Private education loans - A growing industry

Parents Corner
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<p>Our local paper this morning had some interesting data about private education loans at near-by schools. Sometimes data on private loans is not that easy to find, but I found this to be a little shocking. All I can say is, no wonder most (not all!) kids on CC don't seem particularly concerned about college costs. ;)</p>

<p><a href="http://www.democratandchronicle.com/apps/pbcs.dll/article?AID=/20070806/NEWS01/708060324%5B/url%5D"&gt;http://www.democratandchronicle.com/apps/pbcs.dll/article?AID=/20070806/NEWS01/708060324&lt;/a&gt;&lt;/p>

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[quote]
In 1995, private loans made up 4 percent of all borrowing. In 2000, they accounted for 12 percent. And by 2006, private loans totaled $17.3 billion nationally and accounted for 20 percent of all education borrowing, according to the College Board. </p>

<p>Locally:</p>

<p>*At St. John Fisher College, private borrowing in 2000 totaled slightly more than $300,000, and tuition, room and board was about $32 million. In 2006, the borrowing grew to $6.9 million, while tuition, room and board costs were $69 million. So the loans accounted for less than 1 percent of the costs in 2000, compared with about 10 percent in 2006. </p>

<p>*At the University of Rochester, private borrowing in 2003 was $15 million, while tuition, room and board costs were $110 million. In 2006, the borrowing grew to $33 million, while the total cost of tuition, room and board was $176 million. That means the loans went from about 14 percent of costs in 2003 to about 19 percent in 2006. </p>

<p>*At Rochester Institute of Technology, private loans in 2000 totaled about $7.5 million, while tuition, fees, room and board were $186 million. In the 2005-06 school year, private loans totaled $25.5 million, and tuition, fees, room and board costs were $252 million. So private loans accounted for about 4 percent of costs in 2000 and grew to 10 percent. </p>

<p>*At Roberts Wesleyan College, private borrowing in 2000 totaled $631,475, and tuition, fees and room and board were $22 million. In 2006, private loans grew to $2 million and tuition, fees and room and board were $35 million. As a share of total costs, private borrowing went from 3 percent in 2000 to 6 percent in 2006.

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<p>Saw 2 commercials in a row on 2 different occasions last night watching the HOF Game. They were for student loans. After watching the first set, and watching the first commercial of the set being repeated, I said to my son, this doesn't seem right. that the commercial seemed like it was one of these outfits that changes their web address to stay one step ahead of legal issues. After watching them, I wasn't sure....I thought it was the same company and web address...something may have registered...not sure</p>

<p>The website for the first one was avertz165.com (or something similar), as I was watching it...the second one (which ran cosecutively) was avertz151.com. Looked fishy as heck to me.</p>

<p>I can't be sure if the web url difference registered to me or not after seeing it play for the first time. Caveat emptor!</p>

<p>Must be a cottage industry cropping up</p>

3

<p>
[quote]
The stakes are enormous, for the private loan industry--and for taxpayers. Since last October, under the federal student loan program, 6.3 million students and their families have borrowed a total of $44 billion to help cover the cost of tuition. There are two basic types of federally backed loans: Students can borrow directly from the government--at schools that have signed up with the government's direct-loan plan--or they can borrow from a lender such as Sallie Mae as part of the Federal Family Education Loan Program, or FFEL. Typically, a college or university participates in one program or the other, but not both. </p>

<pre><code> Many education finance experts consider the direct-loan program more efficient than FFEL. Simply put, direct loans cut lenders out of the picture. Instead of paying subsidies to banks for making loans, the government earns the profits. Government figures show that direct loans typically bring in 22 cents for every $100 borrowed, after deducting for administrative expenses. FFEL, meanwhile, costs the treasury $12.80 for every $100 borrowed.

But for private lenders, the FFEL program is a no-lose game. The federal government guarantees repayment of defaulted loans. The loan program, growing each year, can be a hugely profitable business. Sallie Mae, formally known as the SLM Corp., earned $792 million last year, and its chief executive, Albert Lord, pocketed $33.6 million in salary, bonus, and stock option payments the year before (see When Albert met Sallie). Its student loan business provided the lion's share of Sallie Mae's profits.

Things weren't always so rosy. Just six years ago, the government's new direct-loan program was gobbling up more and more student business. What to do? For Sallie Mae and other private lenders, the answer was simple: Go for the jugular.

What follows is the inside story of how these powerful private interests turned things around, undercutting the direct-loan program and wooing away big schools like Michigan State. Much like old-time political ward bosses, they used money and favors, along with their friends in Congress and the Department of Education, to get what they wanted. Sallie Mae, for one, engineered changes in education laws that increased its profits and damaged the direct-loan program. One such change, adopted last year, could cost taxpayers up to $8 billion by 2011. Critics of the private lending industry also fault President Bush's education team for undercutting direct loans. Says Barmak Nassirian, an official of the American Association of Collegiate Registrars and Admissions Officers: "The administration is causing a slow strangulation of the direct-loan program."

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<p>*From: Big Money on Campus U.S. New Report Date: Oct 20, 2003 *</p>

<p>Well, the above is the case then they can die....</p>

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<p>This needs more attention than what it is getting....</p>

5

<p>with the current credit crunch, watch (1) the rates skyrocket) and (2) the use of these plummet.</p>

<p>Remember that these private ed loans are unsecured - the riskiest kind of credit.</p>