. Ironically, the money source which allowed them to buy this influence, originated from public money and public policy.
Now 'our' government is going to give them billions more, to ensure their liquidity and to increase loan amounts. What this will ensure is that these companies, lead by people like A. Lord and Remondi, will have the resources to extend their talons into another generation of students.
Rather than reforming college funding, or helping students caught in this trap, our 'leaders' are simply handing more money over to these companies.
And during this summer, and due to the current pressures of a failed economy, it's very probable that this new 'liquidity' will be applied to enhancing the collections aspect of these companies. Literally they have carte blanche to collect unprecedented finance fees, harass to ruin anyone who cannot pay, and as a people we provide the money which makes it all possible.
And from a social view, nothing is being bought by providing 'liquidity funds' to these companies but more billions for them, and more millions of lives ruined for these profiteers benefit. And lives ruined is not an theatrical statement, I personally have had to talk students and academic collegues away from suicide because of the pressures brought to bear on them by these companies. And although I currently serve in academia, I doubt I will be able to continue, financial considerations aside, because the entire academic system has been morally sodomized by such as SM, NN, and such 'men' as Lord and Remondi.
So for someone to become enraptured that loan amounts are being increased, and liquidity is being assured for these corporations, means only that the skids for the ruin of another generation are being adequetely greased, nothing else.
And its very distressing to realize what had been the promise of education, is now little more than a socially parasitic lie...but as long as a few more private golf courses are built, and our representatives can posture they have 'done something to save' education it's all ok...of such perversion of promise, and hope, are the fires of hell kept alit.</p>

10

<p>by M. Davis Page 1 of 2 page(s)
OpEdNews.Com</a> Progressive, Tough Liberal News and Opinion<br>
The pastor of a tiny Iowa church admits to having thought about suicide over his debts. According to an NPR interview, he’ll be paying on his student loan until 2029. And, he’s not alone.</p>

<p>The human toll of the nation’s shaky loan industry has yet to be measured, but social workers and family counseling experts say family financial problems are leading to divorce, spousal and child abuse, even suicide. Over a single month period this year, the federal government filed at least 25 lawsuits against students who had allegedly defaulted on their student loans. This does not include the farm foreclosures, or federal lawsuits over defaulted home mortgages in various federally subsidized home mortgage programs.</p>

<p>Today’s young adults often begin their college careers with a crippling amount of debt. Take for example, the below mentioned student who is carrying more debt as a teenage student than many long-time married, financially stable married couples of a generation ago: </p>

<p>Tom Dillon, 19, a pre-pharmacy major at the University of Connecticut, is carrying $52,000 in student loans. And he's just getting started. When he gets his pharmacy doctorate in four years, he expects his debt to exceed $150,000. (USA TODAY 2-22-06)</p>

<p>Thousands of students are burdened by onerous student loans before they receive their degree and cash their first paycheck. The situation has created an entire after market of debt consolidators, counselors and refinancing services, but the trickle down effect of the national economic crisis puts many of these companies at risk as well. Referring to the stock slide of one such company, the Houston Chronicle says the situation is more critical than people think:</p>

<p>First Marblehead Corp.'s stock sank Monday after a Friedman Billings Ramsey analyst downgraded the student finance company, saying there may not be as much cash committed to covering unpaid student loans as people think (HOUSTON CHRONICLE 11-26-07)</p>

<p>The loan servicing industry is taking a massive hit. The companies, which repackage loans and sell them to other financial institutions and investors, now find themselves selling risky debt which investors are becoming increasingly reluctant to buy. </p>

<p>The nation’s financial industry is beginning to see a domino affect, which includes banks, loan companies, and agencies that provide loan servicing. Many of the nation’s institutions are already carrying portfolios of now-risky mortgage debt and they are leery of assuming more high-risk loan portfolios.</p>

<p>The loan industry itself is undergoing massive downsizing, as the weight of defaulted loan products drives companies to restructure and slash payrolls nationwide. The industry is bleeding like a stuck pig and the resultant loss of tens of thousands of jobs adds to the national consumer debt burden. </p>

<p>The hundreds of thousands of people who have been laid off in the auto, mortgage and retail industry are now at risk of defaulting on their home mortgages, credit card bills and student loans. And, unlike times past, walking away from student loan debt is not that easy. Financial pressures have wrecked marriages, destroyed mental health and have driven many to suicide.</p>

<p>Danilo Linarte was in trouble. His loan situation and financial problems were putting a massive amount of stress on his family. “The financial hardship was overburdening my family to the point of separation and divorce,” said Linarte. Linarte contacted a tax and debt consolidation company after being hit with one 15% wage garnishment on a defaulted student loan, while still paying on another education loan.</p>

<p>According to a JK Harris press release:</p>

<p>Linarte was already making payments on another student loan and his budget did not afford him the ability to make a down payment and the monthly payments the collection agency was demanding from him for the defaulted loan. Facing financial hardship, JK Harris set to work with Linarte’s creditors to negotiate a repayment plan.</p>

<p>1 | 2</p>

11

<p>Well, the new influx of liquidity, will go into sustaining more of the same appalling troubles, this article was from last year and the author was already very well aware of the current developing troubles.
All the new money is going to do is prop up the same situation. So is there any real reason to be pleased that more 'liquidity' is being provided to the big players in this industry? It would seem equivalent to pouring Evian water into an already befouled storm drain...and then asking for a clean cup to drink it from...
Thank you M. Davis for clearly writing of the tolls exacted by the 'industry' which our leadership is today is planning to give even more money..</p>

<p>M. Davis's article continues below...</p>

<p>One loan servicing company has turned defaulted student loans into a revenue stream for student loan consolidation companies. According to the Florida-based company’s press release:</p>

<p>Eventually, unpaid defaulted student loans can have long-term consequences beyond just the loan directly. For example, the students' credit report will take a hit. Once the loan has been forwarded for collection the student’s wages can be garnished and their federal income tax refunds can be withheld. You also lose your eligibility for other types of federal loans including student loan consolidation. Given the size of most student loans, it's usually impossible to repay a defaulted student loan in the single payment that loan collectors may request. There are mechanisms for repaying defaulted student loans and for both regaining your eligibility for more student loans and improving their credit score. (Student Financial Advisors, press release)</p>

<p>The political backlash against student loan defaults began in the Nineteen Eighties. According to the New York Times:</p>

<p>[A congressional] plan call[ed] for new regulations that, starting in 1990, would deny aid to students in schools where previous borrowers had a default rate of 20 percent or more. If that policy were in effect today, the plan would affect nearly one-third of the 7,300 post-secondary institutions participating in the Guaranteed Student Loan program. Most of those affected would be proprietary vocational schools, community colleges, private black colleges and other institutions serving low-income students. (NYT, 12-2-87)</p>

<p>Today, those regulations are making educational institutions toe the line. One university shut its football program down because the high student loan default rate of its football players put the entire university in jeopardy of losing federal financial aid funds. Once an institution’s student default rate reaches that magic 20%, the federal government kicks them out of the student loan program. In order to avoid that dire consequence, universities have slashed non-performing programs, which attract students who have a high risk of defaulting on their loans.</p>

<p>Job loss, medical bills, and unforeseen debt is driving hundreds of thousands into foreclosure, particularly in regions with high real estate prices, such as Florida, New York and California. In order to get out from under debt, many families are losing hundreds of thousands of dollars in emergency real estate sales, such as this Florida couple:</p>

<p>Scott and her husband Joseph, 27, were served with a notice of default in September and put their house on Tea Rose Court up for sale in late October for $400,000. They bought the home in March 2006 for $515,000 and, because of a job change, now can't afford monthly payments. (Contra Costa Times, 11-26-07)</p>

<p>The inability to pay these massive loans is having an adverse affect on the mental health of hundreds of thousands of Americans, many of whom are carrying triple debt loads: student loans, credit card bills and mortgages. Massive loans, combined with the uncertain economy have put millions of homeowners and loan recipients at risk of a variety of stress-related illnesses.</p>

<p>According to a student loan blog, debtors are finding new and creative ways to outrun debt, and yes, suicide is among them.</p>

<p>StudentLoanJustice.Org has received thousands of stories from citizens whose lives have been shattered by their student loans. These stories are from decent citizens who have been forced to live "off the grid;" postpone marriage and children; leave the country and even commit suicide.</p>

<p>The situation has created what one magazine is calling the Debt Industrial Complex. (DIB). </p>

<p>Debt is the new four-letter word. As the credit-fueled housing bubble comes ever closer to bursting, Democrats in Congress and on the stump are denouncing predatory lenders and their "Wild West" ways. The potential industry blowback extends far beyond NINJA (no income, no job, no assets) mortgages and "liar loans." A whole new debt-industrial complex -- high-interest payday loans, deceptive credit card practices, creditor-friendly bankruptcy laws, and an oversubsidized (sic) student loan business -- is undermining Americans' economic security. (The American Prospect, 9-17-07)</p>

12

<p>And these are the type of people whom our government is has given a few more billions...Now I would not necessarily fully agree with M. Collinge but I certainly do feel that M. Cuomo was entirely correct in pursuing the issue. But its even more appalling to have to listen to recent public pronouncements by the Sallie Mae board that they need yet another influx of cash for 'liquidity'. Gentry its time for direct lending or just maybe 'gasp' properly funding higher education. And well past time to quit throwing the peoples money into the coffers of such abusive and predatory corporations. All the public pronouncements and slick PR will no longer hide the fact that higher education has been turned into a cash flow flood for vampiric finance companies. They've got record profits by co-opting what should have been systems for the common good....to the detriment of students, families and colleges. Simply put the ivy halls have been coated with mold...whether or not that mold is the color of the dollar doesn't matter. Nor should it, but in Congress it seems to be the only color they can see...</p>

<p>U.S. House Approves Bill to Head Off a Potential Crisis in Student Lending
By KELLY FIELD </p>

<p>Washington</p>

<p>Acting with uncharacteristic swiftness, the U.S. House of Representatives on Thursday approved legislation aimed at averting a crisis in student lending.</p>

<p>The bill (HR 5715), which passed by a vote of 383-27, seeks to stem the departure of loan companies... </p>

<p>Despite a Settlement, Sallie Mae Still Plays Host to College Student-Aid Sites
By JJ HERMES</p>

<p>Last April, as part of a $2-million settlement with New York's attorney general, the nation's largest student-loan company, Sallie Mae, agreed to stop providing staff members for colleges' financial-aid offices and call centers at no cost to the institutions.</p>

<p>But one year later, Sallie Mae... </p>

<p>Published on Wednesday, September 5, 2007 by The Capital Times (Wisconsin)
Student Borrowers Often Victims of Serious Abuse
by Alan M. Collinge
For four months this year, while Congress was overhauling student loan laws, I traveled the country in a beat-up RV meeting with citizens and legislators. My mission was simple: Persuade Congress to restore consumer protections to student loan borrowers. After 22,000 miles, 42 states and five flat tires, I can’t help but feel that my efforts were a waste of time. And gas.</p>

<p>Sure, the House and Senate passed HR 2669, the College Cost Reduction Act. After reconciliation, it will soon be on its way to the president’s desk. The bill includes some attractive provisions for those headed back to campus this fall, including interest rate reductions, loan forgiveness for public service, Pell Grant increases and income-contingent repayment plans for future graduates.</p>

<p>But it doesn’t fix a fundamental problem: Basic consumer protections were stripped from student loans in the mid 1990s. This act does nothing to bring them back.</p>

<p>Reacting to much-publicized stories of student-borrower bankruptcies and a default rate of 22 percent in the late 1970s, Congress mandated seven years of repayment before borrowers could declare bankruptcy on federal student loans. In 1998 — under an extremely business-friendly Congress — this qualifier was done away with, rendering all federal student loans non-dischargeable except in the most dire circumstances, such as total and permanent disability.</p>

<p>Big lenders, such as Sallie Mae, even persuaded Congress in 2005 to remove bankruptcy protections for private loans — these are the nongovernmental loans we’ve been hearing about lately, whose interest rates can exceed 18 percent. Credit card companies and payday lenders could only dream of this kind of congressional giveaway.</p>

<p>Congress also took away the freedom of borrowers to shop their student loans around in a competitive marketplace. Many college students graduate with two or three types of student loans and choose to consolidate them either to simplify repayment or to pay them back over more time. But once they’ve consolidated, borrowers become captive to that one loan company. They can never refinance again, no matter how interest rates fluctuate or how badly their lenders treat them.</p>

<p>But this is only the tip of the iceberg: Sallie Mae and other student loan interests also had lobbied heavily for legislation that took away other standard consumer protections, including adherence to the Fair Debt Collection Practices Act (student loan companies were specifically exempted in 1996), and statutes of limitations (removed for student loans in 1999). Student loans were also exempted from “truth in lending” regulations, the rules that require lenders to point out key information — annual percentage rate and fees — to borrowers on all loan documents.</p>

<p>Congress also let lenders levy massive fees — often as high as 25 percent of the balance of the loan — on those having trouble making payments. Student loan companies got draconian collection powers, including the right to garnish a borrower’s wages, tax refunds and Social Security or disability payments. Some states even got into the act, suspending professional licenses of student borrowers in default. No other lender has these kind of powers — not credit card companies, not payday lenders.</p>

<p>This has led to serious abuse. Between 2001 and 2005, Sallie Mae’s fee income (penalties and fees collected on delinquent debt) increased by a whopping 107 percent . In 2003, Albert Lord (then Sallie Mae’s chief executive) actually bragged to shareholders that the company’s record profits were attributable to this increase. Financial statements of other lenders show the same trend.</p>

<p>This is no small problem. Between 3 million and 5 million Americans — nearly 15 percent of all borrowers — end up in default on their student loans. And some have taken desperate measures to escape their ballooning debt.</p>

<p>During my road trip, I heard from many of them. For instance, David, a chiropractor in Texas, couldn’t renew his license after he defaulted on his loans, so he now drives a truck in Amarillo for a living. He says his debt has more than quintupled.</p>

<p>Or Jason, an attorney who — drowning in fees and penalties — emigrated to start a new life in Asia.</p>

<p>Finally, I heard from a mother in Oregon whose son, Michele Lorenzo Guidoni, got locked into high 1980s interest rates. By the time he was approaching his doctoraal degree, he owed more than $200,000. His mother says he saw no end to the compounding debt and took his own life in 2005.</p>

<p>This cannot be what Congress intended in 1965 when it created the grant and loan programs of the Higher Education Act. Then, Congress was trying to help Americans achieve the dream of higher education. Now, it is time to help those whose lives have been turned into nightmares by the student loan industry.</p>

<p>Perhaps when Congress returns in September, I’ll gas up the old RV and hit the road again. It’s obvious that Congress wasn’t listening the first time.</p>

<p>Alan M. Collinge is the founder of the political action committee StudentLoanJustice.Org. He wrote this for the Los Angeles Times.</p>

<p>© 2007 The Capital Times</p>

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13

<p>And I'd wonder how many in congress just might have been taking money which predisposed their vote to ensure liquidity to these monopolistic lenders. But oh well as a few thousand more students and former students go under this summer because of unreasonable and impossible demands by these companies...at least they'll have the liquidity to expand their collections divisions...</p>

<p>And article from Micheal Kinsley Los Angeles Times from a year back noting the agendas behind the unreserved support of these 'servicers"....interesting how many of the mainstream press has noted something is very, very wrong. But nothing is done but throw more money into the maw of a social monster...</p>

<p>"If you know anything at all about the federal student loan program, you will not have been surprised by the scandal of recent months. The only amazing thing is that it has taken so long to arrive. Here's how the program works: Banks and other private companies lend money to students. The federal government pays part or all of the interest -- currently 7% or 8%. The government also guarantees the loans.</p>

<p>What is wrong with this picture? Well, the government itself borrows the odd nickel to finance the national debt. This borrowing, obviously, is also guaranteed by the government. For that reason, it carries an interest rate of only 3% or 4% If the government can borrow money at 3% or 4%, why should it be paying 7% or 8% for the privilege of guaranteeing loans to someone else? Wouldn't it make more sense for the government to loan out the money itself?</p>

<p>That is the $4-billion question (the approximate annual cost of the interest subsidy). And the answer is: Of course that would make more sense. It is what any levelheaded businessperson would do. And what is stopping the government from behaving like a levelheaded businessperson? Not those head-in-the-clouds Democrats. It's the Republicans, who adopted the student loan "industry" in its infancy, like a stray cat, and have nurtured it ever since.</p>

<p>There actually is a parallel student loan program that does use government funds. It was started in the early days of the Clinton administration. It costs less to operate, and it has not been tainted by scandal. But when the Republicans regained control of Congress in 1994, they pushed through a law forbidding the Education Department from encouraging use of this program. As a result, direct federal loans account for only 25% of all student loans.</p>

<p>There is plenty of other encouragement going on. New York Atty. Gen. Andrew Cuomo has extracted fines of more than $1 million each from such prestigious institutions as Columbia and Johns Hopkins -- and, for that matter, nearly as prestigious institutions such as Citibank, JP Morgan Chase and Bank of America. It seems that kickbacks were being paid to university financial aid officers who delivered customers. Some of them even got stock in some of the more specialized, and dubious, student loan companies. When the government is giving away free money -- which is what the program amounts to (and I mean giving it away to the banks, not to the students) -- it's worthwhile to get cut in on such a good deal.</p>

<p>When the student loan abuse story broke, fingers were pointed at the Education Department, which is supposed to supervise the program. The Government Accountability Office minced no words. It called on the department to "develop a protocol to determine the appropriate level of response for cases of noncompliance and assess the effectiveness of these actions to inform and improve this protocol." Wow. While the Education Department quaked in its boots over that one, Congress more usefully passed a bill substantially reforming the student loan program and cutting the subsidy to banks and other loan providers by 80%. President Bush, to his credit, will sign these reforms into law. In fact, he actually proposed some of them in his budget last February. But this puts him at odds with his party.</p>

<p>The student loan "industry," as it is comically referred to in the newspapers, is an interesting case study in politics and business. To start, it is hardly an industry. There are no factories. The only things it "makes" are loans. Furthermore, it exists only because of a government program. Yet in the four decades since the federal government started it, the student loan business has evolved into a pretty good imitation of an industry, with trade associations, lobbyists and support from politicians, mostly Republicans.</p>

<p>This "industry" is so dependent on the goodwill of politicians, in fact, that the reform bill alone may be enough to queer the deal in which its biggest player, Sallie Mae, is supposed to be bought by a private equity firm for $25 billion. Even before taking over, the private equity firm booted Sallie Mae's chief executive on the explicit grounds that he did not have good relations with Democrats. To run this so-called company, in other words, you don't need to know how to make widgets, or even how to make loans. You just need to know how to make nice. But don't feel too bad for this executive who suddenly found his Rolodex obsolete: He made $40 million last year and will get millions more if the deal does go through.</p>

<p>But why do Republicans love student loans? Oh, in part the usual reasons: lobbyists and campaign contributions. There is almost sure to be at least one of these firms in your district -- the local bank, if no one else. But there is more. Student loans are the clearest example of the common Republican confusion between free-market capitalism and business. Capitalism is an economic system that is held, with some justification, to be the best guarantor of prosperity. Business can be capitalism in action, or it can be something entirely different. There is very little about the student loan program that has anything to do with free-market capitalism. Yet whenever the student loan system comes under criticism, lobbyists, "industry" leaders and supportive politicians haul out the same old cliches as if they were defending Adam Smith's famous pin factory itself.</p>

<p>During the recent reform bill debate in the House, for example, a Republican from Texas, Jeb Hensarling, declared that the very notion of reducing the subsidy to private companies was "all part of a Democratic tax-and-spend program."</p>

<p>A so-called analysis by an industry expert, which (according to the Washington Post) circulated on Capital Hill during the debate, worried that the big boys would survive but the subsidy reductions "may leave smaller lenders unprofitable." Concern for "small lenders" was a common theme, as if a loan from a ma-and-pa bank, if such an institution exists, would be warmer and more cuddly than a loan from Citibank. Another common theme was that the subsidy cut was part of a covert Democratic effort to drive people into the direct federal loan program -- or, as one lender chief executive described it, the "one-size-fits-all direct-loan program."</p>

<p>This would be no bad thing, but it doesn't seem to have been the case. I'm not sure what "one size fits all" means here, but if it refers to the interest rate that students and their families have to pay, it's true that there is only one rate in the government program, compared with many in the private one -- all of them higher. But maybe there are people for whom the variety is worth it."</p>

<p>Michael Kinsley
September 15, 2007</p>

14

<p>
[quote]
What is wrong with this picture? Well, the government itself borrows the odd nickel to finance the national debt. This borrowing, obviously, is also guaranteed by the government. For that reason, it carries an interest rate of only 3% or 4% If the government can borrow money at 3% or 4%, why should it be paying 7% or 8% for the privilege of guaranteeing loans to someone else? Wouldn't it make more sense for the government to loan out the money itself?</p>

<p>That is the $4-billion question (the approximate annual cost of the interest subsidy). And the answer is: Of course that would make more sense. It is what any levelheaded businessperson would do.

[/quote]
</p>

<p>Kinsley's assumption here is that there is no difference in the amount of risk in loaning money to the US government and loaning money to student. "[A]ny levelheaded businessperson", would not make such an assumption. Loaning money to the US government by buying bonds is about as safe an investment as as one can make. It is not a lucrative investment, but you will get your money and promised interest back. As for student loans, there is more risk and higher interest rates are charged to offset that risk. What would interest rates on student loans be if the government were not guaranteeing them? Higher than 8%, I'll bet. But the greater benefit to many students is access to loans in the first place. Levelheaded lenders would not be making many of these loans, and in fact many levelheaded lenders are choosing to make none as evidenced by discontinuing, or suspending, student loans.</p>

<p>There is a difference between making college financially possible and making it easy. Colleges take the former approach. This will always leave room to complain that the government isn't doing enough.</p>

15

<p>If one thinks that many of th eproblems discussed above would be solved by switching to direct loans, think again. Students will still be swimming in debt for an eternity. $1 in direct loans = $1 in FFELP loans. Also, moving to direct loans brings about a whole new world of problems. First, most FFELP lenders are not bilking millions from students...the reality is only a small handful are. Second, there are just as many flaws with direct loans as there are with FFELP loans. In fact, with no competition, things could actually become worse under direct lending. Competition, on average, always provides a better product than a monopoly. Third, we won't see a lowering of interest rates under direct loans. Currently, interest rates are identical between FFELP and direct, as seen by <a href="http://www.studentaid.ed.gov/students/attachments/headlines/ConsolidationFactSheet2006.doc%5B/url%5D"&gt;http://www.studentaid.ed.gov/students/attachments/headlines/ConsolidationFactSheet2006.doc&lt;/a&gt;&lt;/p>

<p>Fourth, students will actually repay more money under direct loans than under the FFELP program. Currently, FFELP lenders offer incentives to students who repay their loans on time. For example, one lender, EdAmerica, offers a .25% interest reduction for students who choose to repay using auto-debit. That means, if your original loan was at 6.8%, now it is 6.55%. If your loan only totals $15k, then at 6.8% interest, you would repay $20,714.49 (if you pay off the loan in 10 years). If you were paying at the reduced rate of 6.55%, then the same loan would only require $20,484.65. Thats a savings of $229.84. Now many students are unfortunate and have to borrow much more than $15k to fund their education. $50k loan would require $18,281.66 in interest alone at 6.55% and $19,048.28. That's almost $1k in interest savings. </p>

<p>Also, in direct lending, students would actually have to borrow more money than many do under FFELP lending. This is because many lenders and guarantee agencies are subsidizing the origination and default fees for loans they handle. That fee is approximately 3% of the loan, taken at disbursement. Now, they are trying to phase out the fee...by 2010, but that is still a couple of years away. Most of my students haven't paid an origination fee or default fee for several years, because their lender and our guarantee agency have been paying it for them. </p>

<p>In addition, the last time there was a major push towards Direct Lending, many schools jumped on board. As a result, the Direct Loan system was overwhelmed and loan disbusements were delayed about 6 months. Their system isn't equipped to handle the load if every school across the country drops out of FFELP and into Direct. And given the strict regulations regarding disbursing of funds once a student is no longer attending your institution, many schools will be forced to collect directly from the student or eat the tuition if funds are delayed as in years past. If this occurs, just watch the tuition rates RISE as schools scramble to recoop lost revenue. </p>

<p>Finally, and just as important as the implications Direct Lending would have on students....Forget about most Financial Aid Counselors understanding the Federal regulations they are sworn to abide by. Currently, FFELP lenders and Guarantee agencies have staff on hand whose sole responsibility is to stay up to date with Federal Regulations and relay that information to FAA's across the country. Quite honestly, there are so many regulations that FAA's truly cannot devote sufficient time to review all of them. We rely heavily on training provided by our lenders and guarantor's to assist us. Unfortunately, we cannot rely on the Department of Education, because they do not hold free training sessions often enough. Also, when there is a free training session, it is typically geared towards traditional students. This may sound great, as many on this board would fall into this category....but there is a HUGE financial aid realm that handles non-traditional students. These would be adult programs who aren't term based. The regulations are seldom written in a manner that non-term FAA's can easily determine how the regualtion applies to their type of program. Trust me, I have made many attempts to read the regulations and determine how they apply to my non-term students...it isn't easy. I would be completely lost if it wasn't for the lender and guarantor agencies assistance.</p>

<p>Honestly, the problem isn't with FFELP lending....it is with a few lenders who have been allowed to run amuck for decades. Instead of focusing so much energy into a push towards Direct Lending, we, both FAA's, students AND parents, need to scrutinize the lenders we use and avoid those that are unsavory. This is why you will not see Sallie Mae or other's of the sort on my recommended lender list. If a lender's actions are questionable, they don't belong in the face of my students. While we know that not all FAA's use the same criteria I use to determine who is a great lender...if more parents and students arm themselves with information, demand disclosure from the school on lender selection and exercise their right to choose ANY Title IV lender, FAA's would be forced to better scrutinize their own lender lists and make metter choices that actually reflect better service to the students.</p>

<p>Okay...I'm stepping off my soap box and going back to processing financial aid.</p>

16

<p>Quite right about the direct lending, perhaps I should have clarified. The direct lending which I referred would be directly from the federal government, at reasonable fixed rates, as was established by the loan programs under the Clinton administration. But the GOP in congress, and the Bush people in the education department have effectively shut that program down via cutting the funds or making sure that notice is not given of the availability of this program. As far as direct loans perhaps the better alternative would be a programs like Australia's wherein the national government lends the money at a reasonable fixed interest, and by law only a fixed percentage of a yearly income can be paid, and after a set number of years the loan is canceled with the remaining amount. In all a much better system because the government is investing in its people, and knows that it is better socially to aid people in their education as an investment in their country. And it works.
As far as competition please get real. The inside scheming by people such as the Sallie Mae has virtually ensured that other and smaller companies are precluded from even competing in the market. And by such sweetheart deals as only allowing one consolidation, often with only the originating company and at inflated interests. And compared to any other form of debt in this country SL' s have been exempted from the bankruptcy laws. To the point that it is virtually the only form of credit for which this protection is effectively unavailable. Because of this when loans default, often by difficulties honest people had no form of control, there is no reasonable means for a troubled borrower to make arrangements. But hey, the big Sl companies still get the federally fronted amount back, plus additional interest, and supplemental interest running up to 30% can be applied on 'redemption' programs for defaulted loans. Plus they can harass beyond the accepted FTC guidelines anyone who gets caught in their maw(sometimes to suicide). And even then I've seen loan applications wherein if a student does kill themselves, the loan company has a right to demand a death certificate from the family-apparently the word of the state is not even enough.
So, the SL 'business' not like any other lending 'business'. So as far as free market fantasies, the SL industry isn't operating under anything close to the business environment of a respectable business. And given the lobbying power of these corporations you can be ensured that any other company, program which tries to compete with their cabal will be crushed.
When the 65' education act was established it never was intended to be operated as a profit generating machine for corporations which operate as a de facto wing of the government. And since companies like Sallie Mae, Nelnet etc have made these arrangements they are no more 'free trade' than the corporatism under such as the Duce'.</p>

17

<p>UPDATE:</a> US House Votes To Support Student Loan Financing
this links states there would be a yearly increase of 2K - which makes sense because it's an overall increase of 8K from 23K to 31K</p>

<p>This is a good think imo. There is a good chance my son's school won't give a Perkins Loan this year and this could make up part of that shortfall.</p>

18

<p>"This is why you will not see Sallie Mae or other's of the sort on my recommended lender list. If a lender's actions are questionable, they don't belong in the face of my students. While we know that not all FAA's use the same criteria I use to determine who is a great lender...if more parents and students arm themselves with information, demand disclosure from the school on lender selection and exercise their right to choose ANY Title IV lender, FAA's would be forced to better scrutinize their own lender lists and make metter choices that actually reflect better service to the students."</p>

<p>Nikkiil an admirable ethic on your part, and no doubt a difficult position to take depending on your school. And although our terms differ, clearly we both perceive that there is a lack of competition which has resulted from the US department of education loan policy being effectively controlled by a monopoly. And that has been problematic for students, former students, families and schools.
As you noted the regulations have become so complex (I wonder who had an agenda which would have benefited from that tactic) that even financial aid officers have to rely on advice from lending institutions as opposed to clear guidelines from the Dept of Education. Obviously Spellings and her immediate predecessors might have some explaining to do...but since this is the same person who allowed a 1/4 billion dollar over billing to be kept by the party responsible...I doubt there'll be a reckoning. The problem is, when financial aid offices have to rely on advice from lenders and their lenders are amongst the predatory companies. In NY the SAG had required as part of a court settlement that large predatory lenders such as SM cease and desist from providing 'services' to college offices. However at this point these same companies have not complied, despite the large fines leveed against them and the complicit colleges. And it is unfortunately still a common practice in other states. In Colorado, one University has its initial financial aid applications being assessed and processed by Nelnet, and that includes even scholarships.
Obviously they have no intention, as they vet these applications, to allow anything which is detrimental to their profits. And the level of infiltration and power is such that these companies feel free to ignore the warnings of the SAG in one of the most powerful and populous states in the union.
For students to know what they are getting into on these loans, well aside from ethical officers like Nikkil it is hard to get reputable information. It's been a common practice for the major players in the loan cabal, to use very slippery tricks to ensure their agenda is presented. This includes such tactics as using college logos or even the look of such to portray the image that they are part of the schools administration. Which is problematic because students and parents still trust colleges.... and perhaps they shouldn't... which is another disturbing consequence of the infiltration of these 'industry' into academe. Another tactic is to provide advice sessions, which are often slickly presented PR which give the students little real information of the risks of SL's. And I've seen these sessions essentially run completely independently (or with the unfortunate complicity) of college financial aid offices.
Now students are often naive, as many of use were when we were students, and do trust the University and colleges (as many of us did to our detriment), but in order for them to fully comprehend the risks of education by SL...some inherent distrust of the collegiate system is inevitable. Because if they really find out how the system works, or someone within tells them, they will come to that unfortunate realization that in a global sense the system providing their education, is no longer is motivated by that end. And that will be another consequence of the perversion of education by these profiteers, which is already beginning to and eventually will destroy the positive perception of higher education. Another toll leveed which by no means is counterbalanced by massive profits and a bid for a baseball team...</p>

19

<p>And sueinphilly it is good that they have raised the funding amounts, but perhaps that money is being applied to the wrong end. It could just as well be applied to programs such as many countries have elsewhere, wherein the main beneficiary is actually the colleges and students. Having billions of government money being washed through the coffers of admittedly parasitic corporations cannot be the best that this country can do. Christ in part of the package the House is considering there's a handover of large amounts to federally secured bonds to these companies, now that's lobby power to an appalling degree.</p>

20

<p>sueinphilly, yes maybe they will not have Perkins money this
year and will allot your child the extra $2,000 in Staffords.
But for many kids the school will give the perkins loan and
add $2,000 to the Stafford. This will be especially true for
new admissions. Many schools don't have a lot of Perkins
funds left - since the loan rate was raised to 6.8% many
student aren't consolidating them. That's probably why
the new law will be very popular with the schools - they
now can replace the perkins with the extra staffords -
at least until the rate declines in the next year or so - after
which they will add both loans to the finaid package.
This is a very temporary fix for a small number of students
and continuing disaster for the rest of us.</p>