Ben Miller at the Education Sector has a great post up today explaining how student loan giant Sallie Mae has inserted itself (with help from a corrupt Bush administration official) into virtually every nook and cranny of the federal student loan system. The result is that they can squeeze money from taxpayers regardless of whether the loan is paid or put into default.
Basically, there are three different kinds of private actors involved in the Federal Family Education Loan Program (FFELP – the larger and more expensive of two federal student loan programs):
Lenders: These organizations raise and lend money to students. The government gives them subsidies and promises to pay 97% of the loan if it goes into default.
Guaranty Agencies: These organizations administer the guarantee against default for lenders, and prevent default on federal student loans. They are also paid by the government to do collections or rehabilitations on defaulted loans, which, as many have pointed out, is a conflict of interest. They typically contract this work to a…
Collections Agencies: These firms are contracted by guarunty agencies to track down borrowers in default, and collect as much of the outstanding debt as possible.
Last night, Jon Stewart chatted about student loan reform with Austan Goolsbee, an economist and member of the Council of Economic Advisers. The college affordability action starts at 4:38, check it out:
Yesterday, President Obama answered a few of the 11,000 questions submitted on YouTube as part of its State of the Union Q&A. The first question on education (around 17:00) was about college affordability, and Obama again expressed his support for legislation that would cut subsidies to student loan companies, and invest the savings into Pell grants and other education initiatives. Check it out:
Exchange is reporting that a new study shows that those that graduate with student debt are significantly less likely to have savings or investments, less likely to own a home, and more likely to have a mortgage if they do:
Analysis showed that among postsecondary graduates aged 20 to 45 in 2007, 42% of those who had borrowed money to finance their schooling had savings and investments, compared with 52% of other postsecondary graduates, all other factors being equal.
The results suggest that, while student debt continues to affect individuals’ finances after graduation, borrowers who complete their postsecondary education received labour market returns to their education similar to those of non-borrowers.
This study adds to previous research research showing student debt having a big impact on important life decisions, like getting married, choosing a career, and having kids.
Over at the Quick and the Ed–by far the best named education policy blog in the world–Ben Miller has crunched some numbersand made yet another lender myth about student loan reform implode. Loan companies have been arguing that, by cutting them out of the federal student loan program to save billions (which will be invested in education), students will be loosing the world-class default prevention programs provided by guarantee agencies.
As it turns out, borrowers the Direct Loan Program (DLP)–who do not “benefit” from the activities of these guarantee agencies–have lower chance of defaulting on their loans in all but one (very small) category of school. If the Student Aid and Fiscal Responsibility Act (SAFRA) passes, all federal student loams will be awarded through the DLP. (more…)
One of the biggest sticking points against reform has been the fear that the government couldn’t handle the increase in loan volume and that schools would have a hard time switching over to the Direct Loan Program. Duncan sets the record straight:
By working with private sector companies with expertise in the field, we are prepared to initiate all new student loans in the existing federal Direct Loan program. Right now, the Education Department already owns and services 80% of the student loans made last year. It owns such a high volume of loans chiefly because it had to take emergency action in 2008 to ensure students had access to loans when lending in the nation’s credit markets was frozen.
Our experience handling the bulk of student loans makes me confident in our capability. This year alone, an additional 500 colleges and universities joined the Direct Loan program. Just last month, the department’s independent inspector general’s office issued a report documenting that the Education Department had taken the right management steps so that all loans can be serviced by the Direct Loan program.
In a recent survey by the National Association of Student Financial Aid Administrators, schools that have made the switch to direct lending overwhelmingly reported the conversion was easy and quick. That is just one reason why that association of financial aid experts, along with organizations representing the nation’s largest public and private universities, community colleges and college students, support the department’s Direct Loan proposal.
By working with private sector companies with expertise in the field, we are prepared to initiate all new student loans in the existing federal Direct Loan program. Right now, the Education Department already owns and services 80% of the student loans made last year. It owns such a high volume of loans chiefly because it had to take emergency action in 2008 to ensure students had access to loans when lending in the nation’s credit markets was frozen. (more…)
The Nation just published our article on the fuzzy math that student loan companies are using to manipulate the debate on the student aid bill. Here is an excerpt:
Lately, Sallie Mae executives have been paying visits to Capitol Hill to make their case against SAFRA, claiming it will mean thousands of jobs lost. They are even bringing workers from their call centers on these visits to argue that their jobs should be spared. This activity seems to be having an impact on certain members of Congress, who, with the unemployment rate being in the double digits, are sensitive to the idea of losing any more jobs in their state or district.
Every person’s job is important. There is no minimizing the loss of a job and its impact on a family, especially during the current jobless recovery.
But there is something objectionable about a company manipulating data and its own workers to preserve the corporate welfare on which it has long thrived.
On Wednesday, Dec. 2nd, Campus Progress, the US Students Association, and US PIRG sponsored an event about the college affordability crisis, student organizing for affordable and accessible universities, and the Student Aid and Fiscal Responsibility Act.
Much of the discussion centered around the 32% fee hikes in California, and the student reaction to that decision. Check it out:
"You can dress this up 100 different ways and put a Santa Hat on it, but this is still the same budget gimmick lenders have been pushing for months to line their own pockets" - Rep. George Miller
The Congressional Budget Office (CBO), at the request of Sen. Casey, just examined the alternative to the Student Aid and Fiscal Responsibility Act (SAFRA) written by Sallie Mae. The last time the plan was examined by the CBO, it found that it would mean $13-17 billion less in grants for students, investments in community colleges, funding for early learning programs, etc.
This time around, the CBO put that number at $4 billion.
But, as Rep. Miller said in a press release earlier today, “you can dress this up 100 different ways and put a Santa Hat on it, but this is still the same budget gimmick lenders have been pushing for months to line their own pockets with billions of dollars that should be used to help students.” Both Rep. Miller and Sen. Harkin—Chairmen of the House and Senate education committees, respectively—pointed out that Sallie Mae was able to do better with the CBO this time because the lenders had their plan “sunset” after five years, while SAFRA is calculated for 10 years.
The lenders will, undoubtedly, fight for their plan to be continued in five years, which would mean at least $8 billion less to invest in education. (more…)
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Exchange is 
Over at the Quick and the Ed–by far the best named education policy blog in the world–Ben Miller has 
The Nation just published 