No real change in new student loan regulations

Congress proved, once again, that it is in the pocket of special interest groups like the companies providing alternative loans, such as My Rich Uncle. This bill is a disgrace because the real effect will be that nothing happens. Without the provision requiring loan certification by the Financial Aid Officer, this law is toothless and does nothing whatsoever to curb the abuses and predatory lending practices of the alternative educational lending community.

Schools and FAO’s should be especially upsetbecause the current law does provide that if an alternative loan, in addition to a federal loan, exceeds the cost of attendance for a particular, then the school is in direct violation of Title IV law and is liable for repaying the entire federal loan back to the Department of Education!

Not only do schools not have a say in certifying these loans, they are on the hook for violating the law if the total aid package exceeds the Cost of Attendance, even if they are unaware that a student has taken out the alternative loan.

What rubbish! What a bad idea. NASFAA, Inside Higher ED, NABUCO, and the entire financial aid community should be up in arms over this situation. Congress should be ashamed of itself.

Trust me, this whole mess will lead to yet another bailout by the public five years from now when we see millions of students across the country defaulting on their alternative educational loans. I can’t wait until My Rich Uncle, Sallie Mae, et al, petition Congress to have the Department of Ed (U.S. taxpayers) buy back all of these bad loans. We will then have only ourselves to blame for letting this madness happen....again!

feudi pandola, at 8:55 am EDT on September 10, 2008

Schools

I would say that now is the time to make sure that you have a prominent disclosure about Direct Private loans in print and on your website.

Some may even want to consider asking students to “certify” to schools that they have NOT taken out these loans, and that if they do their federal aid can be reduced.

Perhaps it is time to bring back the institutional application.

Everything that has happened to date did so because the law and regulations did not go far enough originally. Lenders and schools operated in a legal, but ethical vacuum and a tiny minority were sucked in.

I can’t wait for the next greenhorn AG with political aspirations who will come down on FAO’s because “we did not do enough” to tell students about the problems with alternative loans despite our national association lobbying for certification and dischargeability.

Congress has the ability to put a stop to it now, but they dropped the ball, but you know the ball is going to come around again.

Those who don’t learn from the past...

R.F., at 9:30 am EDT on September 10, 2008

MRU and writer- in bed!?!?

Geez,

The quotes from the defunct lender sounds a little too cozy for me. Sounds like the writer is getting a little on the side from MRU, why else would this out-of-business lender even be talking?

Disgusting...

green, at 12:35 pm EDT on September 10, 2008

Additional Real Student loan reform needed now

We need student loan reform now, to avoid a financial melt down of the Student loan industry. Per US congressional testimony, the US department of education has been negligent in its oversight duties of the student loan industry. This has resulted in creating the most predatory lending financial institution in the entire USA. Unless we the American taxpayers demand and obtain student loan reform now, the US taxpayers will be asked to, and probably get saddled with having to bail out this industry with higher taxes (estimated at over 10 billion dollars). This bail out will be for the benefit of the financial institutions and their stock holders, NOT for the benefit of the students or the American taxpayers. Once again, American Taxpayers will be asked to bail out Corporate America, whose CEO’s get paid millions, while they run their companies into the ground, and while the rest of us are working for peanuts when a workable solution to the problem is possible. In the past, during the 70s and 80s, many schools were involved in what has been termed, “student loan farming” due to the neglect of the USDE when it failed to provide oversight of the industry and the schools benefiting from Government student loans. The result of this was a rapid increase in defaults of student loans in the late 1980’s and eventually the collapse of at one time, the second largest student loan guarantee company, The First Independent Trust company of Sacramento California in 1994. After this, congress passed the first Higher Education reform act, which did address some issues of the schools, but did nothing for the victimized students of the era who are still suffering today with defaulted loans. The next high default rate increase is about to happen due to changes in our economy, lack of higher pay scales for students graduating, (and lack of jobs,) education costs increasing rapidly and at rates much higher than inflation, and a credit crunch due to the S&N bail out, followed by the recent Home Mortgage bail out, and the continuing practices of some lending companies that have resulted in the companies being sued for various reasons by various state governments. The most recent massive lawsuit involved the State of New York, and before that, the State of California. Still after all of that, the US Congress has not provided any help for those people who find themselves in default status. The William D Ford option of a 10 year payment based on income, then having the loan balance due “forgiven” only to be taxed as income, only shifts the problem from USDE to the IRS, who then will apply late fees and interests, if the citizen cannot pay the tax due on the balance of a loan that is forgiven. This is not a solution, nor is it loan forgiveness, but is instead, an insult to the intelligence of every American. Currently and in the past, congress has passed laws that encourage and are directly related to the cause of defaulted student loans. The current laws do not help defaulted students. With the current economic collapse and radical changes happening to the economy in the USA, the default rates for students are again starting to rise rapidly, and congress will have a 2nd chance to correct a problem they have long neglected. Students in default status find themselves in downward spiral, unable to pay for their loans, in part due to the ungodly punitive damages imposed on them by the student loan industry. This must stop. We need to encourage these students to make payments on their loans, and make their payments possible within their financial reach. We do not need to take the heavy handed approach, as congress currently does with administrative garnishments. By going after peoples social security, disability, and other such payments, when those payments barely enable the student to have a basic standard of living in America. the congress encourages students in default to drop out of the system, thus leaving the burden of their loans on the US taxpayers. Administrative garnishments, once only the realm of the IRS, now imposes even harsher conditions on those already struggling financially, and is probably a violation of the Bill of Rights. Being a deadbeat is being able to pay your bills and refusing to, and that is defiantly not right. However, being in financial duress and trying to pay your bills but unable to, is quite another and should not warrant being called a deadbeat. Especially when congress has changed the laws over the last few years to create predatory laws that allow a select few, to benefit greatly at the cost of many. It’s time we help those who need it, and severely punish those who have helped to create, and support the parasitical system we now have. It is with that in mind, that WE the people, members of StudentLoanJustice.ORG offer our suggestion on how to reform student loans, and how to save it for generations to come. 1. A law requiring student loan aid offices, or anyone handling the student loan application who is in direct contact with the student, to notify the student that the Student loan contract is not the same contract that exists or will exist between the student and the School, once the student is accepted at the school. And that the student loan contract is not dependant upon the performance of the school, or anything else to do with the school. That the student loan contract is a contract between the student and the loan provider, and is about MONEY and its repayment, and nothing else. During the 70s and 80s and maybe into the 90s the students were not informed of this critical fact, and thought that the student loan contracts included school performance. This is an issue that has causes so many problems with students who either dropped out, or were unable to find work due to being sold useless educations. 2. A law requiring full disclosure statements in writing to the prospective student, that no consumer protections exist for student loans under current federal law.Disclosure statements should define and describe what no consumer protections mean, No bankruptcy protection, No “fraud” protection against the schools, and the fact that the government sees the student loan contract, and the promises of the schools to be two separate issues. And that congress changes the laws, concerning the collections, servicing, and bankruptcy options of these loans, that have a direct effect on the student, without the students approval or consent. Most students, fresh out of Highschool are NOT prepared for the responsibility of student loans, nor can they comprehend the long term effects of having such loans. 3. A law to require that The Dept of Ed must take steps to guarantee and require Student Aid representatives, or those handling the paperwork for Government backed student loans, are fully informing the student of the governments interest in student loans, its reserved rights, responsibilities, what it can do and cannot do, and that means telling them that congress can rewrite the laws which will in real effect, change the student loan terms, without prior consent or approval from students. Also this law should require that student aid representatives make it clearly understood to students, that the government operates on the presumption that anyone who takes out a student loan, is out to cheat the government. 4. A law that standardizes the way of accounting by all loan providers and servicers, requiring them to issue a standard account statement should be made available to the students, on a Monthly basis, that shows: A) All loans being serviced. B) The amount of each loan’s original principal. C) The current amount of each loans Principal D) Individually list added Fees, penalties, interest, what they are for, and how they are calculated. E) Interest rates for each loan, for each monthly payment period. F) The monthly payment amount and where it must be sent to. 5. A law requiring that payments received must be posted to accounts within 3 business days of arrival, or the payment returned to the Student within 5 days. We must not allow companies to sit on payments for 15 days before applying payment to accounts as some have so that they could claim a student went into default. 6. A law that creates a standard payment formula for all payments made. A formula that states that a specific percentage of any payment made, must be used to pay off the principal, unless the amount is less than (for example) 5 dollars. This encourages everyone, even people in default, to make some kind of payment effort to pay off their loans, and such a formula would bring in thousands of dollars not currently being collected, due the fact that current payments are eaten up by interest rates before they ever get applied to principal. 7. A law requiring the USDE to reform the way it handles defaults from people who experience financial hardship, due to catastrophic illness, deaths in the family that result in reduced levels of revenue and resources available to the family, disability, acts of god, (financial damages due to weather,) and financial hardships due to political actions, need to be enacted. 8. A total overhaul of the definition of “disabled” as applied to student loans must be completed so that the term is in harmony and synonymous with the term as applied in other federal laws, and not the exception to these laws. 9. Limit punitive damages that can be applied to students who are in default. Limit the size of late fees applied to defaulted student loans where the student is trying to rehabilitate the loan, or as successfully done so, then encountered financial difficulty and is late with a payment but makes up the difference during the following payment period. 10. The inability to benefit clause, as put forth by the Dept of Ed needs to be re written in more precise language that provides protection for students from the schools that are in the business of student loan farming, or are in business only for the purpose to taking advantage of the government student loan program while leaving the student with no real marketable skills, and/or just a huge debt to pay which the student cannot. 11. Limit the amount and percentage of fees student loan services can impose on students. 12. Provide relief for students victimized by the student loan farming that occurred during the 70 and 80s, for which congress knew about but did nothing. 13. Grand Father clauses for students, when the laws are changed by congress, needs to be enacted. 14. Elimination or modification of the Wage garnishment law, (P.L.102-164) as unconstitutional, and direct violation of the 7th, 5th and 6th Amendments. IRS administrative garnishment arises from statute, which is derived from Constitutional authority under Article 1, Section 8, Clause 1. Student loan administrative garnishment arises from CONTRACT which need to be challenged as invalid contracts. Only people who have signed student loan contracts AFTER congress passed P.L 102-164; 20 U.S.C. � 1095a, should be subject to Administrative Garnishments. 15. Current Advocate and Ombudsman practices are not producing results favorable to both parties and, have themselves, become another parasite on the system, slowing down progress. Either empower the Ombudsman to make rulings in favor of the student, or write a law that stops all interest, penalties and fees while the Ombudsman or advocate, is handling a case. 16. Provide recourse, and means for people to file complaints, and get relief, when their loans are converted to default status, while at the same time, the student is going thru administrative process to apply for forbearances during times of financial difficulties. I have reports of 8 people stating that while they applied and where going thru to process to get their loans into forbearance, the loan provider at the same time, while approving forbearance, also converted their loans into default status. This resulted in the loan provider being able to file false claims to, and that were paid for by the Government Guarantor. These claims cost American taxpayers over 100 million dollars in 2006 alone. 17. The Image of American people being treated equally under the law has been shattered. We now have a clear and precise image of inequity created by the Congress who exercised its law making authority, and who was influenced by the Corporate elite, who have funneled millions of dollars in lobbying efforts to create a system that benefits the few, at the expense of the many, thus creating inequity under our law. This inequity must be addressed and reformed. 18. The term “Disposable income” needs to be re-defined. Income is not defined in any law, as the US courts have said that congress cannot define it. Therefore “disposable” income itself cannot have any legal meaning. Removing the term from all future contracts and instead use the term “disposable recourses” would be more accurate. 19. Record keeping track of student loans by USDE, needs to be corrected. Currently the government only tracks them for the first 2 years after leaving school. IF A loan defaults, then USDE Loans can be sold many times over the course of the life of the loan. Transfer of data can cause delays that result in students being declared default status because they are not notified who currently has their loan. Reforms in the way these companies handle loans also needs to be addressed.20. A law requiring regular inspection of student loan service sites that the US Postmaster allows to do their own mail processing. This is to insured that registered mail is properly handled rather than “lost” or delayed significantly enough to cause payments to be made late, because the service provider sat on them for days instead of applying payments to the account. (See the internet link on the Postal Inspector’s site for routine reporting of errors).

21. A law requiring a hold on all penalties and interests when a loan is in administrative changes, or: A. A student has an attorney working for them on their loan case. B. A student contests the total lack of notification of garnishment by lawful parties allowed to make such garnishment. C. The student incurs the inability to obtain services of Advocate and Ombudsman D. There is a lack of response to requests for information regarding payments made, including garnishment payments E. Lack of current service provider, being able to produce complete copies of original contracts. F. Lack of current service provider, being able to produce records of acquisition from previous loan service provider. G. Current service provider fails to respond in a timely amount of time of any inquires. Penalties against the loan servicer should also be imposed if the service providers are extremely late in filing their responses. Their job is to service the loan, not just collect money and charge fees. 22. A law that forbids interest to accrue on penalties or fees. 23. A law that will provide some relief to students who attended schools who have been sued and were found to have participated in student loan farming, deceptive recruitment practices, or were otherwise determined to have been involved in selling useless educations. 24. Establish national accreditation, and standards for all schools; colleges, proprietary schools, trade schools, schooling that takes place after High School level (public education levels). 25.A law that establishes what a basic standard of living in America is. Our current laws need to be looked at and their definitions updated to reflect the more modern society in which we live. Some states for instance, still consider Telephones and cars to be luxury items. yet in a modern society, these are necessary items to obtain work, unless you live in one of the biggest cities in the country were public transportation is available 24/7. And that is available in only a few select mega metro areas such as NYC, L.A., Chicago, and other such large cities. 26. Re-establish Consumer protections on student loans, the same consumer protections on any other loan available in the USA, either from a private lender, or a government loan. The idea of The Higher Education was not only for the individual but the strength of the country. IF all or most of the engineers, doctors, and scientists all end up coming from outside the US, this country will loose its position as world leader and become a 3rd world debt nation, which is exactly what our enemies want to happen to us. If this country doesn’t have highly trained minds that are proud of this country, its on the way to an economic collapse. Originally The idea behind Higher Education Act, was a low cost way to help people, and the nation. It was never intended to be a money making system for a select few corporations. The corruption in the USDE system is a result of the law being changed to provide a few select groups of persons, enough power to prey on the many. It is perpetuated because these persons have much $$ to lobby our federal reps, which keeps the ‘law’ tipped in their favor. And that law is designed to make it easy for students to find themselves in default status, which then allows the corporations to increase their so called profitability or company worth, on a rising rapid scale, due to the huge penalties and interests that get applied to a loan, when it goes into default status. Current laws punish anyone who finds themselves in default status. Most people in default status give up because their debts grow faster then the rate of the students ability to pay, and the students end up giving up, that is they stop paying, because what little they can pay, is never applied to the principal and their loans usually end up with over 3/4ths of the amount owed, to be penalties, fees, and increased interests, and interests imposed on interest.

If these reforms cannot be done, then it’s time to abandon the federal involvement in Student loans, and abolish the Higher Education act.

Mac Wildstar, at 6:29 pm EDT on September 10, 2008

Living in a Plutocracy

I have to side with Alan Collinge on this one. I’ve been a professor/administrator’s kid/grandkid, an admission officer in two very different schools, and undergrad, a grad student, will very soon be in ungodly amounts of loan repayment, and I have been advising college students in the scholarship fund I work for for the past 3 years.

The unnamed Student Loan Justice person paints a ridiculously rosy picture of student loan borrowers. Too many assumptions and extremes in your lame argument, I’m afraid. You think most borrowers are “gladly” paying back every cent??? Trust me, the majority of them are miserably paying back that debt and wondering if it was worth it. Even those who got MBAs or master’s degrees in Nursing or Health Care Admin or Architecture feel the pinch, and they’re probably making good money. But even that’s pushing it. Most of those people were able to work full-time and finish their program in 12-15 months.

What about all the M.Ed, MSW, MFA people out there? Should they have chosen a different career? Should they have stayed teachers or worked at Starbuck’s with their BA in Social Work — professions that pay horribly without advanced degrees (and not much better afterwards)?

And what a horrible, lame example he makes about “quitting your job and moving to Alaska and ignoring your financial obligations". When you get paid the standard wage for your job and one third of that pay goes to paying off a grad school loan, what kind of existence is that??? My brother decided to combine his love of sports with his love of science and got his undergrad in Pre-Physical Therapy, knowing that it would require PT school and a master’s degree. While applying for grad programs, he worked for a pittance as a PT aide in a hospital. He got into a decent program and now owes $100k for the privilege. He makes much better money but actually has LESS opportunity to provide for his family because even the best repayment best terms have him paying $800/month back to the Feds. Improved his life? Not really.

I can’t believe what the Student Loan Justice phantom has to say about the bankruptcy issue: “makes it possible for every single graduate to turn right around and file bankruptcy". Come on, man. That’s Critical Thinking 101. What a perfect Sweeping Generalization. Seriously, is ANYTHING that easy??? Heck no, just like not everyone can claim Chapter 7 or Chapter 11...

As for college financial aid departments, what incentive do they have to give students better advice when they’re all under the gun to increase enrollment every single semester/quarter? They help themselves sleep at night by using SLJ phantom’s argument — that education will give them a brighter future, no matter what the cost. But really, they’re just finding ANY WAY they can to get that kid enrolled and bankrolled. They have every incentive to do whatever it takes, regardless of what’s best for the student.

Isn’t the root cause more obvious? We’ve become a nation that runs almost entirely on borrowed resources. And we’re also a nation that loves to push the envelope until something breaks — like the Savings & Loan banks in the 80’s, the Tech Stocks in the 90’s and now the mortgage industry.

Sadly, I don’t think anything will ever temper our greed, and the lowest on the food chain always get screwed.

Shane Powers, Student Relations Manager/Grad Student, at 5:05 am EDT on September 11, 2008

Anonymous ad hominem attacks

The anonymous “founder” of StudentLoanJusticeExposed should take a lesson from those of us who sign our names to our positions. Of course, given the likely industry sponsorship, this may be bad for business.

Rory Shane Miller, at 4:45 pm EDT on September 15, 2008