Not So Innocent After All

"On the brink of extinction" -- yet 70 percent of the schools still would rather work with lenders and guaranty agencies.

"On life support" -- yet the vast majority of them have said they're not going anywhere until they see what Congress does.

This brave stand for competition in federal student loans must be the hardest pill to swallow for the central planners at NAF.

The historical record shows us that Sallie Mae is far from innocent. It led the march to remove consumer protections from student loans. That is, it was the highest contributors to lobbyiest to get bankruptcy laws changed, to get the statute of limitations lifted, and in effect, helped to change the Higher Education assistance Act, into one of the most predatory fianancial scams in America.

To find out that they over charged the government is nothing new.
To find out they participated in the 9.5 percent scam, is nothing new.

The historical record also shows us that congress has a history of failing to require, and the US Dept of Education to impose proper and complete oversight of these student loan programs.

It is high time the government sperate itself completly from Sallie Mae. And its time for Sallie Mae to get involved in another business.

What is 70 percent figure based on? Should be nearly 100%. DL has not been allowed to use even minor publicity methods to get out the word about its areas of superior service since 1995 at least. Whereas lenders and GAs, as OIG and GAO have pointed out, have had no regulatory agency to police dubious marketing claims over the decades. You would sorta expect the lemonade stand with the gray tarp over it to have less "support" than the lemonade stand that claims its product cures wrinkles and baldness . . .

They were told by paid pitchmen that DL was harder to set up and administer than a moon exploration program; you actually needed computers! Yet, even with no PR and constant swirling "stories" of DL's premature demise before first implementation, hundreds of schools walked away from FFELP. Despite a newly, far-more-hostile Congress from Jan 1995 onward and repeated attempts at program repeal, a core of schools stayed put in DL. Even when the Congress repealed the $1 per DL loan for school admin support, the core of schools stayed put in DL. They even weren't swayed by unpoliced inducements and invitations from lenders on the 60th floor of the Ritz. Waves of faux "parity" legislation and regulation continued to wash upon the beach year after year.

The support for lenders/guarantors is apparently a mile wide but an inch deep. Schools, perceiving the end of the line, were headed for the door in early spring 2008 when Congress enacted an enormous bailout program to prop up private, state and nonprofit origination financing for FFELP. Why challenge the status quo and change your processes and systems when it seemed that Washington would take any extreme measure and bear any cost to prop up the ol' program? Before even seeing whether the bailout program was worthwhile in its first nascent year, the Congress renewed it for a second year. Lions and tigers and bear, oh my!

In this NAF entry, the blogger again attempts to contribute to the enactment of the President's plan to eliminate lenders like Sallie Mae from the student loan program. The pitch here is that "these student loan lenders are so bad, you should support legislation to get rid of them."

In the next several weeks, you will see more entries like this one, not only here but in the Huffington Post and other outlets for "information" not-too-subtly fed by the political operatives of the current administration. Hopefully, at least some of your readers will see these efforts for what they are--attempts to change the debate on student loans because the foundation originally offered by the Obama administration to justify eliminating the private sector from student loans is falling to pieces.

First, the proposal was premised on being the means to get a Pell Grant entitlement. That has now been abandoned. There were other mouths to feed. The creation or expansion of eight mandatory spending programs, most of them of highly questionable merit, are now included in the bill produced by the House Education and Labor Committee. NAF doesn't seem troubled by this broken promise or the fact that if the federal deficit becomes a bigger concern (in the view of this writer, that is inevitable), the maximum Pell Grant still being promised by the administration and its supporters will never come to pass. So much for "stability" and "predictability" in the Pell Grant program.

Second, when the President's proposal was first announced in February, we were told that there were no job losses. We don't hear that anymore. That small step towards more honest advocacy on the part of the administration is welcome. The truly-rotten "carve-out" for not-for-profit servicers included in the House Education and Labor bill is not. It is a pathetic and expensive attempt to preserve jobs that the administration originally claimed were not in jeopardy. (We are told the Department will have no trouble whatsoever in overseeing 25-35 not-for-profit servicers, some of which have no servicing experience whatsoever. Are we the only ones who think student and parent borrowers are "in for a bad time" if this "political solution" crafted by Chairman George Miller gets enacted?)

Third,we are told that there will be no transition issues with the conversion of 4500 schools from FFEL to Direct Loans. The administration is attempting to make this a reality by implementing the President's proposal before it passes either House of Congress (imagine the outcry had George W. Bush started dismantling the Direct Loan program after making a proposal to repeal it). Experts (not self-described ones, but people who have actually worked in a financial aid office) believe hundreds of schools won't be ready. Here's what we think the plan is: If July 1, 2010 gets close and the transition has failed, the administration will blame it on the "FFEL industry" by suggesting it discouraged schools from preparing. Then it will ask Congress for some sort of emergency legislation. This writer wants to know why NAF has not troubled itself to research the "transition risk." I frankly don't care if you reach a different conclusion than I do, but actually writing about this issue would be doing something useful.

Fourth and perhaps most troubling, are the budget issues. This particular NAF blogger has not questioned whether the "savings" estimates are accurate. And even the one NAF blogger that writes on this issue misses the point that you can't claim FFEL is "on the edge of extinction" and still score budget savings based on the presumption that 70 percent of all federal loans would be made in the FFEL program for the next ten years in the absence of legislation repealing the program. CBO director Elmendorf's letter to Senator Gregg, which suggested that the savings estimates in the official CBO score were overstated by at least $40 billion over ten years should be an eye opener. But George Miller, the author of the "Student Aid and Fiscal Responsibility Act," instead choose to attack the letter by suggesting that "Republicans" were simply trying confuse the issue. Unfortunately for the administration, there are actually some Democrats on Capitol Hill who care about economic reality as well as what the CBO says. They are taking the Elmendorf letter seriously and are also start asking other questions, including whether it is honest to simultaneously say a program is "dying" and then claim savings by legislatively terminating it. We see budget fraud on a scale Bernie Madoff only dreamed about.

All four of these problems with the Obama/Miller legislation is why NAF is focusing on 9.5% loans. Unless those entities that are pushing back on the Obama/Miller proposal are discredited, Congress might actually reject it.

One last thought. What about the timing of the Department of Education's release of the audit report on Sallie Mae? We are told this inquiry began in 2007. Could it be that somebody at the Department held it so it could be released shortly before the House and Senate debates on the bill?

Relevant Critic's bad ship SS FFEL is looking for any port in a storm. It tries port after port -- scoring, transition, defamation of the IG -- but each port turns it away; the ship is contaminated with graft and corruption.

The only port where Relevant Critic's ship does not seek shelter is the "truly-rotten carve-out" port of the not-for-profits. Better to drown at sea than to put in there.

It is nonsense to suggest the release of audits is timed to create a storm right before Congress may act to reform the student loan system. The IG has issued audit after audit since 2005 exposing the industry for what it is, on NMEAF, Nelnet, ED Financial Partners Division, PHEAA, KHESLC, ED Office of FSA, and now Sallie Mae.

Borrowers' lives have been ruined, taxpayers gouged mercilessly. Still the ship is afloat. It is newly bombarded by shelling from the unlikely allies Weekly Standard, Rolling Stone, and even CQ, not just NAF.

Scuttle it now.

They never were innocent to begin with, not to mention that the approach that our government has taken with regard to tertiary education has been at best problematic to begin with. Think of it this way - the ideal is that a person will graduate high school, go to a university or a trade school, and become qualified for a profession that won't require name tags or hair nets. Obviously, private universities can be left alone, as they remain private. That said, it's been oft mentioned how so many European countries send their citizens to college for free, and that means that they have the money to spend on those allotments.
Now, think of this - it could be easily said that most of our defense spending (WW2 and Afghanistan excluded - those are easily justifiable) isn't exactly the most justifiable in the long term sense, in that there wasn't much good done for the people in the areas in which we intervened, and it certainly didn't do us any good. (Dead soldiers, civil liberties increasingly infringed upon by the government because of protest over said actions, massive debts incurred by military spending, esp. 2008 in which over $1 trillion was added to our tab, existence of entire Johnson, Nixon, Bush Jr. and Sr. administrations, etc.) Now, our defense spending is at about $640 Billion per annum. The next closest spender is the People's Republic of China, who spent just over 10% of that. We can certainly afford, after we withdraw from Iraq and Afghanistan, a 50% reduction - which would free up over $300 billion. That would pay a year's tuition - room and board included - at a lot of state universities. Certainly tuition and books at first tier state universities. But then again, this tangent is of course completely conjecture. However, we could easily pay for most of America to go to college if we were to cut defense spending by 50% and also all overseas entitlements, aid, subsidies, and so forth. But that's all conjecture.
I suppose we could probably go the route of legislating it into law that no loan made for educational purposes can carry an interest rate of over - say - 5%, we already do it for mortgages and other areas of finance.