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Revamping student loans
Obama administration would cut out the private lenders to save billions of dollars
Friday, April 17, 2009 | 2:09 a.m.
Many banks and other lending companies that receive government subsidies and payback guarantees in exchange for providing student loans are opposing a plan by President Barack Obama.
Their opposition is understandable, as the president wants to eliminate their profitable roles as middlemen in this program that enables millions of people to pay for college.
Obama’s plan, which would have all student loans coming directly from the federal government, is outlined in his proposed fiscal year 2010 budget. The president and his budget analysts say the plan would save more than $9 billion a year, money that could be used to increase federal higher-education grants for students from low-income households.
Currently, there are two types of student loans — direct loans from the Education Department and loans made through the Federal Family Education Loan Program, or FFELP, which uses private lending companies.
Direct loans were introduced early in the Clinton administration as a way of reducing costs. Colleges and universities, however, were given the power to offer either of the programs to their students. This way, no big and sudden losses would be felt by lending companies, including SLM Corp., better known as Sallie Mae, which provides more student loans than any other lender in the country.
Unfortunately, a gradual, expected shift toward the less costly direct loans did not happen. Ten years after direct loans were introduced, U.S. News and World Report magazine reported that lenders were heavily lobbying members of Congress, as well as colleges and universities, to align with FFELP.
For private lending institutions, FFELP is a bonanza. The government guarantees a profitable rate of return and that lenders will receive all unpaid interest and 97 percent of the outstanding principal if students default on their loans.
The purpose of student loans is to ensure that academically qualified students have access to higher education, not to subsidize private lenders with taxpayer money. Congress should jump at this chance to use billions of dollars in savings to increase federal educational grants.
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All this will do is accelerate the continual price increase of a college tuition. What is needed is less, not more, government intervention.
This plan is stupid. I agree we need less government, let the banks make money as they are in business to do so. Obama wants to federalize banks and this is just part of his grab plan. Once the government puts its' hand out it can't pull them back in.
BTW, I paid for school up front, semester by semester. I put my self through college not my "daddy". Today's kids want to party their way through school and then pay them off later or the real american way, default on them.
As for less priveledged kids; let them apply for scholarships or grants. We shouldn't have to pay for everything. Work hard and get ahead. Sit on your @$$ and bag groceries for the rest of your life.
It is all about choice.
The student loan program actually drives up the cost of higher education.
Most colleges and universities have been cranking up the tutition rates because the students are accessing more and more funds via loans.
It is a classic case of supply vs. demand with the government playing a role of increasing demand.
It is very similar to what the government did with the housing market. They placed all kinds of pressures on the lending institutions to lower lending standards so that minorities can get into homes. This was started big time by Clinton and Bush continued the policy. It is one of the main reasons behind the housing bubble.
The goal of this administration is to control the finance in this country. From taking ownership into banks to taking away sections of their business.
The administration has now INFORMED the large banks they are to FORGIVE loans to the auto companies without compensation because the banks already received their federal loans. The difference is the federal input has to be paid back. Now the partial owner, Mr. Obama, is telling the bank to take a loss to further his goals in his auto company, GM.
This is socialism at its worst. Government taking over banking decisions to further it's own goals for a related industry they have taken over and fired the CEO from. Hang on America, this isn't a slippery slope, it's a free fall.
You've probably heard the ad, "When lenders compete, you win." Under this administration's student loan plan, there will be no competition among lenders, and you -- students, parents, the colleges and universities they attend and ultimately the taxpayer -- will lose.
"The president and his budget analysts say the plan would save more than $9 billion a year"...liars...in-your-face-everything-we-do-costs-many-multiples-of-what-we-propose-liars...
Kudos to the President, the first president who actually had student loans.
The student loan industry is ripe with greed, arrogance, and corruption. The Sallie Mae CEO has taken nearly a half billion dollars personally as a middleman. He now owns three mansioned estates (annapolis, MD / Harwood, MD / Naples, FL), one with a private 18 hole golf course - although an old photo and the golf course is still under construction, you can see where taxpayer subsidy dollars go via Google Maps at coordinates 3851'38.52"N, 7640'4.47"W
Sallie Mae owns two private jets - they used to own three. The jets are tail numbered N50FD and N188AK.
You can see these jets at the following links:
http://www.airliners.net/photo/Israel-IA...
http://www.airliners.net/photo/Israel-IA...
That is where the taxpayer subsidies are going, private golf courses and private jets.
When a FFELP loan defaults, the taxpayer pays nearly twice the amount of the loan. Sallie Mae is allowed to attach fees, penalties, and crank the interest rate up to above credit card rates. After a period, they capitalize those fees, penalties, and interests and put the loan to the taxpayer for payoff. So, a 20k loan becomes more than 40k cost to the taxpayer. In the direct program, the 40k might still be the receivable, but it does not effect cash flow as we see with the middlemen involved. Why are we funding this madness?
Let's not forget the corruption that the subsidies fund. The following student aid administrators got into more than a little hot water for taking kickbacks and other inducements from the student loan industry - most lost their jobs:
Ellen Frishberg - Johns Hopkins
Catherine Thomas - USC
David Charlow - Columbia
Lawrence Burt - University of Texas
Walter Cathie - Widener University
Tim Lehmann - Capella University
Daniel Pinch - Emerson College
In 2008, more than 100 Universities were under investigation for more than 90% of their FFELP loans going to one provider. The notion that there is competition in this "market" is ridiculous - the student loan companies pay or induce schools for preferred lender status resulting in nearly all loans at any one school going to one provider. In the above instances, those inducements were to the administrators themselves. From "School as Lender" to call centers to printing - the inducements to schools are great and the payoffs for the middlemen even greater.