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NASFAA's Clouded View
By Ben Miller and Stephen Burd
As individuals on the "‘front lines" of the financial aid process, financial aid administrators offer an important perspective on the credit crunch's daily effects on student loan availability. As such, the results of a recent survey that the National Association of Student Financial Aid Administrators conducted of its
members provide some interesting ground-level impressions of the credit crunch. Unfortunately, this viewpoint is almost entirely clouded by the 30,000-foot spin the organization's leadership has put on it. Needless to say, the association's close ties to the student loan industry remain firmly evident.
On its face, the survey suggests that immediate federal loan availability concerns have been largely satisfied, though worries remain about discriminatory lender practices (i.e. banks refusing to lend to students at community colleges and for-profit trade schools) and the long-term fiscal health of the student-loan market. The vast majority of respondents, for example, said actions that Congress and the Bush administration have taken in recent months have "eased the student loan crunch problem" for now. And only a relatively small proportion of aid administrators (about 25 percent of those surveyed) are worried enough that they have put contingency plans in place to prevent any disruptions in loan availability for their students.
That nuanced take is completely missing from NASFAA's spin on the survey. In a press release announcing its findings, the association twists the data into a picture of panic and a call for more action.
Case in point, the press release starts by stating that the "vast majority (90 percent) of student financial aid administrators said they are concerned about the student loan crunch." But look at the actual results: only 44 percent of the survey's 1,078 respondents reported being "very concerned" about the credit crunch. Another 46 percent said they were "somewhat concerned," but there's a big difference between being "somewhat" and "very" concerned about an issue. Lumping the two together is misleading, if not disingenuous.
Perhaps a better way to gauge aid administrators' level of concern is whether they have an emergency backup plan in place for loan availability. According to the survey, the majority of respondents (54 percent) said they didn't believe that having such a plan was necessary. But in its press release, NASFAA glosses over this finding. Instead, it focuses on the fact that only one quarter of respondent institutions currently have some alternate strategy for loans in place. This gives the reader the misleading impression that most schools are unprepared for possible problems, potentially leaving students in harm's way.
At first glance, NASFAA's decision to sound the alarms now is curious, especially when the report itself acknowledges that the responses the government has taken to the student-loan credit crunch "are having a positive effect." The report notes that some lenders that had stopped making federal loans earlier this year have reentered the market and that the Department of Education has "stepped up its efforts" to streamline the process it uses to transition schools into Direct Lending.
But the association clearly has an ulterior motive -- to persuade federal officials that a crisis still exists and that more needs to be done to help lenders in the Federal Family Education Loan (FFEL) program weather the storm. The group makes that clear when it states in the first sentence of its press release that "more than half of respondents (52 percent) believe that the recently enacted Ensuring Continued Access to Student Loans Act does not do enough to ensure future loan access for students."
The association's stance is not all that surprising considering that the group has been one of the chief proponents of legislation that would provide the loan industry with an even larger bailout than Congress and the Bush administration have already provided. That bill, which, which has been championed by Sallie Mae and sponsored by the loan giant's favorite Democrat Rep. Paul Kanjorski of Pennsylvania, would allow the Treasury Department's Federal Financing Bank and Federal Home Loan Banks to inject cheap federal capital into the student loan market.
Progress on that legislation has come to a grinding halt, as concerns about the student loan crunch have eased on the hopes that the financial markets are beginning to stabilize. Without any proof that students' access to federal student loans is in jeopardy, federal officials are understandably reluctant to provide a potential windfall to the loan industry.
Facing that type of resistance, NASFAA is stepping up its efforts to rally support for the legislation. In a recent letter to Sen. Patty Murray (D-Wash.), Phil Day, the association's president, reaffirmed his support for the measure, saying that it would help ensure "that all eligible students are able to get the loans they need for school. "
The funny thing is that many of the aid administrators surveyed expressed concern about "inaccurate media reports that tend to scare families" about the availability of loans "rather than to inform or help them." Of course, NASFAA officials didn't highlight this concern in its press release. Because if they had, they surely would have had to come clean about why they are still pushing the panic button.
NAF's Clouded View
This is the pot calling the kettle black here NAF no? Define “bailout” for us NAF! Is that when a partisan Congress decides that it has made a terrible mistake in thinking it can completely socialize student lending in less than one year (legislation otherwise known as the CCRAA and subsequent partial reversal in Ensuring Continued Access to Student Loans Act)? It’s high time we acknowledge the truth…that what happened to the student loan community is not worthy of the verb “bailout”. I have a better action word, but it is not appropriate for the polite company here at the NAF blogs. Even in this time of extreme financial uncertainty, we’ve not seen the massive exodus to the Direct Loan program that many partisans were no doubt counting on. That’s an interesting fact isn’t it NAF? After losing market share for years after its introduction, after the greatest credit crunch since the Great Depression--no matter what, schools just don’t seem to want to massively abandon FFELP for the Direct Loan program! No, it seems that the only way all the schools are going to switch from FFELP to the Direct Loan program is if they are forced into making the switch. Freedom is a wonderful thing isn’t it NAF? It’s what makes this country so much better than anywhere else on the planet! Congress should do a better job of respecting the limitations of government--right NAF?
What are the facts when in comes to Lenders
The facts are that a significant number of lenders have left the student loan business - for good. Two major players, Goal Financial and Student Loan Xpress, as well as many others have gone for good. The fact that "some have come back" does not mean the crisis is over. The facts are - the DOE, in reducing subsidy payments, reduced profitability for lenders by about 50%. The credit crisis, which is real if you did not notice how it is affecting all aspects of lending, took the remaining profitability out of student lending. To make these loans profitable again, lenders have significantly cut costs, limited who they lend to, increased rates and fees to students, laid off employees, etc. The result - service levels and approval rates are down while costs to students are way up. Many who got loans last year won't get them this year - either their lender has gone out of business or they are no longer eligible because their credit has deteriorated. This is not just a student loan issue. Many people assumed they would be able to take a home equity loan to pay for college. Home equity has disappeared as home values has dropped. Unemployment is up. This is a much bigger issue. Be careful not to dismiss it so readily. Finally, I wish that financial aid officers were all knowing - but they are not. How could they know what is coming. The reality is that they won't know what has hit them until they start getting calls from parents and students who don't know what to do. I expect significant problems in September...
What are the facts?
Like many business sectors dependent on payments from Washington, student lending's story to Wall Street analysts is somewhat different from its story to Congressional committees and executive agencies. There, the story is that student lending is still quite profitable, although no longer one of the most profitable businesses in America. The key factors, such as a business's cost of funds, have nothing to do with reduction in special allowance on new loans -- something which was bipartisan, proposed in detail by the Bush Administration, actually a move away from the socialization of FFELP that had occurred over the previous 10 years.Net interest margins increased during the past quarter to well above 100 bp, and returns on equity will be in the 10 to 20 percent range, well below the 40 percent during the credit bubble era of the 2000s, but still quite comfortable.
The two lenders mentioned were not traditional lenders. It is possible that the international credit paradigm that created niches for new types of lenders -- and not just in student lending -- has again shifted. It may be possible that we look back in 10 years and see such nontraditional lenders as a feature of the credit bubble era, and a temporary phenomenon, while a shift back towards the types of lenders of the 1990s may occur.
It is also possible that the net cost of college, times the number of students, has gone way beyond the natural ability of the American education finance structure (FFELP & FDSLP) to fund. This factor may have been overlooked during the credit bubble era when it was no problem to find the funding. It may be necessary to revisit that discussion. Due to the increased earning potential of college graduates, it may be logical to require them to borrow for their education, but there possibily may not be enough loan capital out there, at least at current net levels of college cost -- or at least until another international credit bubble occurs.
HERA phased out borrower fees over several years. CCRAA further increased the borrower benefit package. The temporary phenomenon of some lenders offering benefits to some types of borrowers but not to most types of borrowers may be fading away but is not necessarily something to be missed. FFELP is a national program. Costs to students at ivy leagu universities may be slightly "up" as a result, but, for the typical student nationally, costs are way down. A student's credit is not a factor unless we are talking private lending. Again, although private lending seems to be up rather than down, if it is in fact down, then we may simply be returning the "normal" credit era of the 1980s and 1990s when private lending was generally limited to graduate/professional students and undergraduates with co-signers.
NASFAA not Relevant
NASFAA has been in bed with student lenders for years as evidenced by the scandals of recent that saw the disgraced resignations of financial aid officers (and key NASFAA members) at such schools as Columbia, Univ. of Texas, Johns Hopkins, USC, and others. NASFAA member schools sought, and in some cases continue to seek, kickbacks in the form of everything from paid elements of the student loan marketing process on campus to more hidden kickbacks such as forward purchase agreements in the corrupt School as Lender Program. In the personal cases mentioned above, individual members sought personal enrichment. This is NASFAA.
Let's not forget, the biggest proponent for added bail out funds is Sallie Mae. Sallie Mae has three corporate jets- not one, not two, but three (because you need that many with gas at $4.75 a gallon, we wouldn't want their bloated executives actually having to fly lower-cost commercial). The CEO, Albert Lord, is building his own, private, 18 hold golf course from the nearly $250 million he has pulled from the company in the past decade. It seems that the NASFAA believes it's important that loan provider perks and excessive greed are protected. If that greed is not protected, the funds that help liquidate Financial Aid Office departmental budgets could be in jeopardy. If that is the case, NASFAA members might actually find that they have to work more efficiently with lower budgets - God forbid that they are subject to the same market pressures as the rest of the us!!
Financial aid administrators paint themselves as philanthropic individuals who are mis-understood. Were the financial aid administrators who resigned in disgrace "victims" or their payoffs "misunderstood?" If you believe so, you are likely one of those believing in corruption as an appropriate method of operation. NASFAA defended the actions of these rogue elements of their membership right up until their disgraced resignations. Likewise, the Spellings DOE is an element of corruption and disgrace. Let's not forget ex-Sallie Mae executive and then manager at DOE responsible for oversight of the Student Loan Database, Matt Fontana, being forced out as it was discovered he was taking stock from student loan providers. Then there is ex-Sallie Mae executive Theresa Shaw who oversaw this corrupt and lender-biased DOE as Chief Opeating Officer - who also resigned in disgrace. Guess we know how Sallie Mae alums operate in the DOE.
It is this writers opinion that NASFAA is a proponent of that continued method of operation and their skewed "research" is merely an attempt to effect opinion in such direction. The gratuitous parties and sponsorships associated with NASFAA's annual convention - and even the regionals - have been eliminated owing to negative public opinion. NOT because the NASFAA thought it was wrong. NASFAA developed a code of conduct NOT because they thought it was the right thing to do or because they freely found problems - rather, they were FORCED to when public visibility to the corruption and Congressional investigation forced such codes of conduct. Only when the light of visibility was shone upon the corruption, did NASFAA take corrective action. That is the ethos and integrity of the NASFAA.
NASFAA members paint themselves as philanthropic individuals bringing education to unwashed masses. In reality - they are compromised individuals with limited skills and in some cases, limited integrity and moral direction as evidenced in the FORCED reforms, Senate investigations, and disgraced resignations. We, the students who take out and pay loans, are more important than protecting NASFAA's compromised status quo. NASFAA leadership are mere bureaucrats seeking a carefree existence and perks from a slimy lender industry. As graduates with student loans, we pay the bills, we write the checks, we are what matters - not NASFAA and it's membership.
There's a new day coming and the day of NASFAA has come and gone. Owing to their corruption and close ties with the lender industry, NASFAA is no longer relevant.
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