Student Loan Blog : student loan providers

The Plot Thickens for the Future of Student Lending

Student Loan Girl — Tue, 14 Apr 2009 00:00:00 GMT

It’s “all hands on deck” for federal student loan lenders. The banks and third-party student loan providers that make up the Federal Family Education Loan Program have made it abundantly clear that they’re not going to roll over and accept the terms of the Obama administration’s proposal to axe their loan program in favor of the Education Department’s Direct Loan Program without a fight, The New York Times reports (“Plan to Change Student Lending Sets Up a Fight,” April 12, 2009)

“We can either meet or beat the budget savings that are in the president’s budget with the exact same system that we have got working now with maybe a few tweaks,” said Albert Lord, chief executive of Sallie Mae, the largest student loan provider participating in the FFEL program.

According to Congressional Budget Office calculations, establishing the Direct Loan Program as the sole provider of federal student loans is projected to save the government $94 billion over the next 10 years, savings that President Obama has said would be funneled directly into the federal Pell Grant Program for low-income students.

Lender-Proposed Alternatives Come Up Short

Lord and other FFELP lenders who oppose the administration’s plan are pushing for a compromise between the Obama plan and the current system that would allow them to continue offering students valuable lending services — quality customer relations, billing, and default prevention and collection — and still achieve Obama’s goal of saving taxpayers money.

FFELP lenders say such dually-beneficial partnerships are possible, which can be evidenced by a compromise that Congress approved last year that allows FFELP lenders to originate student loans using federal money and to resell the loans back to the government. FFELP lenders, which provide more than $56 billion of the nation’s federal student loans, were able to continue making loans to families and the government was able to ensure that families still had access to federal student loans.

But the savings Sallie Mae projects under its compromise plan still only add up to about 82 percent of the president’s savings goal over the next five years.

Supporters of the president’s plan say that this savings shortfall, as well as the fact that FFELP lenders are still relying on the government’s help to retain lending capital, raises the question, “why do we even need private lenders,” asked Representative Timothy Bishop, D–N.Y., a former provost of Southampton College.

Bishop argues that expanding the Direct Loan Program, which provides federal student loan funds directly to more than 1,500 schools is “obvious and long overdue,” being that over the last few decades private lenders have earned huge profits at relatively no risk because the government guarantees repayment up to 97 percent.

Factional In-Fighting Could Favor Lenders

In addition to battling lenders, lawmakers are also fighting an internal battle. Republicans say Obama’s plan is just another means to expand government control over the private sector, while Democrats are divided, with some legislators favoring the plan while others, who represent districts that rely heavily on student loan providers for employment, are siding with private lenders.

Allen Boyd, D–Fla., argues that the president’s proposal could jeopardize thousands of jobs across the country, including 650 in his own district, at a time when unemployment is already rampant. And the states that administer loans through state-based guarantee agencies, considered quasi-government entities that benefit the same as private lenders, are fighting to retain their lending business.

To help keep these quasi-government agencies afloat if they lose their FFELP business, the Obama administration has proposed spending $500 million a year on these agencies’ financial literacy programs and services.

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

All Dried Up: Student Loan Provider Files for Bankruptcy

Student Loan Girl — Thu, 18 Dec 2008 22:11:00 GMT

Education Finance Partners, a San Francisco-based student loan company, has filed for Chapter 7 bankruptcy protection, saying it has less than $1 million in assets and between $10 million and $50 million in liabilities (“Student Loan Company Files for Bankruptcy in Austin,” The Austin American-Statesman, Dec. 18, 2008).

According to the bankruptcy filing, the student loan company owed the New York attorney general’s office $2.5 million, an amount Education Finance Partners had agreed to pay in order to resolve an investigation that accused the lender of offering more than 60 schools monetary compensation in return for placing the lender on preferred lender lists.

Education Finance Partners also owed $1.2 million to the Brazos Higher Education Service Corp., a nonprofit student loan services provider, for pending arbitration in a lawsuit filed in California as well as $750,000 to both Morgan Stanley and NBF International Holdings Inc.

The ailing student loan lender has been crippled by the credit crisis for months. Unable to secure new financing, the lender was forced to shut down its main office in San Francisco as well as a second office in Austin, Texas in September, a month after it announced that it would stop making student loans and that it would have to lay off 113 employees.

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

Justice Department Should Weigh In On Student-Loan Loophole Scandal, Senator Says

Student Loan Girl — Wed, 08 Oct 2008 23:57:00 GMT

Rep. Thomas Petri, R-Wis., wrote to Secretary of Education Margaret Spellings this week asking whether she plans to involve the Justice Department in the investigation of a federal subsidy loophole that benefited nonprofit student loan providers and may have cost the federal government nearly $1.2 billion (“Republican Lawmaker Presses Spellings on Loan-Loophole Losses,” The Chronicle of Higher Education, Oct. 3, 2008).

“In order to restore integrity to the guaranteed-loan program,” Petri wrote, “it is vital that we understand where abuse has occurred.”

The audit of 14 student loan companies, published last month, found that a loophole in a government subsidy program, which guaranteed a 9.5-percent return on nonprofit lenders’ student loans, may have inadvertently allowed lenders to collect nearly three times the amount of subsidies they would have otherwise been entitled to.

If the actions of these lenders are representative of all student loan companies that participated in the subsidy program, writes Paul Basken of The Chronicle, “it would mean the government lost nearly $1.2 billion in improper payments over a six-year period, or about twice the previous estimates.”

Lenders Allowed to Keep Subsidies, Continue Using Program

The government subsidy program — initiated almost 30 years ago to encourage lenders to offer affordable student loans at a time when interest rates were high — gave nonprofit student loan lenders a guaranteed 9.5 percent rate-of-return on student loans they issued.

In 1993, after interest rates had dropped, Congress eliminated the 9.5-percent interest rate guarantee but grandfathered in all loans that lenders issued at the 9.5 interest rate before the cutoff date. To get around the cutoff, some lenders began “recycling” new loan money through old accounts to make them eligible again for the expired 9.5-percent subsidy rate (“Government Losses on 9.5 Percent Loan Loophole May Exceed $1 Billion,” The Chronicle of Higher Education, Sept. 18, 2008).

The audit’s findings come after Spellings, in January 2007, allowed lenders who had taken advantage of the loophole to keep the disputed subsidy payments they had already received. As part of her settlement offer, she also said that student loan providers who wanted to continue billing the government under the 9.5-percent rate program would have to provide independent audits proving their calculations were not based on the loophole.

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

College Steps in After Edamerica Falls Behind in Dispersing Student Loans

Student Loan Girl — Tue, 30 Sep 2008 16:03:00 GMT

A Milwaukee technical college is providing emergency student loans to some of its students after one of the college’s student loan providers announced it would not immediately have funds to issue the loans, reports the Milwaukee Journal Sentinel (“MATC Offers Emergency Loans After Edamerica Delays Payments,” Sept. 23, 2008).

To assist students, Milwaukee Area Technical College decided last week that it would tap into its general fund to provide more than $250,000 in emergency student loans to 108 of its students who had taken out their college loans with Edamerica, the eighth-largest student loan provider in the country.

Edamerica was on the suggested lender list at both MATC and the University of Wisconsin-Milwaukee but was removed from the lists when the schools learned Edamerica had also fallen behind in dispersing loans to students at other schools, including the University of Maryland-Baltimore County and the University of Southern Mississippi.

Some of the technical college’s affected students were also scheduled to receive loan refund checks — the remaining portion of a borrower’s student loan award after tuition costs have been met — ranging from $10 to $4,000.

Students who are eligible to receive the emergency tuition loans and the refund checks — largely used by students to pay for living expenses like housing, food, and transportation — are required to sign a new master promissory note with the school. These students will be expected to repay MATC for the loan if Edamerica does not reimburse the college.

An Edamerica executive who spoke to the Baltimore Sun in August blamed the credit crunch and the economy for the financial problems that have plagued Edamerica and other student loan providers in the federally guaranteed student loan program. According to FinAid.org, a total of 137 of these lenders have exited or suspended their participation in all or part of the Federal Family Education Loan Program, which is made up of private third-party student loan providers.

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

State Approves $50-Million Bridge Loan, Kentucky Students Will Finally See Their Student Loans

Student Loan Girl — Fri, 05 Sep 2008 00:26:00 GMT

Students attending colleges and universities in Kentucky, many of whom have already begun their fall semester, will soon receive their federal student loans now that the state has finalized its $50 million bridge-loan deal with the state’s nonprofit student loan provider, according to an article in the News-Democrat Leader (“Public, Non-Profit Student Loan Provider to Get Proper Funding,” Sept. 2, 2008).

Under the deal, which was approved last Friday, the state will buy a $50 million bond from Kentucky’s federal student loan agency, the Kentucky Higher Education Student Loan Corp., also known as The Student Loan People.

Kentucky Gov. Steve Beshear proposed the bridge-loan deal in August after the state loan agency announced it had run out of money to issue new student loans. The $50 million loan will provide the student loan lender with the short-term bridge financing it needs to participate in a Department of Education program designed to help struggling lenders.

With the bridge financing in place, The Student Loan People will be able to finish disbursing the remaining $35 million in federal student loans it has originated.

So far, Kentucky is the only state in the nation to buy a private bond from a student loan provider under the Education Department’s loan purchase program, which allows lenders holding federal student loans that they have already originated and dispersed to borrow money from the Education Department. The Student Loan People can use these borrowed funds to begin repaying the $50 million bridge loan from the state.

Edward Cunningham, CEO of The Student Loan People, has assured borrowers that his agency will work closely with the schools it lends to in order to minimize further disruptions in the student loan disbursement process.

“The process should be transparent for most students, Cunningham said, “and we expect our student loan processes will be back to normal by September.”

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

Nursing, Teaching, Law Enforcement, Professions Losing Student Loan Incentives

Student Loan Girl — Fri, 13 Jun 2008 17:30:00 GMT

College graduates preparing to enter critical fields like nursing and teaching may no longer be able to take advantage of programs that previously offered them a break on their student loans.

In at least six states this year, state-affiliated lenders have dropped or scaled back programs that repay or forgive a portion of a borrower’s federal student loans when that student-borrower works in a critical-needs field, according to an article in USA Today (“Credit Crisis Weakens Relief for States’ Student-Loan Programs,” June 11, 2008).

Lenders are also eliminating loan programs that reduce student-loan interest rates for students who major in specific subjects.

These state loan agencies blame a $21-billion cut in government subsidies to lenders who participate in the federal student loan program and the ensuing fallout from the subprime mortgage crisis for making cuts to these incentive programs necessary.

More programs “are certainly at risk should the credit crisis continue,” says Krista Cole of the Education Finance Council, which represents student loan providers in 31 states.

Next month, Mike Reiber of the Pennsylvania Higher Education Assistance Agency, says the agency will stop funding programs for nurses, teachers, child care workers, and members of the military because the “money has literally dried up.”

Student Loan Benefits Being Reduced, Eliminated Nationwide

Other state student loan providers are already reducing or are trimming their borrower benefits for students in critical-needs fields:

The Missouri Higher Education Loan Authority will stop offering reduced student-loan interest rates for teachers, social workers, nurses, law enforcement personnel, firefighters, and National Guard members, beginning July 1.

The Iowa Student Loan Liquidity Corp. plans to cut student loan benefits for new teacher applicants this year.

The Michigan Higher Education Student Loan Authority eliminated a no-interest student loan plan in May for undergraduates majoring in engineering.

The New Hampshire Higher Education Loan Corp. suspended a benefit program in February that forgives some student loans for teachers.

The Kentucky Higher Education Assistance Authority suspended loan forgiveness programs for teachers, nurses, and lawyers in January and plans to reduce loan benefits for current borrowers.

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