Comments on More Bad News for Lenders

• Can't wait to see the rush to sell.
• Posted by Jack Girvan , Founder at Educational Funding Consultants on February 16, 2007 at 6:25am EST

• The February 14th article Scrutinizing Sallie Mae Stock Deal raises the question of the sale of stock on advance warnings, AKA insider trading. I can only imagine the number of K-10 filings that will take place. (K-10 are SEC filings required to be submitted by officers and large shareholders)

  Keep an eye on this legislation, it may cause the elimination of many lenders. Not neccasrily a bad thing as numerous lenders are controlled by Sallie Mae.

  The concept of a debt auction similar to Treasury notes is so logicle it is hard to understand why it hasn't occurred yet. Oh ya...just remembered why. It is called lobbyists! It has been well documented that political contributions by the banking indstry and more specifically Sallie Mae has won favorable legislation that has hurt generations of families, due to high interest rates, fees, and overall the high cost of loans.

  It is time for a change in the way the whole college funding system and the DOE is run. Let's hope that this proposal is the start.

• Please, someone call the sanity police
• Posted by DC Observer on February 16, 2007 at 7:45am EST

• This, folks, is a POORLY thought out idea and I can only hope that common sense prevails in the end. What makes it bad is that it provides the largest, and most financially diverse, FFEL lenders the leverage to undercut smaller lenders whose already slim margins would make it impossible to offer competitive bids. Sallie Mae, Citibank and the other lending giants will quickly drive out the smaller lenders and by growth in volume likely come out richer in the end. The tournament will not stop there though; in the absence of collusion, the few large lenders that will still out there will continue driving the smallest of the "big" lenders out until the FFEL program is be administrated by a single financial institution. We will then be left with a two-institution lending market that consists of the federal government and a single private lender (pick your perpetrator but most pundits will probably put their money on Sallie Mae). The market competition that the authors of this idea are promoting will be short-lived and though taxpayers may save a couple bucks, in the end it will certainly hurt students by reducing lenders' willingness to be consumer oriented because of competitive pressures. When you know you're the only kid on the block supplying lemonade on a hot day, product quality and customer service take a back seat to the fact that people have no other options.

  Michael Dannenberg at the New America Foundation has trumpeted this proposal for some time, yet a read of New America's Higher Ed Watch Blog is proof enough that the folks over there despise Sallie Mae. Should a bill like this come to pass, it will be extremely perverse for New America, and others who'd like to see this become law, to continue criticizing they giant they eagerly plan to create.

• What?
• Posted by C. Bigsby on February 16, 2007 at 8:16am EST

• " .. Sallie Mae has won favorable legislation that has hurt .."

  So -- Sallie Mae held guns to the heads of the loan document signers, to force them to sign, against their will?

  Please -- get real. I refused to deal with Sallie Mae because they weren't competitive with other lenders.

  And I'm not paying for someone else's mistakes -- I'm already paying for useless "core" classes, thank you.

• Posted by tom on February 16, 2007 at 10:51am EST

• If Senator Kennedy wants to get some of those high premiums that Missouri and Illinois received then take a look at the Direct loan portfolio sitting out there and consider the premiums if sold. Now we're talking serious money

• Posted by DC Observer on February 16, 2007 at 12:55pm EST

• Excellent point Tom.

• Better get my resume ready
• Posted by Bill on February 16, 2007 at 1:25pm EST

• As the manager of the student lending department in a bank with about 60 branches, I don't see us sticking around if this passes. Me and my staff better get our resumes ready. Thanks Teddy.

  Oh and Teddy, do you have a plan to slow tuition costs? That will really make school more affordable, won't it? Then students wouldn't have to borrow these evil student loans you speak of.

• Here's the REAL problem
• Posted by Cathy on February 16, 2007 at 6:50pm EST

• Somehow, ol' Teddy has lost sight of the REAL problem facing college students and their parents. It is NOT the interest rate on student loans (remember the FED dictates the interest rate, right?). The REAL problem is the COST of EDUCATION.
  As a former student and loan borrower, I never complained about the interest rate on my loans. I complained about having to borrow so much that it will take me 20 years to repay my debt.
  If tuition and fees had not grown at the astronomical rate allowed by the government over the past decades, students would not have had to borrow student loans in the first place. Or at least not have borrowed as much as they've needed to.
  When will Teddy address the COST that is driving the students and their families to need to borrow from the 'big bad lenders(and here I include the government's Direct loan program)?

• Posted by LJRogers on February 17, 2007 at 5:45am EST

• Whether Kennedy's plan is the right plan or not, it's a step in the right direction.

  Students are bad credit risks. When payments fall behind, interest and penalties can balloon the debt to an unmanageable size. Few profit more from this debt than Sallie Mae, the mega corporation which oversees nearly $1.5 billion in educational debt.
  Congressional legislation of the past 15 years has made student loans the most predatory type of debt in the nation. The lobbying machine of Sallie Mae Congressional legislation has greased the wheels for Sallie Mae's bottom line to increase by 2000 percent since 1995 by the legalization of penalties, fees, interest rates and collection tactics that rival illegal loan sharking.

  It is public recored that In 2006, the Sallie Mae PAC contributed more than $1.1 million to the campaigns of:
  -16 out of 17 members of the last Senate Education Committee
  - 38 of 49 of the last House Education Committee and their political parties.
  • Albert Lord and his wife personally contributed over $250,000 to the legislators’ campaigns in just the last election cycle.

  Student loan companies realize a higher profit on defaulted loans than from loans in good standing. Last year, Sallie Mae Chairman Albert Lord attributed much of Sallie Mae’s record profits to penalties and fees collected on DEFAULTED loans.

  Since the 1990s, Congress has passed laws to:
  • Allow for huge fees and penalties to be attached to late paid and delinquent debt with interest rates of 28 percent and up, in addition to tacked-on fees.
  • Call for suspension of state licenses which literally takes away a borrower’s means to repay.
  • Call for termination from public employ. (ditto)
  • Prohibit refinancing the loan at better rates from regular banking institutions.
  • Remove this type of debt from bankruptcy protection.
  • Allow Student Loan collection agencies, unlike other creditors, to garnish salaries, confiscate income tax returns, Social Security and Disability payments.
  • If a student defaults on a loan, the government pays off the loan plus fees, charges and penalties. Sallie Mae’s collection agencies can then continue to pursue the borrower and collect an additional 25 percent of any recovered money.

  The harshness of these laws cannot be justified. These tactics are not conferred on other lending institutions for any other type of loans.

  The consequences:
  • When student loans are burdensome, borrowers avoid necessary but low-paying professions, such as public health and social workers, and early childhood teachers.
  • The burden of student loans prevents college graduates from pursuing higher degrees.
  • According to studies by the Nellie Mae Corporation, 40 percent of college graduates who do not go on to graduate school, blame student loan debt.
  • The prospect that student loans will be a great burden deter successful high school students from going to college. This contributes to the decline of educated professionals in our country, while other countries are surpassing us in every area.