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House Republicans Still Confused About Student Loans
The House of Representatives is expected to approve a bill today that would eliminate the Federal Family Education Loan (FFEL) program, expand the Direct Loan program, and put the resulting savings into student grant aid. But before a final vote is taken, the loan industry's champions in the House will make one last ditch effort to gut the student loan reform bill. They are offering an alternative proposal that would keep the FFEL program running on arbitrary subsidies easily manipulated by the student loan industry, and ironically, expand the role of the federal government in the FFEL program.
Reps. John Kline, the top Republican on the House Education and Labor Committee, and Brett Guthrie (R-KY) plan to offer a substitute amendment to the bill that would keep the FFEL program operating just as it is today, but extend to 2014 the Ensuring Continued Access to Student Loans Act (ECASLA) programs that Congress approved in 2008 to keep student loan providers afloat during the credit crunch. In the meantime, the amendment would create a commission, with heavy representation from the loan industry, to design and recommend to Congress a new "private sector model for [government-backed] student lending."
The ECASLA programs -- which include put options, asset-backed commercial paper conduits, and government loans to lenders, all with their own set of arbitrary fees and interest rates -- represent a massive new undertaking by the federal government to help private lenders make FFEL loans. This new undertaking is in addition to the regular federal subsidies and guarantees granted to FFEL lenders that have proved inefficient and wasteful.
The irony, of course, is that Rep. Kline claims to be against 100 percent direct lending because he sees it as a government takeover of... well... a government program. Yet, he favors extending a massive new role for the federal government in the government program that is FFEL. But wait, there's still more irony. Rep. Kline proudly states that, according to budget estimates, ECASLA "is earning money for the federal Treasury."
But the estimate to which he refers was not done according to the Congressional Budget Office's "market risk" analysis that Kline himself says "shows tens of billions of dollars in hidden costs" in a move to 100 percent direct lending. Why doesn't Kline have the same cost estimate standards for his loan proposals? Higher Ed Watch bets it's because the reported ECASLA savings arise predominantly when FFEL loans convert to direct loans as they are sold to the federal government, and a "market risk" analysis would find the same hidden costs "lurking" in his own proposal.
It's another confusing day indeed for House Republicans and FFEL program supporters.
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Barack Obama--mouthpiece for the money changers!
Jason, I noticed you missed one of "the loan industry's talking points" yesterday. This one was uttered by our President last week before Congress:
"So let me set the record straight. My guiding principle is, and always has been, that consumers do better when there is choice and competition."--Barack Obama speech b/f Congress 9/9/09
It's clear that the President has been bought and paid for by Sallie Mae! Please expose Mr. Obama as Al Lord's lackey for us! We need your overwhelming capacity for the truth to be brought to bear here NAF! Don't let Obama's lie go unchallenged!
Student Loan Fraud
Well, they wouldn't be confused if they had to spend a year trying to figure out my son's student loan.
I'm not confused anymore, but I'm a legal assistant with heavy litigation experience in white collar crime.
After a year of doing my own investigation, I found out that the private college my son went to, was ripping off the Federal government and lying to the Dept. of Education about the nature of their financial instruments.
Although the Justice Dept. raided their offices a few years ago, information about the investigation is non-existant. This tells me that somebody cut a deal. They're back in business.
Allow me to explain the scam: The college helps the student obtain a Stafford Loan, then they have the student sign a promissory note for private loans that they know the student cannot afford to pay back.
They jack up the cost of the tuition for a second rate college, to the same cost as Harvard - and extend "credit" for the discrepancy between the Stafford Loan and the inflated tuition.
After the student leaves, and the note goes to collection, they report the promissory note to the Dept. of Education as a "qualified bank loan". The "qualified bank loan" is the combined with the Stafford Loan, and sold to a third Federally insured bank as a "consolidation loan".
This is called "Misrepresenting the nature of a financial instrument to secure a loan". The FED never knows that they just purchased a promissory note. The college insures that it's full tuition will be paid, no matter the cost. They can inflate the cost of tuition to top dollar, knowing that the Dept. of Education will "insure" payback, under the false belief that the student qualified for a private loan.
Countrywide and Washington Mutual did essentially the same thing when they sold mortgage loans to unqualified buyers. You cannot misrepresent the nature of a financial instrument to a Federally insured bank or lender. You cannot convert a promissory note to a "loan".
The oversight that is needed is that this particular college is nationwide, and their degree program is not accredited. Graduates will not get salaries at any time in their careers that will allow them to pay back these "notes". This is a way to use the bankruptcy laws to insure payment of inflated tuition rates from unaccredited schools. In other words, "white collar crime."
Selling loans to unqualified buyers is predatory lending. It doesn't surprise me in the least that there is no oversight at the Congressional level. Congress is easily duped by white collar criminals. Congress doesn't have the legal expertise to understand ponzi schemes and predatory lending.
Shari -- you talk about
Shari -- you talk about making loans to "unqualified buyers" but who decides a borrower's qualifications? Certainly not the lender, when it comes to home ownership, because the Demoocrats forced lenders to loosen credit requirements to boost home ownership in the inner cities and among minority populations. So when the resulting meltdown occurred these same Democrats then blamed mortgage companies for "excessive greed." It is a can't win scenario. Now FFELP is gone, poopoo, but who will lend the private loans that MILLIONS of kids need to remain in their chosen selective private colleges (God forbid anyone attend Community College or State Universities...)? Democrats always blame the corporation, and always absolve the individual decision-making and behavior that is usually complicit in these problems.
PS if you have proof that the school was "Ripping off the government," then why not disclose which school it was, what exactly they did that was illegal and also have you filed charges or blown a whistle on them? I didn't think so. More baseless charges thrown around an anonymous chat room.
Congressional Hearing on Wednesday
Shari...you'll want to tune in tomorrow at 1:00 PM eastern to a live webcast of the Subcommittee on Commercial and Administrative Law hearing on private student loans.
http://judiciary.house.gov/hearings/calendar.html