Student Loan Blog : Sen. Edward Kennedy

Student Loan Providers Get More Help From the Government

Student Loan Girl — Thu, 13 Nov 2008 22:39:00 GMT

In a move intended to avoid a shortfall in student loans next year, Congress has expanded the government program to buy federally guaranteed student loans from private lenders.

Under the updated loan-purchase plan, the Education Department can now buy lenders’ student loans with origination dates between Oct. 1, 2003, and July 1, 2009, The New York Times reports (“U.S. Buying More Loans to Students,” Nov. 8, 2008). The original buyback parameters only allowed lenders to purchase loans made for the current academic year and for the 2009–10 academic year.

Federal officials say that as much as $60 billion in student loans may be eligible for purchase under the new expansion.

“We were able to provide stable, reliable funding for students this school year,” said Education Secretary Margaret Spellings. Now the government is taking action to avoid problems in student loans for next year, she said.

Expanded Program May Solve Liquidity Problem

Many lenders were initially unable to participate in the student loan buyback program because the original version of the program only allowed lenders to sell loans on the secondary market that were generated prior to 2008.

The economic conditions during the current academic year have made it difficult for lenders to secure the financing needed to make new student loans that would be eligible for sale through the buyback program. Unable to sell their loans, lenders were then forced to carry their loans on their books.

“They have these government-guaranteed loans and nobody wants to fund them,” said Sameer Gokhale, a financial analyst for Keefe, Bruyette & Woods in New York. “The government is agreeing to buy more of the loans to give more liquidity.”

The Education Department hopes that the new initiative will provide lenders with the required funds to generate new federal and private loans next year, as lenders may be more likely to participate in the program once they can free up billions of dollars in loans under the new requirements of the buyback program.

“We need to do everything we can to prevent students from becoming the next victims of the financial crisis,” said Sen. Edward Kennedy, chairman of the Senate Education Committee. “Next year, we need to take a closer look at these programs to insulate them from fluctuations in the market so students’ ability to access loans is not threatened.”

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In Fight to Lower Tuition, Small Universities May Be Harmed

Student Loan Girl — Wed, 25 Jun 2008 22:43:00 GMT

Some small U.S. colleges and universities are concerned that they may be the target of a new bill that would force schools with multi -billion dollar endowments, like Harvard, to reduce their tuition costs, and place other high-tuition institutions without large endowments at a financial disadvantage when competing for students, according to an article on Bloomberg.com (“Kennedy’s Tuition List Targets Harvard, Wounds Bates” June 19, 2008).

This year President Bush is expected to review the portion of the reauthorized Higher Education Act that requires the Department of Education to maintain lists of schools that have the highest and fastest-growing costs of attendance. These lists would have rankings in six categories for nine different types of schools, including four-year private schools and for-profit two-year or technical colleges. If approved by the president, the lists would go into effect in 2011.

Sen. Edward Kennedy, D-Mass, who called the rankings a national “watch list” last July, is pushing for the legislation to hold schools “accountable for skyrocketing college costs.” College administrators counter that they’re being punished for expenses beyond their control, and smaller colleges, that don’t have huge endowments, may be the most affected.

“It is totally unfair and it is cheap politics,” said Leon Botstein, president of New York’s Bard College. “This is fighting the wrong people. Most colleges are being penalized due to the actions of a few wealthy ones.”

Watch Lists Portray Schools’ Costs Inaccurately

College officials like Terry Beckmann, vice president for finance at Bates College in Maine, believe that the lists, known in the industry as “the wall of shame,” have the potential to be embarrassing for schools and misleading for students.

He cites his college’s ranking as evidence: Bates is listed as having the most expensive tuition in the 2006—07 academic year among private four-year schools. While room and board are included in Bates’ $44,350-price tag, other schools listed lower on the list do not incorporate these figures, creating an inaccurate representation of actual costs.

Alternately, Rep. Buck McKeon, R-Calif. who originally proposed the watch lists, believes the rankings will “help parents and students make better decisions” for college.

McKeon commented that grocery stores have several different price options when selecting one type of apple over another. “In education, you don’t really get that kind of opportunity,” he said.

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Lowest-Income Students Need More Pell Aid, Authors of New Report Find

Student Loan Girl — Mon, 05 May 2008 23:35:00 GMT

To help low-income students attend college, larger Pell Grants should be awarded to the most “financially needy” college students, according to a new report (“Window of Opportunity: Targeting Federal Grant Aid to Students With the Lowest Incomes”).

In the report, researchers from the Institute For Higher Education Policy urged lawmakers to increase Pell Grant aid by up to $750 for students who have an expected family contribution (or EFC) that is a negative number. Currently, such students are awarded the same Pell amount as students whose EFC is zero.

The report’s authors concluded that raising the minimum and maximum Pell Grant awards could provide additional aid to the neediest students while ensuring that students with family incomes bordering the eligibility cutoff do not lose their awards.

The proposal to raise Pell Grant awards is gaining traction in the U.S. Senate, according to an article in The Chronicle of Higher Education (“Report Calls for Directing Federal Aid to Neediest Students,” April 28, 2008).

Sen. Edward Kennedy, D-Mass., is backing a proposed measure to boost Pell aid to the lowest-income students as part of a broader bill aimed at dealing with the effects of the credit crunch on the student loan industry.

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Kennedy to Colleges: Have Back-Up Plan for Students

Student Loan Girl — Tue, 22 Apr 2008 00:34:00 GMT

In a letter sent to the American Council on Education on April 15, Sen. Edward Kennedy, D-Mass., the chairman of the Senate Education Committee, urged colleges to sign up for the Department of Education’s Federal Direct Loan Program as a preventive measure against the potential funding inadequacies within the Federal Family Education Loan Program.

His recommendation to colleges and universities to enroll in the direct-lending program as a backup option for student loan funding is yet another one of Kennedy’s attempts to help protect students against a federal funding nightmare this fall.

Kennedy has also introduced the Strengthening Student Aid Act of 2008 into the Senate that would, in part, allow the federal government to inject liquidity into the student loan market and enable the Department of Education to purchase FFELP loans from failing lenders.

Kennedy’s efforts to help secure the federal student loan sector come at a time when almost 50 FFELP lenders have suspended their federal student loan programs in recent months, including 21 of the top originators of federal student loans and five of the largest holders of student loan portfolios, according to FinAid.org.

Several schools had already made the move to the Direct Loan Program before Kennedy sent his letter to the ACE, including Pennsylvania State University, which, at $276 million, has a substantial federal student loan volume. Secretary of Education Margaret Spellings has assured schools that the Education Department is equipped to handle double the volume within the Direct Loan Program, if necessary.

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Who Are They Kidding? Defend Your Rights While You Still Can

Student Loan Girl — Fri, 23 Feb 2007 22:28:00 GMT

On Monday, Feb. 19, 2007 I wrote about the new STAR Act, whose proponents claim that with all the potential savings to be won by colleges switching from the FFELP (Federal Family Education Loan Program) to the FDLP (Federal Direct Lending Program), approximately $10 billion dollars would “show up as scholarships, grants and fellowships” that would not cost “taxpayers a dime.”

Proposed ‘Solution’ Is Bankrupt

But what really is at stake here? If this becomes law, will we really save that money or just become embroiled in another mess that does more harm than good? My thinking is that IT WILL COST US DEARLY, far more than retaining the status quo: the ability to choose and retain the efficient, organized FFELP that benefits all involved.

Here Are the Facts:

1. The Federal Direct Lending Program has been running a huge deficit for years (currently: $16 billion).

2. The FDLP has not saved taxpayers or the government a dime any year since 1997.

3. If the FDLP was not a government program (and run like a regular business), it would have been defunct, long ago.

4. According to their own documented yearly shortfalls (not savings), why should we believe that we somehow magically will save $10 billion literally out of thin air?

What Sen. Edward Kennedy, D-MA, and supporters fail to mention is that the FDLP is already running at a loss and has spent more than it has collected since 1997. In fact, the FDLP owes the government $105 billion with only $89 billion in loans, a shortfall of $16 billion. All this, according to the government’s own Government Accountability Office (GAO).

“In my mind, it makes absolutely no sense to ‘save money’ with a program that has been losing it for almost 10 years.”

What does seem to make sense is what is going on behind the curtain. In recent press, Kennedy has hinted at loan companies making millions of dollars through the FFELP, at the expense of borrowers. Government Undersecretary Tucker recently was quoted as saying, “U.S. banks are harming the ability of college students to afford school by milking profits from the federally funded system.” (I found this in a letter to Department of Education Secretary Margaret Spellings from the Consumer Bankers Association.) So, it seems that the big, bad banks and lending companies are the scapegoat, and are responsible for making college unaffordable for students.

The government has received much pressure over the years to increase federal financial aid to assist college students in financing their education. It would appear that the politicians are positioning the STAR Act and the FDLP to be the “end-all” solution, and a bad one at that.

STAR: Your Right To Choose?

But what about the FFELP? What is its track record? It has a history of serving 80 percent of college students and their families with efficient, cost-effective service and low rates that never have cost the government any money, unlike its FDLP brother.

If the STAR Act becomes law, most borrowers ultimately would lose their ability to choose, be forced to go with the government FDLP, and lenders would no longer compete for best rates and service.

Current Savings Sacrificed For Unproven FDLP ‘Savings’

Lenders that offer innumerable benefits and incentives, such as discounts for on-time payments, outstanding customer service and cash rebates, would be a thing of the past. This represents hundreds of dollars in savings over the course of a year for individual borrowers (and probably close to a billion total yearly), which would be forfeited with FDLP. Keep in mind that these are REAL savings figures that borrowers already have reaped and not “pie in the sky” savings that likely will not materialize—ever.

The Education Finance Advisors at NextStudent can help you figure in all your college expenses so that you get the student loan that best suits your needs. Don’t get caught short. Go to www.nextstudent.com for all your student loan needs.

Check back here next Friday for my next blog on Campus Life.

Student Loan Girl

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Lose Your Right to Choose: Kennedy Rallies Support for STAR Act

Student Loan Girl — Thu, 22 Feb 2007 22:39:00 GMT

On Feb. 16, 2007 the “first higher education hearing of the 110th Congress” took place before the Senate Health, Education, Labor and Pensions Committee, according to a Feb. 19, 2007 article titled “Scattered Thoughts on Student Aid” by Doug Lederman and Sarah Rosser that appeared in Inside Higher Ed.

After reading the article, it made me wonder if this is yet another instance of “smoke and mirrors,” or a public relations ploy meant to distract students and their parents from what really is going on in the student loan industry. The article stated that “the committee, perhaps in search of a public relations splash, seemed to emphasize style as much as substance. The result was that it prominently featured a television talk-show host with high Q ratings but limited knowledge of how the financial aid system really works.”

Orman: Another Lobbyist for Hire?

What the article referred to was the appearance of Suze Orman, the CNBC “personal finance guru” as “the panel’s ‘star’ witness.” After glancing through the article, it seemed that Orman served little purpose other than to parrot Sen. Edward Kennedy’s, D-MA, views of noncompetition (and thereby “non-choice”) regarding switching colleges over to the FDLP (Federal Direct Loan Program) via the STAR Act.

The article reported that, “She took issue with the widely held view that increased competition in the student loan industry is better for students, a concept the other witnesses uniformly embraced.

“‘When there are choices, there is confusion,’ Orman said, suggesting that student and families get so overwhelmed by information about competing loan options that they just ‘do nothing.’ Consumers would be better off with fewer loan options, she said, a seemingly unusual stance for a consumer advocate. ‘We always lose when others are competing over our business,’ she said.”

STAR Act Removes Your Right to Choose

Apparently, Orman and Sen. Kennedy think that we should not be able to choose and make our own decisions, a choice that likely will be made for us if the STAR Act becomes law.

As many of you already know, Kennedy has been introducing much legislation that, at first glance, seems to benefit those who have been demanding a solution to the problem of increasing college costs and declining federal funds.

Kennedy: Savior of College Students?

The article summarized Kennedy’s actions and position:

“The various bills from Kennedy aim to increase grant aid, reduce borrowers’ student loan burdens by tying repayment to their incomes, step up regulation of lenders, and reshape the playing field of the government’s two competing student loan programs — and all of those topics got some discussion in the wide-ranging discussion at Friday’s hearing.”

I suppose I could be taking this out of context, and I know I am reading between the lines here. But as an American, I prefer to retain my right to make my own decisions. How about you? The more I learn about the new legislation (like the STAR Act) that the democrats are proposing, the more wary I become. The lesson I am learning is that just because something appears to be good does not necessarily mean that it is so. In other words, just because legislation promises to save billions or provide more federal funding, it does not mean that it will happen. It could just be political posturing.

It is important to keep up to date on the effects of the legislation and news on student loans and education. What goes on in government and in your state can have a great impact on your student loans and your college education.

For all the information you need about student loans, go to www.nextstudent.com.

Be sure to tune in next Wednesday for my next blog on student loan legislation in the news.

Student Loan Girl

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