Student Loan Blog : Sallie Mae, financial aid

Nurse Steals Patients’ Identities in Scheme to Obtain Student Loans

Student Loan Girl — Thu, 26 Mar 2009 17:12:00 GMT

Risha Renee Shaw — who graduated in November 2008 as a licensed practical nurse from Keiser Career College — paid her way through school by fraudulently obtaining up to $18,000 in student loans, reports the St. Petersburg Times (“Student Loan Scheme Stole IDs of Elderly, Police Say,” March 20, 2009).

Arrested last Friday by St. Petersburg police, the 30-year-old Shaw was charged with two counts each of exploitation of the elderly and identity theft, and is currently being held at the Pinellas County Jail on a $40,000 bond.

Apparently, police say, Shaw exploited her relationship as a nurse with two of her patients and used their identities to obtain two loans from Sallie Mae, the nation’s largest student loan provider. Victims included an unnamed 83-year-old man and 80-year old Helga Holsten, who died in September of last year.

Bob Andelman, Holsten’s son-in-law, was shocked that someone would steal Holsten’s identity to obtain a loan. He was even more shocked, according to the St. Petersburg Times, at how poorly executed the fraud was.

“They put a picture of a young blond woman onto my mother-in-law’s photo ID,” Andelman said. “But they left all the other information the same,” including the birth year which still read 1928.

Besides how shoddily the fraud was executed, Andelman was surprised that no one spotted the fraud, despite inconsistencies with the photo ID and other documentation.

“All of the document work was incredibly sloppy,” Andelman said. “My mother-in-law’s name was written differently on every piece of paper,” he said. Anyone could have spotted that something was wrong with the applications, or almost anyone, he speculated.

Sallie Mae finally removed the loan from his mother-in-law’s credit report, Adelman said, after several months of working with the lender to resolve the situation.

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More Schools Offering Direct Student Loans

Student Loan Girl — Fri, 13 Mar 2009 21:25:00 GMT

The direct student loan program — which President Obama wants to establish as the sole provider of federal student loans by 2010 — is swiftly gaining ground on the Federal Family Education Loan Program.

In the past year, the number of college and universities originating loans through the Direct Loan Program has increased by more than 50 percent, reports USA Today (“Government’s Direct Student Loan Program Gets a Boost,” March 10, 2009). More than 1,600 schools are offering direct loans, up from 548 schools in 2007, according to the Department of Education, while the number of schools offering FFELP loans fell by 3.6 percent during the same time period.

Currently, students are able to get federal student loans from one of two government programs: the Federal Family Education Loan Program, through which students borrow money from private third- party lenders that are subsidized by the government, or the Direct Loan Program, through which families borrow money directly from the Department of Education.

Direct Loan Program: The Future of Federal Student Loans

However, President Obama recently announced a plan that would eliminate the proven 44-year-old FFEL program, which is responsible for making three out of every four federal student loans. The move would transform the Direct Loan Program from a minority player in the student loan industry to the nation’s only originator of federal student loans.

The president’s plan could reduce the government’s student loan costs and save the government $4 billion, Obama administration officials suggest.

Critics of the president’s proposal — which include private student loan lenders — contest the government’s $4 billion savings estimate and fear that the Department of Education won’t be able to handle the surge in loan volume that would occur if the Direct Lending Program became the only originator of federal student loans. Families could be forced to endure poor customer service from an overburdened system, and could encounter difficulties in getting the funds they need for school, critics say.

Besides excellent customer service and a long-running track record of success, private lenders have another advantage over direct lending, says Barry Feierstein, executive vice president of Sallie Mae.

“Private lender and loan guarantors have a system to help borrowers avoid defaulting on their loans,” he says. “That level of outreach doesn't exist in the federal direct loan program.”

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74% of Sallie Mae Loans Could Disappear Under Obama Plan

Student Loan Girl — Thu, 12 Mar 2009 19:21:00 GMT

Sallie Mae — the largest provider of college student loans in the country — may ultimately see three quarters of its student loan business evaporate under a plan by President Obama that would end government subsidies to third-party lenders and establish the federal government as the sole provider of federal student loans, reports Bloomberg.com (“Sallie Mae May Lose 74% of Loans Under Obama Budget,” Feb. 27, 2009).

Last year, the student loan giant made a total of $24.2 billion in student loans, with $17.9 billion, or 74 percent, backed or subsidized by the federal government.

If Obama’s plan is approved, students would no longer get their federal student loans through private third-party lenders participating in the Federal Family Education Loan Program — which currently provides the bulk of federal student loans to college students — and would instead get their federal student loan funds directly from the government through the Direct Loan Program.

The government’s new plan — a plan that financial analyst Matt Snowling of financial services firm Friedman, Billings, Ramsey & Co says has “blindsided” the student loan industry — threatens to reduce Sallie Mae to a debt collector and servicer for the government.

However, Sallie Mae isn’t likely to protest Obama’s new student loan strategy, says William Ryan, an analyst at Portales Partners, LLC, a New York-based stock rating service, since the lender is bidding on a contract to become the government’s servicer of student loans. That contract could bring in $250 million over four years according to analysts’ estimates.

While Education Secretary Arne Duncan has said that switching to government-funded student loans could save the government as much as $4 billion per year, Snowling says that the move could vastly alter the student loan marketplace, making borrowing much more difficult for students.

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Shares of Corinthian Colleges Stock Take Nosedive Over Student Loan Defaults

Student Loan Girl — Fri, 29 Aug 2008 01:56:00 GMT

Despite an 11.5-percent boost in student enrollment and an 18.3-percent growth in revenue over the last quarter, Corinthian Colleges saw its shares tumble in afternoon NASDAQ trading on Tuesday, as investor fears persist of rising defaults on the school network’s student loans (“Defaults Drown Corinthian,” Forbes, Aug. 26, 2008).

Corinthian’s stock value plummeted 19.3 percent, with investors selling off shares even as the company posted a smaller-than-expected fourth-quarter loss, thanks to higher revenues spurred by the increase in enrollment.

Second-Worst Stock Downslide Since Being Dropped by Main Student Loan Provider

Corinthian, a for-profit operator of more than 100 colleges and trade schools in the United States and Canada, has been struggling to maintain a source of financing for its 72,000 students ever since three of its largest student loan providers — Sallie Mae, College Loan Corp., and Student Loan Express — informed the company that, effective March 1, they would no longer be able to offer “serial” private student loans to the schools’ subprime borrowers. These serial transactions provided current subprime student borrowers — those who have weaker or limited credit histories — with subsequent student loans for ongoing studies.

In 2007, over 75 percent of Corinthian’s private student loan portfolio consisted of subprime student loans, and 90 percent of Corinthian’s private student loans in the United States were provided by Sallie Mae.

In fact, the 19-percent drop in Corinthian shares on Tuesday was the biggest percentage decline only since Sallie Mae made its announcement, on January 22, that it would stop issuing subprime private loans to Corinthian’s students. In the last 12 months, up until Tuesday, reports Bloomberg, Corinthian shares had risen 20 percent (“Corinthian Falls After Increases in Student Lending,” Aug. 26, 2008).

Taking Student Loans Into Its Own Hands: Inviting Risk With Revenue

To offset its loss of student loan lenders, Corinthian established a new company-sponsored student loan program in the fourth quarter called ACCESS and, according to Chief Executive Officer Jack Massimino, was able to provide funding for “the vast majority of students.”

But with a greater volume of student loans comes increased exposure to potential student loan defaults, and Corinthian’s defaults in the fourth quarter rose to 9.1 percent of its revenue, compared to 6.2 percent a year ago.

Corinthian’s chief financial officer, Kenneth Ord, said that for the 2009 fiscal year, Corinthian will spend all available cash on student loans that isn’t already earmarked for capital expenditures; however, investors are still uneasy, worried that Corinthian will fall short of its projected earnings for 2009 and may need to write off some of its student loans to stay afloat.

The company’s student loan program — and the higher rate of borrower defaults that investors fear is coming with it — “adds risk to the forecast,” said Jeffrey Silber, an analyst with BMO Capital Markets. “People were expecting sizable margin expansion, and this is going to put a damper on that. People are not giving [Corinthian] the benefit of the doubt.”

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Banks Become More Selective, Leaving Some Colleges Without Student Loans

Student Loan Girl — Tue, 03 Jun 2008 00:49:00 GMT

Students at community colleges, for-profit universities, and other less competitive institutions may have trouble finding a lender willing to offer them federal student loans as some of the nation’s biggest banks pare down the list of schools they serve, according to an article that appeared today in The New York Times (“Student Loans Start to Bypass 2-Year Colleges,” June 2, 2008).

Citibank, JPMorgan Chase, PNC, and SunTrust are no longer offering student loans to certain colleges — schools that the banks have determined tend toward higher default rates, fewer borrowers, and small loan amounts that make business less profitable.

More than 6.2 million — over 40 percent — of the nation’s undergraduates attend community colleges. These students, according to the College Board, borrow an average of $3,200 a year.

In late May, Citibank, one of the nation’s largest providers of student loans, announced its student lending division, the Student Loan Corporation, would temporarily suspend lending to schools whose borrowers tend to have college loans with “lower balances and shorter periods over which we earn interest.” Citibank also announced it would cease lending to schools it anticipated to have minimal loan volume.

“The logic is so flawed, that for us to have volume with them in the future, we have to have had volume with them in the past,” said Korey Compaan, financial aid director at William Jessup University in Rocklin, Calif. To deny federal student loans to students based simply on the college they attend, he said, is “totally and completely unethical.”

Sallie Mae and Nelnet have recently reaffirmed their commitment to offering federal college loans regardless of the institution a student attends. And Wells Fargo has contacted financial aid administrators at schools dropped by Citibank to express a willingness to lend to their students.

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