Wasting my tax dollars

Talk about wasting my tax dollars, this is such a waste of my tax dollars that I would like to take legal action myself. No one is addressing the fact that the rising cost of college had given way to the boom in the student loan industry. No one is bringing any attention to the fact that the government program called Direct Lending is not in the best intrest of the student at all. No Direct lending school is being questioned on why they are not offering their students the option of a better loan product or a loan product that will pay fees on their behalf or allow them the ability to reduce interest rates over time and on and on. The government has their own back yard to clean up and the only way to side step that is to attack the competitor that is able to do it so much better than them. They have lost ground on Direct Lending so they have to attack FFELP and make this all about ffelp lenders and financial aid offices not thinking of the best interest of their students. This is nothing more than a double standard. Schools may not always make the best decisions on what lenders they have on their lender list. They may need to clean that up and begin a process of selecting lenders that offer the best benefit to the students. Direct to Consumer needs to stop because that is total confusion. I remember when students would bring loan applications into my office from every lender on the corner from every state and processing those was a total nightmare. We would get checks and then the checks would have to be sent to the student for signature and then sent back to us etc. Then you had those students that would cash the check even though it was co-payable to us and them. If we as schools do not have the option of wisely selecting 3 or 4 lenders that would serve our students with a product that would in the end reduce their over all loan debt, I will never be able to look a student in the eye and confidently tell them I believe in the lender they chose because i have no idea who they are or what they offer. I wish schools and lenders would begin to stand up strong and fight this fight together for the sake of students and the future of student loans. The government wants nothing more than to bring all these loans under their own roof. Are we really trusting enough to think that everytime they want to make a cut that it won’t come from the very programs they want to control? Don’t fool yourself. I know education in my state is cut every year at budget cut time.

Lets not even talk about the extortion that is currently going on. Wake up everyone; wake up. The government has been in Direct Lending since 1993. That is over 14 years. They have several billions in student loan volume as well and they haven’t put one penny back into that program by way of giving anything back to students. Also,they haven’t been able to get the program out of the hole or improve it in 14 years what in the heck do you think they will do when we give them 100% of the industry? Has anyone heard the government say lets give the students more free grant money off of all this money we are making off the lenders that pay us the millions of dollars so they can participate in the program? NO, they aren’t offering any free money to students. They are only offering for them to take over their loans. Think about that; they only want to take over the student loans. They haven’t said anything about how they are going to do it better or how they are going to increase loan amounts to get students out of this insane alternative loan borrowing. Nope, all they want to do is take over the loans. Think about that and then ask yourself why? What is their real agenda. Also, I would question anyone that served under Clinton for the administration of the FDSLP. Look it up, you should be able to find the list of names of everyone that supported that program. I won’t name any names but a serious conflict of interest is upon us.

LoriR, at 10:30 am EDT on May 3, 2007

My personal opinion.

I don’t think the problem is the method with which lenders choose to offer loans. I also don’t think the problem is preferred lender listing. I think the problem is oversight, or rather, a lack thereof.

With the Stafford, PLUS and CON loans, there are various pieces of oversight to help prevent issues with these loans. Where the oversight is missing is relative to the incentive(s) offered for those loans. Not saying the incentive(s) should be limited, but the determination is often subjective and not necessarily in the student’s best interest.

With direct to consumer lending, it’s a staple of life. To take that away is nearly impossible; anyone can go to a bank and get a loan for any purpose they chose to use it for. I think the solution here is to ensure proper oversight (there’s that word again) of the loans that are issued. That can easily be accomplished with a number of pre-requisites to ensure that loans are not issued without proper education and disclosure.

Speaking of education, the final piece, and I believe most critical piece, is educating the current or prospective students as to financial aid options. I believe, and always have believed, that this is a job for the financial aid office. The problem is that a lot of schools take the stance of just pushing brochures they’ve been given with little to no explanation about what a student’s real choices are and what should be the deciding factors. It’s up to the lenders to uphold what was disclosed at the school and educate the borrower once they have consumated the loan, but I think it’s on the school to do the initial education impartially, and a lot don’t do that, from what I’ve seen.

The final piece about all this is, nobody’s addressing the other problem: school lending. Schools can offer their own loans which nobody’s talked about at all, often they offer these loans without forethought of the student, just want to make a few bucks. If FFELP is under scrutiny and FDLP is being criticized, I think school lending should also be reviewed for these practices, because if FFELP is so limited as to be unusable and FDLP continues to be financially inefficient, it gives the school a monopoly of sorts, further worsening the problem. This is my opinion, anyway.

ReVeLaTeD, at 2:35 pm EDT on May 3, 2007

Hear Hear CraigieH

I am pleased to finally hear someone remember the taxpayer besdes me because I’ve felt like the lone cowboy in FA. The FFEL program is and has been an utter waste of money for everyone and it’s pretty nice lenders were willing to share the money with schools and maybe toss the borrower a bit. Need I remind everyone of the 9.5% gaurantee where the student borrower hit the lottery (or thought they did) since their rate was only 2.75%? Goodie for us!!! Hmmm, I wonder why loan limits have stagnated and pells aren’t going up and interest rates can’t be cut in half? I know— we gave the money to Sillie Mae and now it looks like they are pulling out of lending. Could it be they sense the heydey of billions in profits are finally over?

I’m pretty committed to the following choice for students borrowing in taxpayer funded loan program: don’t take a federally backed loan; there’s your choice.

Ann Doherty, at 9:55 pm EDT on May 4, 2007

FFELP and FDSLP are both federally backed. A lot has changed in the financial world since 1965 — and even since 1994. Many would argue that the international financial markets have matured to the point that the federal default reinsurance and quarterly guaranteed lender interest rate are no longer need to provide liquidity for student loans. Which goes to your statement about needing neither fdslp nor ffelp at this point.

Billions in debt? That’s how a private-sector bank works. That’s financial health. Cash accounting went out with the stone age. Default rates? Higher in ffelp than in fdslp, the small exception being the defaulted ffelp loans that are consolidated into fdslp and where the borrowers frequently default a second occasion. OMB counts those defaults as fdslp while CBO counts them as ffelp, because that’s where the loan capital started out.

Efficiency of federal govt vs state govt — which is ffelp guaranty agencies and secondary markets. That is debatable. Many would argue that fraud, waste, abuse and mismanagement are even higher at the state level. Look at administration of block grants for example. Private contractors run fdslp — in comparison to the state employees who run much of ffelp administrative workings, at the guaranty agencies and secondary markets. Are you saying we should shut down Defense Dept. because private contractors build fighter planes, etc.? Because the interest and fees go to the Treasury rather than to banks, the so-called administrative costs of fdslp contractors and employees are almost immaterial; those expenses, as well as defaults, would have to be 3x ffelp rates to even it out. As far as the 9.5% stuff, sallie acquired nellie mae, SLFR, SLFA, SSSC (and tried to aquire pheaa). Very little was under usa group. As far as fed’l employees, those hired after 1980 pay fica.

Better for students? Imagine you and I have lemonade stands on the same street. You use your ongoing and future business operation to purchase your ingredients. I, on the other hand, have my favorite Uncle buying my ingredients. Who’s going to have the ability to provide customers with comfortable chairs, organic lemons, multicolored straws, insulated cups, big electric fans to cool down the customers during the hot weather, etc.? I am the guaranteed lender, guaranteed 99% insurance if a loan defaults; guaranteed a quarterly payment from Uncle Sam ensuring an above-market interest rate; and guaranteed plausible deniability of pretending to be “private sector” when my living is primarily due to Uncle Sam. Of course, ffelp is providing a better deal than alternative/private loan marketplace to the avg student, but whose money are they playing with?

CraigieH, at 7:40 am EDT on May 9, 2007

Default Fees

Patty, the lenders do not set these fees, the government does. When a student loan goes into default, it automatically get slapped a fee by the federal government- not the lender. The lender tries at every turn to help the student way before the loan ends up in a default status. If your daughter was slipping into a default status, she was most likely getting letters and phone calls almost daily. It takes 280 days late before a loan goes into default (another time limit set by the government not the lender) At any time during that 280 days, she is able to apply for several options to delay her loan payments without any penalty; of course interest would accrue but it has to. Not to be a parent myself but as a financial aid director I have to be in this case. Your daughter really needed to be listening to her letters and phone calls and avoided her situation. For years we have been doing Entrance Counseling prior to students borrowing student loans and it clearly tells them that they will have lots of options if they cannot pay their loans. It tells them not to ignore the lender contacting them and that the lenders will work for them to keep them in good standing. Students have up to 5 years of what is called deferment or forebarence options where they do not have to make any payments on their loans for reasons of lack of job or whatever their reasons may be. Even if she has a job but not making ends meet, she could have had her payments waived. However, now by avoiding the lenders calls and letters, there is no way out of those fees set by the government.

KL, at 10:30 pm EDT on May 10, 2007

Default fees

Point being that the student should have paid attention to the letters and phone calls. No matter if they were daily or monthly. Why so much anger against the lender Cr? Why are you almost acting like the problem with the default was a lender issue? Why even talk about consolidation with DL? Or even FFEL? The person didn’t say anything about consolidation; which may have also been an option had they been listening to the phone calls or letters. However we don’t know if it was just in repayment or if it was in consolidation. Also, why choose DL? Do you think that would have prevented the default? Wow, you have really drank the wine haven’t you? I heard a message once that said the one who is lost that doesn’t know he is lost is the one who is most lost. You are brain washed to DL my friend. Either way, this student went into default because they did not take care of their student loan and it had nothing to do with a lender. That lender could have been a lender on the corner or the lender call the federal government.Which you know is the lender for DL right? Pretty good that all they could come up with for a program for students to help with cost for college is a loan program don’t you think? Please spare me your tax payer garbage. Also, the federal government also charges the max penalty for a defaulted loan so why only point out that the lender does? Also, since the gov sets the max rate for what can be charged on a defaulted loan, if they cared why even have a penalty for a defaulted loan? It is beyond reason. If it goes into default, it should have the built of interest of course but why even set up fees? Just crazy in my opinion. However I am sure you will also blame a lender for that as well.

KL, at 10:35 am EDT on May 14, 2007

Entrance counseling— what a joke!

I agree with Craigie H. The problem is that an entrance loan counseling session is usually on-line or in a big group. The game is to get the student to sign something certifying they knew both their rights and responsibilites in the beginning and the same paper in the end called exit to basically cover my butt in case of an audit by the DOE. Do you think for one moment most kids understood anything along the way? Absolutley not! My entrance when I borrowed at my top tiered private women’s college was me and my 120 closest friends in an auditorium where I signed something so I could register. One would like to think it was “useful” but all I learned was that it was a loan— that was helpful—I wasn’t sure about it being a loan but thanks for clearing that bit of confusion up! In the years since, I pretty much figured out on my own and what really had it all make sense was the fact that the taxpayers were helping me out— the dates made sense, the rules made sense. The whole loan program is very logical once you connect that dot.

I’m spending hours now doing one on one exits with my graduating kids which is the capstone to the close to 4 years we spent together. What made the hugest difference was that I talked to them along the way. So by the time we get to exit stuff, they at least understand the basic loan terminology. The kids I have problems with (missed deferments etc) are ALL from other schools where they all waited for the magical exit that they were convinced someone would sit them down, one on one and explain it all. Boy were they disappointed. What they got was on line and they spent 6 minutes scrolling to the bottom, checking boxes until it was complete so they could be cleared for graduation.

What students are told and what they really need to hear are two different things. I’m pretty blunt with the following statement they all hear during their admissions interview: “it’s your life, it’s your money, it’s your credit score that goes down the crapper if you don’t pay attention, not mine... should you decide to go here or another school it is your job to get off your butt and ask the questions you have and break through the velvet ropes. If someone explains something you don’t get— who cares, ask again. I in the FA office don’t grade you, write rec letters etc and I encourage you to suck the life out of me for the next 4 years. That is your job and your choice. If you decide not to, you pay the price.” So far with my kids, 98% of them stop by to ask questions, go over letters from Direct etc... The FFEL kids I inherit do the same.

Direct Consolidation is superior to a Federal Consolidation for the Income Contingent repayment plan vs the Income Sensitive. A Direct (for those unaware) has an income contingent repayment plan based on a borrowers income that after 25 years the remainder of the debt would be forgiven. A Federal Consolidation has no such forgiveness and has an income sensitive repayment plan: the lender is SENSITIVE enough to only want $1 out of your SSI check when you’re 90 and eating catfood— see how sensitive the banks are? I’m not sure why schools with students who predominently go into low paying professions (education, social work etc) do not encourage Direct lending and Direct consolidations at their school— maybe they are deluded that the 1/2 point repayment incentive and no forgiveness clause is far superior to an income contingent repayment plan with Direct and a 25 year forgiveness clause.

Nice point, Craigie by the way.

Ann Doherty, at 8:05 am EDT on May 16, 2007