Student Loan Blog : Student Loan Legislation

Wyoming’s Largest Student Lender to Stop Making Student Loans

Student Loan Girl — Mon, 02 Nov 2009 15:02:00 GMT

Nonprofit Wyoming Student Loan Corp., the state’s largest student loan lender, has announced that, as of April 1, 2010, it will no longer be issuing any new parent or student loans.

In a statement from president and CEO Phil Van Horn, the company, also known as WyoLoan, said that it will continue to fund any student loans that are already approved for the current 2009–10 academic year and for which all loan proceeds will disburse by March 31, 2010 (WyoLoan announcement of student loan suspension, Oct. 20, 2009).

“WyoLoan is making this announcement at this time so that any student who has applied or who may apply for a loan and for which funds would be released after March 31, 2010, can make other arrangements through their respective school financial aid offices,” the statement reads. “At the present time, we estimate the number of students who will have to resubmit applications to be less than two dozen.”

The company will also continue servicing its current 25,000 customers who already hold student loans, which total $350 million, The Associated Press reported (“WyoLoan to Stop Making Student Loans,” Oct. 30, 2009).

In the lender’s 30-year history, the company website says, WyoLoan has issued over $1 billion in education loans to more than 75,000 students and parents.

Congress Considers the End of the Road for Student Loan Lenders

The company’s decision comes in response to proposed federal legislation moving through Congress that would put an end to the federal student loan program known as FFELP (Federal Family Education Loan Program), which allows private third-party lenders like WyoLoan to issue government-backed student loans.

Currently, the government pays these private FFELP lenders a subsidy for the federal parent and student loans they originate. A second federal student loan program — the Federal Direct Student Loan Program, begun in 1992 — issues federal student loans directly to borrowers through the U.S. Department of Education, with no third-party involvement from a bank or other FFELP lender.

Under the proposed legislation, known as the Student Aid and Fiscal Responsibility Act (H.R. 3221), all federal parent and student loans would become Federal Direct loans, issued directly to borrowers through the government rather than through third-party FFELP lenders — effectively putting most private lenders like WyoLoan out of business.

President Obama has been a vocal backer of the SAFRA bill, maintaining that FFELP subsidies funnel government money to banks and away from students. Supporters claim that the elimination of FFELP subsidies will generate $87 billion in savings to taxpayers over the next decade.

Critics, however, dispute this savings figure and say that the legislation amounts to a government takeover of student loans, stripping students of their right to choose their own lender.

Wyoming’s congressional delegation has come out alongside WyoLoan against the SAFRA bill.

The bill was approved by the House of Representatives on Sept. 17 and now awaits a Senate vote.

Should the measure fail to pass, Van Horn said, WyoLoan will consider lifting the suspension of its student loan program.

Share this post: email this | del.icio.us | reddit

‘Gap Loans’ at For-Profit Colleges Escape Proposed Legislation

Student Loan Girl — Tue, 27 Oct 2009 19:47:00 GMT

While acting last Thursday to approve the creation of a Consumer Financial Protection Agency, which will expand federal oversight of private student loans, a Congressional panel at the same time voted to reject a proposal that would have included school-sponsored “gap loans” under the authority of the new CFPA.

The House Financial Services Committee, in a vote of 39 to 29, approved the Consumer Financial Protection Agency Act of 2009 (H.R. 3126), a centerpiece of the Obama administration’s pursuit to overhaul the nation’s financial regulatory system. The approved legislation would create a new federal agency, the CFPA, which would have the authority to write new consumer protection rules in the arenas of lending and credit, including private student loans (“House Panel Moves to Regulate Private Student Loans,” Oct. 26, 2009).

Gap loans, however, could potentially be exempted from the CFPA’s oversight due to language included in the bill meant to shield small businesses and local merchants that extend credit to their customers. A proposed amendment to the CFPA Act that would have clarified that gap loans are subject to CFPA regulation was narrowly defeated in the House committee by a vote of 35 to 33.

Gap Financing on the Rise at For-Profit Schools

“Gap” student loans — so-called because they’re intended to cover students’ financing gaps, any college costs that aren’t covered by a student’s financial aid (scholarships, grants, federal student loans) — are increasingly being offered by for-profit colleges and vocational schools to boost enrollment as these institutions encounter a swelling influx of unemployed and low-income students looking to return to school to obtain a higher-earning degree, learn a new trade, or acquire additional training for their résumé.

“Because the economic meltdown has made it harder for students to get bank loans, several of these schools are increasingly stepping in, financing degrees in the same way a furniture store or used-car dealer might extend credit to customers,” explains Justin Pope, an education writer for The Associated Press (“For-Profit Colleges’ Increased Lending Prompts Concerns,” Aug. 15, 2009).

For-profit schools, also known as “proprietary” colleges, that provide gap financing, which include national heavyweights ITT Technical Institutes, Corinthian Colleges, and Career Education Corp., say that their financing programs allow students to attend school who wouldn’t otherwise be able to afford a college education.

But these gap financing programs are risky and expensive for students, consumer advocates maintain. Gap loans typically carry high interest rates, sometimes in the double digits, and large monthly payments that the schools’ generally low-income students often aren’t able to handle — all while allowing the schools to reap hundreds of thousands of dollars in federal money from the federal financial aid that students use to pay the bulk of their attendance costs.

“I believe we have an obligation to ensure that these schools are not allowed to continue to prey on students,” said Rep. Maxine Waters, D-Calif., who sponsored the defeated CFPA amendment. “By subjecting these schools to CFPA’s authority, the quality of the student loans these schools provide will improve” (“House Panel Approves Expanded Oversight of Private Student Loans,” The Chronicle of Higher Education, Oct. 22, 2009).

Consumer Groups Push for Regulation of Gap Financing

Consumer and student advocate groups, concerned about the potential for student loans made by proprietary schools to be exempted from the CFPA legislation under the bill’s small-business clause, had been lobbying in support of the Waters-sponsored amendment to explicitly bring gap loans under the authority of the CFPA.

“We just want to make sure that the risky financial products that some colleges, for-profits in particular, have been making to students are still covered by this agency, and not undercut by a well-intentioned suggestion of how to make sure that the neighborhood grocer isn’t unfairly and unduly impacted” by increased regulation, said Lauren Asher, president of The Institute for College Access & Success (“Regulating Private Student Loans,” Inside Higher Ed, Oct. 19, 2009).

Asher and TICAS joined a number of other consumer and student advocacy groups in drafting a letter earlier this month to Rep. Barney Frank, the Democratic chairman of the House Financial Services Committee, urging the committee to clarify that school-sponsored loans wouldn’t be shielded from the CFPA’s reach (letter to Rep. Barney Frank regarding H.R. 3126, Oct. 7, 2009).

“To effectively protect consumers, the CFPA must have full authority to regulate private student loans regardless of the institution offering them,” the groups wrote. “For consumers, a private student loan can pose the same serious risks whether issued by a financial institution or by a school. The CFPA should apply and enforce standards based upon the product and not the issuing institution.”

Gap Loans vs. Gap ‘Financing’: The Non–Student Loan

Proprietary colleges argued against the Waters amendment, saying that gap student loans are already regulated by the federal Truth in Lending Act.

New TILA rules, mandated under last year’s Higher Education Opportunity Act (H.R. 4137) and which will go into effect in February, will require student lenders to disclose more details about their private loan programs, including interest rates and estimated monthly payments, and to inform applicants for private student loans about federal student loan options.

Consumer advocates, however, hold that TILA regulations aren’t sufficient and that the stricter oversight of the CFPA is necessary in order to protect student loan borrowers.

In pushing for the Waters amendment, consumer and student advocacy groups pointed to the move being made by some schools to offer their gap funding under the auspices of “consumer financing” rather than as a student loan program. By structuring their gap funding programs as consumer financing rather than as private student loans, schools are able to skirt the student loan–specific requirements, regulations, and borrower disclosures mandated by the Higher Education Opportunity Act.

“It’s very alarming,” said Deanne Loonin, director of student loan borrower assistance project at the National Consumer Law Center. Schools “can structure the products in all kinds of ways — things like revolving credit lines, unsecured loans, even secured loans. It’s this new thing, and we’re worried about it.”

One for-profit school, Colorado-based Westwood College, is currently defending itself against a class-action lawsuit brought by students accusing the school of fraud in its student financing. The lawsuit charges Westwood with violating state banking laws. Westwood’s student financing program carries a relatively high interest rate of 18 percent, but the school doesn’t call its financing student loans.

The For-Profit Risk

Students at proprietary colleges are particularly vulnerable to the schools’ high-interest loans and financing programs, consumer and student groups say, because of who these students are: lower-income, higher-risk borrowers.

Low-income students, who tend to drop out of college in greater numbers than higher-income students, generally end up struggling to repay their student loans. And for-profit colleges, with their student populations that skew toward lower income levels, on average have lower graduation rates and higher loan default rates than other schools.

In 2007–08, students at proprietary colleges defaulted on their student loans at a rate of 11.1 percent, according to the Department of Education, compared to a default rate of 6.0 percent for students at public nonprofit colleges and universities and a rate of 3.8 percent for students at private nonprofit institutions.

Students at for-profit schools are also taking on increasingly higher debt loads: The percentage of proprietary college students borrowing at least $40,000 nearly tripled to 30 percent between 2003–04 and 2007–08, says Mark Kantrowitz, founder of the financial aid website, FinAid.org. The proportion of proprietary college students taking out private student loans has also come near to tripling, rising to 43 percent from 15 percent in that same time period, according to an analysis of federal data by the nonprofit group Education Sector.

Nonetheless, critics charge, as long as proprietary schools can continue to bring in significant federal funds with each student, the schools have little incentive to refine their lending practices to ensure that students aren’t taking on unmanageable debt.

“Consider, for example, a school charging $10,000, hoping to enroll a student who has lined up $9,000 in aid from the government and elsewhere,” writes Pope. “Even if the school loses half of the $1,000 it lends to get the student in the door, it comes out $9,000 ahead.”

And “for many of these students, if you don’t apply these thousand dollars, they’re not coming to school,” says Jeff Silber, an industry analyst with BMO Capital Markets.

From the school’s perspective, you’re realizing “all those other revenues,” he elaborates, “even if you write off $500 [of that $1,000] right away. … Financially it still makes sense to do this.”

And with last week’s defeat of the CFPA amendment, the stage is set for schools to press on with their gap financing programs, having sidestepped, at least for now, the impending shadow of the CFPA and increased federal oversight.

Share this post: email this | del.icio.us | reddit

House Panel Moves to Regulate Private Student Loans

Student Loan Girl — Mon, 26 Oct 2009 20:23:00 GMT

Voting in support of the creation of a new federal Consumer Financial Protection Agency, a Congressional panel has laid the groundwork for expanded federal oversight of private student loans.

In a vote last Thursday of 39 to 29 that fell largely along party lines, the House Financial Services Committee approved the Consumer Financial Protection Agency Act of 2009 (H.R. 3126), a core component of the Obama administration’s pursuit to overhaul the nation’s financial regulatory system.

Agency Would Protect Consumers From ‘Abusive’ Lending Practices

The approved legislation would create a new federal agency, the CFPA, to replace the current patchwork of regulatory bodies and which would have centralized oversight of various forms of consumer credit, such as mortgages and credit cards, as well as nonfederal private student loans.

The agency would have the authority to write new consumer protection rules in the arenas of lending and credit, to monitor banks and other financial institutions for compliance with these rules, and to penalize institutions for any infractions. The CFPA would also have the ability to ban products, marketing tactics, and other business practices that it deems “unfair, deceptive, or abusive.”

“The Consumer Financial Protection Agency will prevent predatory lending practices and other abuses and will ensure that consumers get clear information they can understand about financial products like credit cards and mortgages,” said President Obama, commending the House committee on its vote in support of the bill (“House Panel Backs Creation of Consumer Financial Protection Agency,” Los Angeles Times, Oct. 23, 2009).

The measure passed despite strong Republican opposition and forceful lobbying from banks and business groups.

“It’s not about protecting consumers; it’s about a new government bureaucracy making decisions for us,” said Rep. Spencer Bachus of Alabama, the ranking Republican on the House Financial Services Committee.

Oversight of Private Student Loans Urged

A broad coalition of student and consumer advocacy groups had been urging the House committee to pass this bill that would bring the CFPA’s oversight to the realm of private student loans — non-federally guaranteed education loans issued by banks and private lenders rather than by the Department of Education — that, until this year, had been steadily attracting more and more borrowers as families struggled to meet rising college costs.

“Private student loans are one of the riskiest ways to pay for college, yet a growing number of students have private student loans as well as, or instead of, federal student loans,” the groups wrote in a recent letter to Rep. Barney Frank, the Democratic chairman of the House Financial Services Committee (letter to Rep. Barney Frank regarding H.R. 3126, Oct. 7, 2009).

“Private student loans are expensive, mostly variable-rate loans that cost more for those who can least afford them,” the letter reads. “They lack the fixed rates, consumer protections and flexible repayment options of federal student loans, and are not financial aid any more than a credit card is when used to pay for textbooks or tuition.”

In addition to creating the CFPA, the approved legislation would grant new powers to the states’ attorneys general to assist in enforcing the agency’s rules and to allow them to write more stringent rules for companies within their own states.

The New York attorney general, Andrew Cuomo, who led a nationwide investigation last year into collusion and deceptive practices in the student loan industry, referred to private student loans as “the Wild West of lending” — and not without reason, says Lauren Asher, president of The Institute for College Access & Success, one of the signatories of the letter to Frank (“Bill to Expand Oversight of Private Loans Advances in Congress,” Chronicle of Higher Education, Oct. 19, 2009). “We hope CFPA will bring more law and order,” Asher said.

Share this post: email this | del.icio.us | reddit

Students Could Wave Goodbye to Merit–Based Federal Aid

Student Loan Girl — Thu, 25 Jun 2009 16:41:00 GMT

In another move to restructure the federal financial aid system, President Obama has proposed ending the government’s five-year foray into merit-based student aid and redirecting those financial aid funds to the need-based Pell Grant program, reports The Chronicle of Higher Education (“An Experiment in Merit-Based Student Aid Is Likely to End,” June 26, 2009).

The Academic Competitiveness Grant and the National Science and Mathematics Access to Retain Talent Grant programs were created by Congress in 2006 to encourage students to take academically “rigorous” coursework in high school and then choose college majors in fields with labor shortages.

Only students who are eligible for need-based Pell Grants can qualify for the Academic Competitiveness Grants, which provide $750 and $1,300 to college freshmen and sophomores respectively, and for the SMART grants, which provide $4,000 to college juniors and seniors who major in science, math, and certain foreign languages.

But so far both grant programs have fallen short of their participation projections, due in large part to the Department of Education’s failure to promote the programs, as reported by the department’s own inspector general in 2008.

The other major problem has been the programs’ vague qualification criteria, which has made it difficult for financial aid officers’ to determine award recipients. The American Council on Education, in a 2006 letter to the Department of Education, called the grant program’s guidelines “unworkable” and defined them as placing a “breathtaking administrative burden” on colleges’ financial aid officers.

Obama’s Proposal Receives Support From Education Officials

Education Department officials support the president’s proposal to make the Pell program an entitlement with annual increases tied to inflation and to raise the maximum Pell awards by $200 to $5,500 by the 2010–11 academic year because, they say, the Pell Grant program better serves low-income students than the competitiveness grant programs.

This proposal “would benefit the vast majority of the nearly six million Pell Grant recipients worldwide,” even though the annual increases amount to significantly less funding for the one in 10 students who qualify for the Academic Competitiveness and SMART grants.

Even former Secretary of Education Margaret Spellings, who crafted the merit-based programs under the Bush administration, backs the proposal.

“Do higher education officials and K-12 officials prefer free money with no strings attached? Absolutely,” Spellings said. “But if we’re trying to move the needle, putting resources behind our policy goals is a more powerful and prudent way to go."

Share this post: email this | del.icio.us | reddit

Overhaul of Student Loan System in the Works

Student Loan Girl — Mon, 22 Jun 2009 15:30:00 GMT

A bill to overhaul the student loan industry may reach Congress as early as next week; education-committee chairs are working behind the scenes on a piece of legislation that would eliminate the third-party student loan system called the Federal Family Education Loan Program, The Chronicle of Higher Education reports (“Behind the Scenes, a Student-Loan Overhaul Takes Shape,” June 16, 2009).

Although few details have been released about the proposed legislation, lenders and a large number of Congressmen are hoping the FFEL program won’t end up on the chopping block like President Obama has proposed. Already as many as 13 counterproposals to the elimination of FFELP have begun circulating Congress, including a detailed plan from lending giant Sallie Mae.

It’s not likely, however, that the FFEL program will survive this legislative session, some Congressmen say, considering taxpayers could see as much as $94 billion in savings over the next 10 years if FFELP were eliminated, according to estimates from the Congressional Budget Office.

Obama had originally suggested that these savings, which have been readjusted down to $87 billion, could be used to increase Pell Grants award amounts each year at a rate equal to the Consumer Price Index. It now looks like Congress will, instead, propose that the money be infused into the Pell Grant program to allow appropriators to “continue to set the maximum [Pell Grant] award” so as not to end up capping the maximum award amount.

Share this post: email this | del.icio.us | reddit

Federal Student Loan Lenders Fight for Survival

Student Loan Girl — Mon, 30 Mar 2009 23:52:00 GMT

In what is being viewed as a direct hit to private third-party lenders in the Federal Family Education Loan Program who are fighting to keep the program alive, the U.S. Department of Education’s preliminary data paints the FFEL program as a costly and ineffective system with a 7.3-percent student loan default rate, two whole points higher than the default rate for the Direct Loan Program (“Private Lenders Brace for Fight Over Student-Loan Role,” The Wall Street Journal, March 27, 2009).

Since its launch in the 1960s, FFELP has been the primary source of federal student loans. This year the FFEL program has already lent more than $56 billion in student loans, while the Direct Loan Program has lent just $20 billion. But President Obama has proposed axing the FFEL program, which costs the federal government billions of dollars in subsidies each year, in favor of the government’s Direct Loan Program, through which families borrow directly from the government.

FFELP lenders have said that the Education Department’s untimely release of the student loan default rate data — taken from fiscal year 2007 — was purely political since the government has never released preliminary default rate data and has never broken down the data by the two programs. Industry analysts say the data reflects the differences in the two programs: FFELP lenders typically cater to more students from for-profit schools who tend to default at a higher rate than students in the Direct Loan Program.

Department of Education officials have said they released the data in response to a U.S. Freedom of Information Act request from The Wall Street Journal and inquiries from Congressional leaders.

“It’s unfortunate the rates are being released before there is an analysis of them,” said Brett Lief, president of the National Council of Higher Education Loan Programs, a trade group that represents FFELP lenders and federal loan guarantee agencies. “This is very serious stuff and I’m saddened that it has come out like this.”

No Cut-and-Dry Solution to the FFELP Dilemma

While the Consumer Bankers Association, which represents certain FFELP lenders, has sent Congress a 2,500-signature petition asking legislators to reject the president’s proposal to eliminate the FFEL program, industry observers don’t see the battle over FFELP ending quickly or simply.

The Congressional Budget Office has said eliminating the program would save the government nearly $100 billion over the next 10 years, which President Obama plans to redirect to the Federal Pell Grant program. This potential funding boost for Pell Grants, which are awarded to the nation’s neediest students, could make it harder for legislators who support FFELP to successfully argue to keep the program alive.

However, some legislators who oppose the FFEL program face strong opposition from their home-state guarantee agencies that work with FFELP lenders to service college loans for students in their state. Legislators may also have to battle student loan giant Sallie Mae, which has said that keeping certain elements of FFELP might actually make it possible for the government to draw additional Pell Grant funding from FFELP itself. Sallie Mae has also pointed out that its borrowers, who partake in default prevention programs through state loan-guarantee agencies, are 30 percent less likely to default than direct loan borrowers.

“It’s certainly possible Congress would eliminate the program,” said Terry Hartle, a senior vice president of the American Council of Education, a trade group representing colleges and universities. “But it’s equally possible — and perhaps more so — to wring more savings out of the [FFEL] program and put the savings into Pell.”

Share this post: email this | del.icio.us | reddit

Groups Say Forgiving Student Loan Debt Would Boost Economy

Student Loan Girl — Thu, 26 Mar 2009 00:16:00 GMT

As student loan debt continues to rise — jumping to $20,098 per graduating student loan borrower in 2007 from $18,796 in 2006 — and employment prospects continue to worsen, college graduates are experiencing greater difficulty repaying their student loans, and some of them have said enough is enough, BusinessWeek reports ("Asking for Student Loan Forgiveness,” March 24, 2009).

In 2008, borrowers fell behind on nearly $131 billion in private student loan payments, according to FinAid.org. There were $544 billion in federal student loans left outstanding for the fiscal year 2009, up from $502 billion in 2008, the U.S. Department of Education reports.

Student Borrowers Use Facebook to Advocate A Break From Loans

While Robert Applebaum hasn’t fallen behind on his student loan payments from law school, he has become frustrated with his mounting student loan debt. The New York attorney saw his $80,000 student loan debt balloon to $100,000 after he put his loans into forbearance for five years when he was working a low-paying job at the Brooklyn District Attorney’s Office.

Fed up with his rising debt and with recent media reports of banking executives from bailed-out banks receiving hefty bonuses or spending taxpayer money on million-dollar office renovations, Applebaum took his gripes online. He used Facebook as a soapbox to promote his own idea for stimulating the economy: canceling student loan debt. He quickly found out he wasn’t the only one interested in this idea.

Within the first two weeks of starting the Facebook group “Cancel Student Loan Debt to Stimulate the Economy,” Applebaum gained 2,500 followers. Just two months later, the group now has more than 138,500 members.

“Despite having a law degree, I’m middle class and I don’t have any money at all,” Applebaum says. “I don’t own a house or a car. My only assets are my couch and television.”

More Change Needed But Reforms Are Taking Shape

Applebaum hasn’t been the only one to take to the Internet to advocate for student loan forgiveness. Alan Collinge, founder of the website StudentLoanJustice.org, has used his site as well as in-person visits with elected officials throughout the country to increase awareness about the problems in the student loan system. Collinge has advocated for a return of what he calls “basic consumer rights” to student loan borrowers. Currently, student loans are one of a few types of consumer debts that are almost impossible to discharge in bankruptcy proceedings.

“Until someone shows me why student loans should specifically be exempt from bankruptcy protections, it’s definitely a fight worth fighting,” Collinge said.

Although it may be some time before the government agrees to forgive student loan debt, legislators have taken steps to make student loan payments more affordable.

On July 1 of this year, the government will implement the Income-Based Repayment plan, which caps borrowers’ monthly student loan payments at 10 percent of their gross income for 25 years, after which borrowers’ remaining debt will be forgiven. And the government’s Public Service Loan Forgiveness program allows borrowers to make income-based repayments on their student loans and have those loans discharged after 10 years of working in public service.

NextStudent, college, college loans, student loans, student loan forgiveness, discharge student loans, student loan debt, college graduates, graduate debt, BusinessWeek, Facebook groups, private student loanns, federal student loans, Finaid.org, U.S. Department of Education, Educaiton Department, Robert Applebaum, Brooklyn District Attorney's Office, cancel student loan debt, canceling student loan debt. Alan Colinge, student loan justice, student loan system, student loan borrowers, bankrupcty debt discharges, affordable student loan payments, student loan legislation, income based repayment plans, public services loan forgiveness

Share this post: email this | del.icio.us | reddit

Student Loan Lending Still Going Strong

Student Loan Girl — Mon, 12 Jan 2009 23:34:00 GMT

Despite being hampered last year by a lack of investors and a lack of access to credit, federal student loan lenders are surviving the economic crisis — making the student loan market one of the few lending industries still able to thrive this year, The Wall Street Journal reports (“Tuition Ammunition: a Happy Lesson on Lending,” Jan. 6, 2008).

Proactive and swift action by the federal government, which guaranteed 18.6 percent more student loans for the 2008-09 academic year than the previous year, has helped the student loan industry avoid the decreases in volume seen by the mortgage and banking industries.

In addition to a move by the Treasury Department to infuse tens of billions of dollars into U.S. banks so lenders could issue new student loans, Congress passed legislation that allowed the federal government to buy up student loan securities from cash-strapped lenders.

The Ensuring Continued Access to Student Loans Act (HR 5715) was intended to help student loan lenders, allowing the government to buy loans directly from these lenders, and may have contributed to a 9.4-percent climb in loan originations for the 2008–09 academic year by lenders in the Federal Family Education Loan Program (FFELP). While the legislation has been in place, the government has purchased about $97 million in student loans and invested nearly $10 billion in student loan trusts, figures that are expected to grow before the end of this school year.

“What we’ve seen so far is that programs we have put in place are having the desired effect,” said Education Secretary Margaret Spellings. Although she’s optimistic that the government’s efforts to boost student lending are working, she said she’s not ready to “declare any victories.”

Credit Markets Hinder Private Student Loan Lenders

While federal student loan lenders seem to be riding out the economic storm, observers say it’s unclear whether the private student loan market, which is suffering greatly from the credit crunch, will experience the same success.

After the market for selling bundled student loan securities dried up, the Federal Reserve initiated a $200 billion program in the hopes of encouraging investors to continue buying these securities. Analysts say, however, that these efforts may not be enough for the private student loan industry to compete with the demand for and the availability of low-cost federal student loans.

Last school year, private student loans accounted for about $17.6 billion, just one-fifth of the $85.9 billion in total student loan lending, according to the College Board. This year, lenders and analysts estimate that private student loan lenders have done 25 percent less business.

Already 39 lenders have stopped making private student loans, and others have tightened their lending criteria, both of which may force financially struggling families to pursue more affordable higher education options, said Tim Ranzetta, president of Student Lending Analytics, an independent research and advisory firm. “The cloud of this financing issue,” Ranzetta said, “will push more [students] to state public universities and community colleges.”

Share this post: email this | del.icio.us | reddit

Sen. Schumer Calls for Government to Protect Student Loans Amid Passage of $700 Billion Bailout Bill

Student Loan Girl — Tue, 14 Oct 2008 20:17:00 GMT

Concerned that students who are eligible to go to college won’t be able to pay for their education costs in light of the current credit crisis and a steadily worsening economy, Sen. Charles Schumer is urging the federal government to make sure student loans are still available, according to an Associated Press article (“Schumer Wants Student Loan market to Be Protected” Oct. 6, 2008).

Schumer recently wrote Secretary of Treasury Hank Paulson and Federal Reserve Chairman Ben Bernanke, advising them to keep tabs on the student loan market as the government implements a $700 billion bailout plan for the financial sector. The senator fears that the deteriorating credit market might burden college students with higher interest rates on loans or may prohibit borrowers from qualifying for student loans all together.

“The price we’ll pay will be that of a generation,” Schumer said.

Over 100 third-party lenders in the Federal Family Education Loan Program have suspended their participation in the federal student loan program, which is responsible for nearly half of all public and private student loan money, or about $60 billion. Students can access these federal student loan funds either through private lenders in the FFEL program, or through the government itself using the Direct Loan Program.

Schumer recommends that all colleges allow students to get loans through the government’s Direct Loan Program, instead of through a middleman, FFELP lender. The senator says he will be drafting letters to encourage New York college presidents and the American Council on Education to pursue a similar course of action.

Just last month, Congress passed legislation that will enable students who rely on loans to continue their education, regardless of the difficulties in the private credit market. The legislation is effective through the 2010 academic year.

Share this post: email this | del.icio.us | reddit

President Bush Signs Legislation That Boosts Availability of Student Loans

Student Loan Girl — Thu, 08 May 2008 16:15:00 GMT

On May 7, President George Bush signed into law legislation intended to help stabilize the $85-billion student loan industry and to avert a predicted shortage in student loans.

The law will allow the U.S. Department of Education to buy bundled student loans that lenders have been unable to sell to investors. Sales of these loans will create capital to help lenders make new loans.

In addition, the measure will allow the Education Department to loan federal money to guarantee agencies, so those agencies can issue student loans, if necessary, under the “lender of last resort” system,” according to an article in The Chronicle of Higher Education (“Bush Signs Student-Loan Bailout Bill Into Law,” May 7, 2008).

The new law is expected to simplify that system, under which students who have been denied student loans can petition the government as a last resort, by allowing the Secretary of Education to designate an emergency lender for an entire school instead of on a student-by-student basis.

Rep. George Miller, D-Calif., chairman of the House education committee and a chief backer of the legislation, said the passage of the bill should send a strong message to the public (“Bush Signs Student Loan Market Stabilization Plan,” Reuters, May 7, 2008).

“With this bill signed into law,” Miller said, “students and families now have every assurance that they will continue to have access to all the federal student loans they are eligible for, no matter what happens in the nation’s financial markets.”

Share this post: email this | del.icio.us | reddit

Bush Urges Congress to Act Quickly on Student Lending Law

Student Loan Girl — Fri, 02 May 2008 23:06:00 GMT

“A slowdown in the economy shouldn't mean a downturn in educational opportunities,” said President Bush in his most recent radio address. “Members of Congress now have a chance to preserve this opportunity, and they should take it.”

His remarks were the rare instance of a president devoting a national address solely to an issue of higher education, according to an article in The Chronicle of Higher Education, (“President Bush Pushes Congress for Quick Law on Student Lending,” April 28, 2008).

In his speech, the president reaffirmed the need to protect student loans from the credit crisis and expressed his support for HR 5715, the House of Representatives version of a bill that would help struggling lenders remain in the federal student loan market.

The bill, which passed the House 383 to 87 in mid April, would help lenders raise capital to make new loans by allowing the secretary of education to buy loan packages from lenders.

“This bill provides the necessary tools for safeguarding student loans without permanently expanding the government's role in their financing,” Bush said. However, he concluded, “A delay of even a week or two may make it impossible for this legislation to help students going to school this fall.”

The president’s support puts additional pressure on the Senate to take similar action when it comes to its version of the bill, the Strengthening Student Aid for All Act (S 2815), which is now pending a vote in the Senate.

Share this post: email this | del.icio.us | reddit

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.

Share this post: email this | del.icio.us | reddit

Who Wants More Money for College?

Student Loan Girl — Wed, 13 Jun 2007 07:01:00 GMT

The easy answer is “everyone does,” of course. This is especially true if you are putting yourself through school and do not have mom and dad to help you pay for your college education. But, whether you are just starting out or even one year away from your degree, we all need more money for college.

Apparently, the government is starting to hear our cries. According to the June 8, 2007 article by Andy Guess, titled “More Money All Around,” that appeared in Inside Higher Ed, “A House of Representatives panel presented a bipartisan gift to educators, researchers and college students on Thursday when it approved legislation that would significantly increase the maximum Pell Grant and support for the National Institutes of Health in the 2008 fiscal year, while at the same time protecting other student financial aid programs whose funding the Bush administration has proposed cutting off completely.

“The 2008 spending bill passed the newly Democratically controlled appropriations subcommittee that allocates funds for health, education and jobs programs without a single ‘nay,’ illustrating a spirit of bipartisanship in marked contrast to last year’s vote along party lines.”

Pell Grant May Be Raised Again for 2008

This bit of news is extremely exciting for college students. The actual Pell Grant increase is not huge, but represents a shift in policy. It appears the government has not only realized that college costs are steadily rising, but has also chosen to take action to help offset those costs by allocating more grant money for students, for the second year in a row. While the bill is not yet law, it may soon become so, if all goes well.

As reported in the article, “The bill would raise the maximum Pell Grant to $4,700, a $390 increase over the 2007 level that would add $2 billion to the program’s cost. The increase, which would represent the largest for the program in nearly a decade, is not accompanied by the administration’s requested cuts of the Perkins Loan and Supplemental Educational Opportunity Grants Programs, which would be financed at their 2007 levels under the House legislation.”

Legislation Receives Support

While most students and their parents naturally support this legislation, many others are likewise commending it. As stated in the article, “‘I think the bottom line is the bill provides one of the largest increases for Pell in the history of the program,’ said Cheryl Smith, staff director for the Subcommittee on Labor, Health and Human Services, Education and Related Agencies.

“The Association of American Universities also welcomed the outcome. ‘This legislation provides greater college opportunity for millions of needy college students, whose participation in higher education is an essential ingredient of American competitiveness,’ the association’s president, Robert M. Berdahl, said in a statement Thursday.”

The student loan advisors at NextStudent are helpful and knowledgeable about student loans. They are a trusted source in getting you the appropriate information about your student loan consolidation, student loan options and helping students get the college financing they need. Go to www.nextstudent.com for more information.

Be sure to tune in next Thursday for my next blog on student loan advice.

Student Loan Girl

Share this post: email this | del.icio.us | reddit

New Student Loan Legislation

Student Loan Girl — Fri, 27 Apr 2007 19:28:00 GMT

Student loans are the hot topic lately in the 110th Congress. It seems as if a day does not go by that there is not a new development. Barry Stevens created the following list that appeared in the April 26, 2007 issue of the National Council of Higher Education Loan Programs Inc.’s Daily Briefing:

“H.R.1608

Title: College Aid Made EZ Act. To expand college opportunities by significantly simplifying the Federal student aid application process.

Sponsor: Rep Miller, George [CA-7] (introduced 3/20/2007) Cosponsors (30)

Latest Major Action: 3/20/2007 Referred to House committee. Status: Referred to the House Committee on Education and Labor.

H.R.1718

Title: Foreign Language Education Expansion Act. To provide additional student loan forgiveness to teachers of foreign languages.

Sponsor: Rep Moore, Dennis [KS-3] (introduced 3/27/2007) Cosponsors (9)

Latest Major Action: 3/27/2007 Referred to House committee. Status: Referred to the House Committee on Education and Labor.

H.R.1758

To amend the Immigration and Nationality Act to provide status in each of fiscal years 2008 through 2012 for 65,000 H-1B nonimmigrants who have a master’s or Ph.D. degree and meet the requirements for such status and whose employers make scholarship payments to institutions of higher education for undergraduate and postgraduate education.

Sponsor: Rep Wu, David [OR-1] (introduced 3/29/2007) Cosponsors (2)

Latest Major Action: 3/29/2007 Referred to House committee. Status: Referred to the House Committee on the Judiciary.

H.R.1779

To amend the Higher Education Act of 1965 to extend loan forgiveness for certain loans to Head Start teachers.

Sponsor: Rep DeLauro, Rosa L. [CT-3] (introduced 3/29/2007) Cosponsors (11)

Latest Major Action: 3/29/2007 Referred to House committee. Status: Referred to the House Committee on Education and Labor.

H.R.1877

Title: LIBRARIAN Act. To authorize the cancellation of Perkins Loans for students who perform public service as librarians in low-income schools and public libraries.

Sponsor: Rep Becerra, Xavier [CA-31] (introduced 4/17/2007) Cosponsors (3)

Latest Major Action: 4/17/2007 Referred to House committee. Status: Referred to the House Committee on Education and Labor.

H.R.1994

Title: Financial Aid Accountability and Transparency Act of 2007. A bill to provide more transparency in the financial aid process and to ensure that students are receiving the best information about financial aid opportunities; to the Committee on Education and Labor, and in addition to the Committee on Financial Services, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.

Sponsor: Mr. McKEON (for himself and Mr. Keller). Introduced 4/23/2007.

H.R.2023

A bill to establish a student loan forgiveness program for members of the Sudanese Diaspora to enable them to return to southern Sudan and contribute to the reconstruction effort of southern Sudan; to the Committee on Education and Labor.

Sponsor: Mr. TANCREDO (for himself, Mr. Holt, Mr. Bishop of Georgia, and Mr. Wolf). Introduced 4/24/2007.

S.938

Title: Accessing College through Comprehensive Early Outreach and State Partnerships Act. A bill to amend the Higher Education Act of 1965 to expand college access and increase college persistence, and for other purposes.

Sponsor: Sen Reed, Jack [RI] (introduced 3/20/2007) Cosponsors (5)

Latest Major Action: 3/20/2007 Referred to Senate committee. Status: Read twice and referred to the Committee on Health, Education, Labor, and Pensions.

S.939

Title: Financial Aid Form Simplification and Access Act. A bill to amend the Higher Education Act of 1965 to simplify and improve the process of applying for student assistance, and for other purposes.

Sponsor: Sen Reed, Jack [RI] (introduced 3/20/2007) Cosponsors (4)

Latest Major Action: 3/20/2007 Referred to Senate committee. Status: Read twice and referred to the Committee on Health, Education, Labor, and Pensions.

S.1047

Title: Generating Opportunity by Forgiving Educational Debt for Service Act of 2007. A bill to amend the Internal Revenue Code of 1986 to exclude from gross income amounts paid on behalf of Federal employees and members of the Armed Forces on active duty under Federal student loan repayment programs.

Sponsor: Sen Voinovich, George V. [OH] (introduced 3/29/2007) Cosponsors (2)

Latest Major Action: 3/29/2007 Referred to Senate committee. Status: Read twice and referred to the Committee on Finance.

S.1066

Title: Medical Education Affordability Act. A bill to require the Secretary of Education to revise regulations regarding student loan repayment deferment with respect to borrowers who are in postgraduate medical or dental internship, residency, or fellowship programs.

Sponsor: Sen Dodd, Christopher J. [CT] (introduced 3/29/2007) Cosponsors (3)

Latest Major Action: 3/29/2007 Referred to Senate committee. Status: Read twice and referred to the Committee on Health, Education, Labor, and Pensions.

S.1121

Title: LIBRARIAN Act. A bill to authorize the cancellation of Perkins Loans for students who perform public service as librarians in low-income schools and public libraries.

Sponsor: Sen Reed, Jack [RI] (introduced 4/17/2007) Cosponsors (1)

Latest Major Action: 4/17/2007 Referred to Senate committee. Status: Read twice and referred to the Committee on Health, Education, Labor, and Pensions.

S.1167

Title: Civil Legal Assistance Attorney Loan Repayment Act. A bill to amend the Higher Education Act of 1965 in order to provide funding for student loan repayment for civil legal assistance attorneys.

Sponsor: Sen Harkin, Tom [IA] (introduced 4/19/2007) Cosponsors (None)

Latest Major Action: 4/19/2007 Referred to Senate committee. Status: Read twice and referred to the Committee on Health, Education, Labor, and Pensions.

S.1178

Title: Identity Theft Prevention Act of 2007. A bill to strengthen data protection and safeguards, require data breach notification, and further prevent identity theft; to the Committee on Commerce, Science, and Transportation.

Sponsor: Mr. INOUYE (for himself, Mr. Stevens, Mr. Pryor, and Mr. Smith). Introduced 4/20/2007.”

Be sure to tune in next Thursday for my next blog on student loan advice.

Student Loan Girl

Share this post: email this | del.icio.us | reddit

Update Status on Student Loan Legislation

Student Loan Girl — Fri, 23 Mar 2007 14:09:00 GMT

Over the past couple of months, the U.S. Congress has been chock-full of impending student loan legislation. Just in case you have been confused, below is a summery of bills that have been introduced into the 110th Congress that originally appeared in a March 20, 2007 article briefing by Barry Stevens titled “Legislative Developments” that appeared in the National Council of Higher Education Loan Programs Inc.’s Daily Briefing.

“The measures are listed in numerical order, with House bills listed first and Senate bills thereafter. The descriptions of the bills are taken from summaries prepared by the Congressional Record Service, where available, and from the Congressional Record otherwise. Both are accessible on the government’s Thomas web site, http://thomas.loc.gov/. A cumulative list of bills introduced in the current Congressional session is posted to NCHELP e-Library at the end of the introduction at http://www.nchelp.org/elibrary/index.cfm?parent=1791.

H.R.1372

Title: RENEWAAL Act of 2007. To provide grants to recruit new teachers, principals, and other school leaders to, and retain and support current and returning teachers, principals, and other school leaders employed in, public elementary and public secondary schools, and to help higher education, in areas impacted by Hurricane Katrina or Hurricane Rita, and for other purposes. Sec. 202 authorizes loan forgiveness for certain teachers.

Sponsor: Rep Miller, George [CA-7] (introduced 3/7/2007) Cosponsors (15)

Latest Major Action: 3/7/2007 Referred to House committee. Status: Referred to the House Committee on Education and Labor.

H.R.1394

Title: Helping Our Students Communicate Act of 2007. To expand the teacher loan forgiveness provisions of the Higher Education Act of 1965 to include speech-language pathologists.

Sponsor: Rep Wilson, Joe [SC-2] (introduced 3/7/2007) Cosponsors (1)

Latest Major Action: 3/7/2007 Referred to House committee. Status: Referred to the House Committee on Education and Labor.

H.R.1407

Title: Higher Education Affordability and Equity Act of 2007. To amend the Internal Revenue Code of 1986 to expand incentives for education.

Sponsor: Rep English, Phil [PA-3] (introduced 3/8/2007) Cosponsors (4)

Latest Major Action: 3/8/2007 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

H.R.1437

Amends the Internal Revenue Code to: (1) make permanent the tax deduction for qualified tuition and related expenses; (2) increase the maximum amount of such deduction to $5,000 and repeal provisions requiring a phaseout of the deduction based on adjusted gross income; and (3) allow grandparents to claim a deduction for the tuition and related expenses of their grandchildren.

Sponsor: Rep Burton, Dan [IN-5] (introduced 3/9/2007) Cosponsors (None)

Latest Major Action: 3/9/2007 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

H.R.1522

Title: One-stop Student Financial Aid Information Act of 2007. To promote the availability and use of the Federal student financial aid website of the Department of Education.

Sponsor: Rep Keller, Ric [FL-8] (introduced 3/14/2007) Cosponsors (1)

Latest Major Action: 3/14/2007 Referred to House committee. Status: Referred to the House Committee on Education and Labor.

H.R.1556

Title: Married Student Debt Relief Act of 2007. To amend the Internal Revenue Code of 1986 to eliminate the marriage penalty on the deduction for interest on student loans.

Sponsor: Rep Terry, Lee [NE-2] (introduced 3/15/2007) Cosponsors (25)

Latest Major Action: 3/15/2007 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

S.565

Title: Next Generation Hispanic-Serving Institutions Act. Amends the Higher Education Act of 1965 to revise requirements for Hispanic-serving institutions (HSIs) under title V (Developing Institutions). Establishes a program of competitive grants to eligible HSIs that offer postbaccalaureate certifications or degrees (part B grants). Limits a part B grant award's duration to not more than five years. Prohibits the Secretary of Education from awarding more than one part B grant to an HSI in any one fiscal year.

Authorizes appropriations for: (1) the current part A program of grants to HSIs that offer baccalaureate degrees or are junior or community colleges; and (2) the new part B program of grants to HSIs that offer postbaccalaureate certifications or degrees.

Sponsor: Sen Bingaman, Jeff [NM] (introduced 2/13/2007) Cosponsors (8)

Latest Major Action: 2/13/2007 Referred to Senate committee. Status: Read twice and referred to the Committee on Health, Education, Labor, and Pensions.

S.572

Title: Student Aid Reward Act of 2007. Amends title IV (Student Assistance) of the Higher Education Act of 1965 to direct the Secretary of Education to carry out a Student Aid Reward (SAR) Program of payments to encourage institutions of higher education (IHEs) to participate in the student loan program under title IV that is most cost-effective for taxpayers.

Requires that a SAR payment to an IHE equal at least 50% of the savings to the federal government generated by the IHE's participation in the most cost-effective student loan program, rather than one not cost-effective for taxpayers.

Requires IHEs receiving SAR payments to: (1) provide student loans under that most cost-effective program for five years after the payment date; and (2) use payment funds, where appropriate, to supplement student Pell Grants. Allows such funds to be used also to award need-based grants to lower and middle income graduate students.

Sponsor: Sen Kennedy, Edward M. [MA] (introduced 2/13/2007) Cosponsors (3)

Related Bills: H.R.1010

Latest Major Action: 2/13/2007 Referred to Senate committee. Status: Read twice and referred to the Committee on Health, Education, Labor, and Pensions.

S.707

Title: Pell Grant Equity Act of 2007. Amends the Higher Education Act of 1965 to make the formula for calculation of an individual Pell Grant which includes, in part, the sum of the student's tuition, inapplicable for the 2007-2008 academic year. (Thus suspends for such year the "tuition sensitivity provision" which prohibits maximum Pell Grant awards to students attending low-tuition institutions of higher education even

if their income is low enough to otherwise qualify for the maximum award.)

Amends the Federal Family Education Loan program to lower from 23% to 22% for FY2008 the percentage of a borrower's student loan payment made subsequent to default that a guaranty agency may retain for deposit in its operating fund if the Secretary of Education has already reimbursed it for such default.

Sponsor: Sen Boxer, Barbara [CA] (introduced 2/28/2007) Cosponsors (1) Related Bills: H.R.990

Latest Major Action: 2/28/2007 Referred to Senate committee. Status: Read twice and referred to the Committee on Health, Education, Labor, and Pensions.

S.851

Title: Higher Education Opportunity Act of 2007. A bill to amend the Internal Revenue Code of 1986 to provide a higher education opportunity credit in place of existing education tax incentives.

Sponsor: Sen Schumer, Charles E. [NY] (introduced 3/13/2007) Cosponsors (8)

Latest Major Action: 3/13/2007 Referred to Senate committee. Status: Read twice and referred to the Committee on Finance.

S.883

A bill to amend the Higher Education Act of 1965 to extend loan forgiveness for certain loans to Head Start teachers.

Sponsor: Sen Feinstein, Dianne [CA] (introduced 3/14/2007) Cosponsors (1)

Latest Major Action: 3/14/2007 Referred to Senate committee. Status: Read twice and referred to the Committee on Health, Education, Labor, and Pensions.

S.899

A bill to amend section 401(b)(2) of the Higher Education Act of 1965 regarding the Federal Pell Grant maximum amount; to the Committee on Health, Education, Labor, and Pensions.

Sponsor: Mr. DODD (for himself, Ms. MIKULSKI, Mrs. MURRAY, Mr. SANDERS, Mr. DURBIN, Mr. LIEBERMAN, Ms. CANTWELL, Mr. AKAKA, and Mr. LEVIN). Introduced 3/15/2007.”

It is important to keep up to date on the effects of the U.S. Department of Education 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.

Student Loan Girl

Share this post: email this | del.icio.us | reddit