Student Loan Loophole to Close
Student loans are meant to help students, not banks. Congress realized this was a problem back in 1993 when they worked to phase out the 9.5% guaranteed subsidy to banks on student loans. Ever since then banks have been finding loopholes that have allowed them continue benefiting from this subsidy. Congress and the Bush Administration may finally close the last of these loopholes.
Closing this loophole will stop banks from taking advantage of the government and save billions of dollars. This is a step forward for all students and all Americans.
A new sign of the growing influence of young voters!
-- Posted by Sam Buffone
The secretary of education, Margaret Spellings, joined the chairman of the House Education and the Workforce Committee, Representative John A. Boehner of Ohio, yesterday in asking Congress to close a loophole that lets lenders claim a 9.5 percent government subsidy on certain student loans.
Ms. Spellings called for an end to the practice, which is known as recycling. It allows lenders to use the income from loans that receive the 9.5 percent subsidy to make new loans that then receive the subsidy, too.
Closing this loophole will stop banks from taking advantage of the government and save billions of dollars. This is a step forward for all students and all Americans.
A new sign of the growing influence of young voters!
-- Posted by Sam Buffone
posted by Anonymous at 12:21 PM
19 Comments:
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Student Loans are rediculious. So is the cost of colllege. And the Financial Aide distribution is a joke. Everyone CLAIMS they want to help better society, but no one will do anything. Not that Im telling you all something you dont already know. A college edjucation, is practically IMPOSSIBLE to afford with out some type of loans/aide. Financial Aide..is ridiculous. They are soppossed to help people afford college and yet, I dont seem to be someone they can help. They system goes by my Mothers income even though she does NOT pay a dime to my college edjucation. Because she still chooses to claim me on her taxes although I DO NOT LIVE WITH HER, nor does she help me with anything other than insurance, she can still claim me because I was under her isurance this past year. ANyways to get back to the point. Financial aide, wont give me any money because of how much she makes, and.. I cant afford school at all by my self! If I take out a loan... I owe alot of moeny with high interst!!! and the rates go up agian!! WHAT ARE WE TO DO??? I havent even been to school in 2 years because I am tiered of taking out loans from SALLIE MAE and now being in debt for 15000. For only 2 years of college. Imagine if I finish out school? Ill be in serious debt. I mine as well of never started!
Danielle is right! Listern her voice, and be better!
Check out this op-ed by Charles Young, Chancellor Emeritus, UCLA. It was publishes in Roll Call:
Students And Parents Must Act Immediately To Protect Their Wallets
HEA legislation proposed by the House, if passed, would have the following catastrophic
effects on all borrowers with federally guaranteed loans, including parents,
students still attending school, as well as millions of former students.
(i) Direct and FFEL borrowers who are still in school would no longer be eligible
to consolidate their loans and lock-in their respective rates of 4.6% (Direct)
and 5.3% (FFEL).
Even if the T-bill does not increase between now and May 31, 2006, the date the
rate would be reset, the October 25, 2005, 91-day T-bill rate of 3.88% + 3.3%
(the add-on proposed by the House to get a fixed rate consolidation loan) would
total 7.18%. Parents would pay 3.88% + 4.1% or 7.98%.
This would be a full 2.46% higher for DIRECT in-school student borrowers and
1.88% higher for both FFEL in-school student borrowers and all FFEL and DIRECT
parent borrowers. In dollars and cents, a student or parent borrower could end
up paying approximately $5,000 - $18,000 more:
Program Old Rate New Rate* Balance Term EXTRA Cost
FFEL 5.3% 7.18% $20,000 20 yrs $5,255.99
$40,000 25 yrs $13,932.24
DIRECT 4.6% 7.18% $20,000 20 yrs $7,107.85
$40,000 25 yrs $18,813.54
ALL PLUS 6.1% 7.98% $20,000 20 yrs $5,423.22
(Parents) $40,000 30 yrs $18,198.15
If interest rates continue to trend upward, the extra amount could be considerably
higher. For example, assuming the T-bill rises .75% to 4.63% on May 31, 2006,
a borrower could end up paying approximately $7,000 - $28,000 more:
Program Old Rate New Rate* Balance Term EXTRA Cost
FFEL 5.3% 7.93% $20,000 20 yrs $7,461.52
$40,000 25 yrs $19,798.04
DIRECT 4.6% 7.93% $20,000 20 yrs $9,313.38
$40,000 25 yrs $24,679.33
ALL PLUS 6.1% 9.00% $20,000 20 yrs $8,520.67
(Parents) $40,000 30 yrs $28,602.41
*Under the current House proposal, however, students who will enter grace before
7/1/06, would not be hit so badly since they would still be able to consolidate
at the rate of 6.3% (91-day T-bill was only 3% on 5/31/05 + 3.3%).
(ii) FFEL ONLY borrowers would be prohibited from consolidating with Direct Loans
to take advantage of their income-contingent repayment option. This would mean
that FFEL students who cannot afford the minimum payments offered in the FFEL
program would have no viable long-term alternative other than forbearance.
(iii) The vast majority of FFEL and DIRECT borrowers would be barred from reconsolidating.
In January of this year, the Department of Education ruled that FFEL consolidation
borrowers are allowed to reconsolidate into DIRECT and the Department reconfirmed
that DIRECT borrowers are allowed to reconsolidate into FFEL.
In my recent letter to every member of Congress, I emphasized the following:
"Importantly, the Senate bill, unlike the House version, preserves the ability
of borrowers who have already consolidated their loans to secure better terms
by reconsolidating with another lender. However, to do this, it's my understanding
that the borrower is currently obligated to complete a rather arcane two-step
reconsolidating process.
"It is critical for borrowers to continue to have a refinancing option. However,
rather than requiring them to go through the current two-step process, it would
be preferable to simply authorize borrowers to refinance directly with any lender
of his or her choice.
"Vigorous competition and consumer choice are hallmarks of the American economy.
The rights of students and parents to make free choices as to the financing and
refinancing of their education loans must not only be allowed, it should be protected,
as it is with home financing. Millions of students and parents now require upwards
of 20 years to retire their student loan obligations. To force a student or parent
who has consolidated their loans once to remain indebted to the same lender forever,
as HR609 proposes, while other lenders offer better terms, is not only counter
to basic free market principles; it is just not fair."
The HEA legislation proposed by both the House and Senate calls for the repeal
of the Single Holder Rule that prohibits borrowers with only one lender from
consolidating with the lender offering the best terms. Many lenders have and
will continue to fight the repeal of this law tooth and nail, and are quietly
supporting the new restrictions on reconsolidation hidden in the House legislation
for the same reason: they are concerned about losing business to competitors
willing to offer better rates and benefits.
Because the Senate bill, bi-partisan legislation co-sponsored by Enzi of Wyoming
and Kennedy of Massachusetts, contains none of the protectionist legislation
contained in the House bill, there may still be time for the financial aid community,
students and parents to step up and be heard. This sort of restriction of trade
has been, and will continue to be, a multi-billion dollar drain on pocketbooks
of America's families that will never show up on the Congressional Budget Office's
score sheet that Congress keeps talking about. In fact, reconsolidation will
actually move money from lenders' pockets back to the taxpayers because under
the proposed legislation, lenders no longer get to keep excess income above the
minimum guarantee offered by the program. In addition, the government collects
the usual .5% tax from FFEL lenders and any lender income above the minimum guarantee
on all new FFEL consolidation loans will go back to the taxpayers.
It is also worth noting that the latest version of the House legislation increases
the tax on all consolidation loans to 1% and imposes a new .25% tax on lenders
specializing in consolidation loans. While, at first glance, this appears to
be just another tax, it is actually an anti-competitive measure designed to lessen
or even eliminate competition, and, in the end, will come out of the pockets
of students and parents because the smaller lenders will no longer be able to
afford to offer such attractive terms.
Hopefully, Congress will put aside the idea of having students and parents fund
wars and hurricanes and the concept of protecting the interests of lenders wanting
to avoid fair competition.
Join with me in encouraging Congress to take action that is consistent with the
original intent of the HEA and is in the long-term best interests of our citizens.
Now would be the ideal time to speak up on these critical issues. Those who are
concerned about restriction of trade and higher prices should call their Representative
and Senators in Washington.
They may be reached at (202) 224-3121.
Sincerely,
Charles E. Young, PhD
Chancellor Emeritus
UCLA
President Emeritus
University of Florida
Now Dick Morris (yeah, that guy on Fox News) has something to say on the student loan legislation. And he said it in The Hill today.
Ivan
The student-loan rip-off is a test of GOP rhetoric
Special-interest legislation doesn’t get much more obnoxious than the bill now making its way though Congress to clamp down on students and former students who want to refinance their loans at lower interest rates. They are about to be severely punished for seeking not only an education but a debt-free life afterwards.
While homeowners can refinance their mortgages as often as they want and relieve themselves of high-interest debt when rates cycle downward, student and former-student debtors are only permitted to refinance once for the lifetime of the loan! And now the House is considering legislation that would stop students who are in school from keeping their current interest rate of 4.75 percent and would instead force them to pay 7.9 percent, creating a lifetime burden entirely unjustified by the lending market.
Many students are locked into rates that approach 9 or 10 percent, reminders of the grim economic days of the early 1980s, and find themselves with no flexibility. Frequently, students use their once-only refinancing option shortly after graduation and find themselves helpless as the market interest rates drop ever lower.
Home-mortgage refinancing, often similarly guaranteed by Fannie Mae, has become a huge industry and has given many families alternatives to bankruptcy as they face huge debt burdens. But student loan refinancing — beyond the one shot now permitted — is blocked by special-interest regulation and legislation.
The legislative efforts by special interests reflect the power of the once quasi-public body Sallie Mae (Student Loan Marketing Association), which has now cut off all connection with the government and instead become a profit-making company unrelated to the government called the SLM Corp.
With a 25 percent share of the student loan market — more than six times that of its rivals — SLM has cashed in on federal guarantees against defaults on the one hand and blocked student refinancing on the other. As a result, according to columnist Terry Savage, writing for thestreet.com, SLM has made a profit of 1 percent over its loan volume of $100 billion — $1 billion in profit!
Since student loans constitute one-quarter of all outstanding loans, SLM has huge market power that it has not hesitated to translate into political clout through campaign contributions that water and nourish the Republicans who control the legislative process. In all, the SLM PAC contributed almost $140,000 to the members of the House Education and the Workforce Committee to lock in their preferential treatment.
Once SLM abandoned its federal charter and went into business for itself, this public-private hybrid should have lost its quasi-governmental status and been forced to compete in the private marketplace like anyone else. All regulations restricting refinancing or consolidation should be repealed. If there was ever an area in which the Republicans should effectuate their rhetoric and deregulate, this is it.
Student loans are the shackles that most young people take into the rest of their lives after leaving school. Keeping this debt hangover large and rendering it inflexible is about as anti- family a policy as you can get, forcing young people to postpone starting families because of the load of debt with which they begin life burdened. Yet it is the Democrats, led by Sen. Ted Kennedy (Mass.), who are most vociferous in battling for deregulation.
For President Bush, desperately seeking traction with which to regain his popularity, a crusade on behalf of student debtors, announced in his State of the Union speech, might be just the ticket. He could help himself get out of political red ink by mitigating the financial red ink in which an entire generation finds itself mired.
Morris is the author of Rewriting History, a rebuttal of Sen. Hillary Rodham Clinton’s (D-N.Y.) memoir, Living History.
Help me teach HS kids, that are too young to vote, to ROCK THE VOTE.
I'm agree with Danielle!!!
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Some interesting facts about student loan consolidation:
A student cannot consolidate his or her student loans with his/her parents PLUS loans. However, he can consolidate ALL of his loans together, while his parent can consolidate ALL of their childrens' PLUS loans together. So, if you have 5 kids, and you have a PLUS loan (or several) out for each of them, you CAN consolidate ALL of the PLUS loans together. In addition, if you have PLUS loans, and you have loans for yourself, you can consolidate them as well. The only thing you can't do is consolidate your federal loans together with private loans.
Also, people have a tendency to think that if you and your spouse consolidate together (which you can do, legally) you'll save money. However, if you or your spouse dies, and your loans are consolidated together with theirs, the survivor still has to pay ALL of it. Whereas, if you consolidate separately, and your spouse dies, their loans are forgiven, so you still only have to worry about your own.
I've had people ask about consolidating old loans with new loans, and whether they should keep the old one separate. That depends. The interest rate is determined by a weighted average. The interest rate from the larger loans matters more than that of the smaller loans. So, if you have a $50,000 loan at a low rate, and a $20,000 loan at a high rate, the average rate will be closer to the lower one. Just as the opposite is true.
One more thing. If you have a consolidation with one lender, as of right now, you can only reconsolidate with another lender IF you left out loans from that consolidation, or have new loans to add to it. It's called the Single Lender Rule. If one FFELP lender owns all of your loans, they have the right to refuse to release them to another company. Additionally, if you have all of your FFELP loans with one lender, and some DOE loans, the ONLY company that can consolidate them, as of right now, is the FFELP lender who owns all of your loans. But if you have more than one FFELP lender, you can consolidate with whatever company you want.
I've consolidated my loans with NextStudent. After doing my research, I've come to the conclusion that they have, by far, the best student loan consolidation package. In case you're wondering, EVERY student loan consolidation company has the same interest rate. It's government regulated. The only way to differentiate between one company and another is the fact that they can offer incentives. Most companies offer you an interest rate reduction after say, 36 on-time payments. However, NextStudent is the only company that LOCKS IN that rate. So, once you get the reduction, you can't lose it. Every other company out there will give you the reduction, but once you make one late payment (such as in the case of auto-debit, if your due date falls on a holiday or weekend, the bank won't pay it until the following business day, thus your payment is late), you lose it, and it goes back up to what it was before.
I dont know why teh government cannot just abolish fees, so that students would not have to take out such large loans in the first place!
Si
http://www.clearstudentdebt.co.uk
A college education, is sometimes difficult to afford without some type of loans/aide.However it's not easy to decide on the right company for applying a loan; since there are various options to choose from. The only way to differentiate between one company and another is the fact that they can offer incentives.
Also,home-mortgage refinancing, often similarly guaranteed by Fannie Mae, has become a huge industry and has given many families alternatives to bankruptcy as they face huge debt burdens. But student loan refinancing is blocked by special-interest regulation and legislation. One can get a clearer picture about mortgage, student loan, insurance etc on www.bills.com/studentloans/
If you have education loans you have probably been bombarded with phone calls and mail from companies trying to get you to consolidate your loans. Let's face it---students have high debt and there are a lot of predatory companies out there who would love to get their hands on that money! So, if you want to consolidate who do you trust?
Some things that may help you determine who is just out for your money---
1. The best place to start is with people who are not in the business for money.
Who might that be? Nonpofit lenders! Every state has the ability to designate a nonprofit lender for its residents. These nonprofit lenders are required by the state to give their profits back to the state, often to fund education.
Also, because nonprofits are state-funded or use "tax exempt" money---they have a lower cost of funds which often translates into lower cost loans for borrowers.
There are some great benefits and significant loan savings out there for you. Just make sure you understand exactly what you need to do to earn the benefit and then what you need to do to keep the benefit.
2. Some lenders make false promises. If you see a lender advertising any of these tricks below you can be sure they are not looking out for your best interest:
“In-Grace” Reduced Interest Rate
Some lenders offer a reduced interest rate during a borrower’s "in-grace" period. You save 0.6% on your interest rate if you consolidate while you are still in school or in your grace period (six-month period between when a borrower leaves school and a loan becomes due).
The federal government sets the interest rates on Stafford and PLUS loans. Stafford in school/in grace rate is 4.7%. When your loan goes into repayment the federal rate is 5.3%. The difference between these two rates is 0.6%. As you probably figured out---this is not a deal someone is offering you--- it is something you are entitled to receive from the federal loan program!
Fine Print
Many lenders offer benefits such as: If you make 24 on-time consecutive monthly payments you can earn and interest rate reduction. The exact terms of the offer are usually in fine print. Be careful you understand what you have to do to earn and keep the benefit. In some cases the lender reserves the right to change or take away the benefit if you are even one day late on a payment at any time until the loan is paid in full! This could mean 10, maybe 20 years of payments!! Some lenders even require that all communications have to be done electronically. If at any time an e-mail is returned as invalid they reserve the right to take that benefit away!
Remember, read the fine print, ask questions and get it in writing!
Some useful websites:
Student Lending Works
www.studentlendingworks.org
I believe in comparison. I don't know what consolidation options are best for everyone else. Who I consolidated with may not be the best lender for you. That's why I think people should be as informed as possible. Check out different lenders' sites and take time to understand what consolidation means. Have you noticed that lender sites will say "low interest rates" or "managable monthly payments"? Where are the real numbers? I understand that it mostly depends on your credit score, but why not give us borrowers the lows and the highs of their rates? Before you take out a loan, compare. I don't recommend a lender, as I said before, but I do recommend a place to get some unbiased information: www.simpletuition.com . This site helped me compare multiple loans options from mulptiple lenders. My favorite part about these guys is that they aren't lenders! SimpleTuition is objective and free to use for student loan comparison.
Hey.
Just starting up a new review site for student loan consolidation. Was wondering if you would mind linking to it. I have taken the liberty of already placing a link on mine to yours and hope that this is ok. Please contact me if it is not.
Student loan consolidation advice
Thanks,
Sam H
Nelnet Agrees to Pay $2 Million To Settle With New York Officials
July 31, 2007 6:18 p.m.
OMAHA, Neb. -- Student loan company Nelnet Inc. has agreed to pay $2 million and will quit offering two services as part of a settlement with the New York state attorney general's office.
Officials at the Lincoln-based company disclosed the settlement Tuesday in a call with financial analysts. Nelnet agreed to abide by an industry code of conduct developed by New York Attorney General Andrew Cuomo.
Nelnet officials also predicted Tuesday that the student loan business will become less profitable once new rules Congress is considering are approved, which could hurt borrowers.
http://studentloan2007.blogspot.com
In your article, you specified only wanted government student loans only, so I will delve into this after mentioning this: the U.S. government has a direct loans programs (FFDSLP), which through lenders, gives students loans in the form of a check. This money can then be used for whatever is necessary to fund your education. The rates on these loans are extrememly attractive to students. A comparison of all these types of loans can be found at http://www.schoolloans.com/. At the same website, a comparison and contact for all lenders of private student loans is also available. I used the site and had a ton of lenders contact me in a few days, with so many offers, I virtually had banks negotiating through me with other banks on who could offer better terms. My guidance counselor told me to do this, so today I can’t thank him enough.
Private student loans can carry higher interest rates than federal loans, but with your great standing before applying for the loan, you will easily be able to find loan terms similar, if not, better than the federal government offerings. Choosing a company that would “be best” really comes down to dollars and cents…compare the loan rates, repayment terms, and the amount of money necessary to repay in the future on a monthly basis and an overall basis. Basically, any bank will offer a hassle-free process if this what you are looking for as well. Hope this is helpful, but I know for me personally, it worked like a charm and still does every semester I need a new loan.
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WhenCOLLEGE a student and his or her parents opt for these federally or privately offered college student loans, a few think about the life after four years or whatever number a given course takes.
This is an excellent post and great pointers in the comments that follow. The ramifications of taking out student loans should be seriously considered. Hopefully our new president will be able to address the situation that students face when taking out these loans from banks who make the most out of these loans.
College is becoming increasingly difficult to afford. Nice post.
Borrowing money for college is a big responsibility but college remains a smart investment for obtaining a satisfying career that earns a competitive salary.
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