Washington
The student-loan industry, facing a critical vote in Congress next week, suffered a setback today, when a long-awaited cost analysis showed that legislation to end the guaranteed-loan program would save more money than would a counterproposal pushed by the industry.
The analysis, which was released by the Congressional Budget Office just days before the U.S. House of Representatives is scheduled to vote on the Democratic bill (HR 3221), found that both proposals would would save taxpayers roughly $87-billion in mandatory, or direct, costs. However, the industry alternative, which would allow lenders to continue to originate and service loans, would cost the government $13-billion in lender fees, reducing the net savings to roughly $74-billion.
Once the costs of administering the loans were taken into account by the budget office, known as the CBO, the Democratic bill would save about $80-billion while the industry counterproposal would save about $67-billion.
Lenders, which had been optimistic that their plan would save as much money as the Democratic bill, tried to put a positive spin on the numbers, noting that their alternative had "scored" the same as the Democratic plan when lender fees were counted on the discretionary side of the ledger (meaning they would be subject to annual appropriations).
"This CBO score confirms that mandatory savings of $87-billion are achievable" through either the industry's proposal or the bill under consideration in the House, said Martha Holler, a spokeswoman for Sallie Mae, which is the largest financer of student loans. She said lenders would "continue to work with the [Obama] administration and Congress to create the best program for students, families, schools, and taxpayers."
Still, the CBO analysis makes clear that the true savings of the counterproposal would be $13-billion less than the Democratic plan.
Comments
1. panacea - September 13, 2009 at 05:46 pm
Good. It's about time Congress did something about the student loan sharks.
2. atana09 - September 14, 2009 at 09:26 am
Incredible given the 9.5 scandals and the sundry other lootings of the public coffers that these corporations would have the audacity to state that their proposals would actually save money. Especially considering the proposal to allowing them in to service the proposed new loan programs would be little more than the same shell game with a different hat. It seems when selling their very profitable (for them) corporate snake oil they maintain a combination of braggadacio and deceit which would make Baron Munchauson or William Tweed seem the very examples of veracity and modesty.
Time to put these corporations on a leash, and put them well away from anyplace they can do more harm to the public. It may be too late for the generation already fed into their rapacious maw, but it is not too late to ensure another generation doesn't become a never ending feast for these entities.
3. saasaa - September 14, 2009 at 09:28 am
But, can the Government provide the customer service that we, in the financial aid offices, have come to depend on from the lenders? In a small office we do not have time to do daily research to keep up on all the regulations and all of the BS that congress throws at us. That is one of the things I rely on my lenders to provide reminders. The lender reps also provide sounding boards for problem solving, they can do research for us...at no cost and in a timely manner. I appreciate it. Where do you, panacea, get off calling them sharks?
4. atana09 - September 14, 2009 at 11:23 am
saasaa-The problem is that the services provided to financial aid offices by the lenders inherently have a agenda behind them. For example at many schools one of the implied agreements when these services are provided, is that the on campus marketing presence for a particular lender is greatly enhanced. Now within the venue of that court, and the NYS state AG this type of thing has been somewhat constrained. But outside that venue its very much a continuing problem. And students are often left with the belief that these corporations, the school are one and the same or even that these companies are governmental rather than private profit based lenders.
As far as the BS factor, the contractual agreements for corporate and subsidized corporate loans are not exactly clear and concise. Students often don't understand what they have signed, parents don't comprehend, and that is what is intended. If a common loan had the provisios attendent to corporate student loans, no one but the incredibly and blindly desperate, stupid or dead would ever borrow money. But given the cutbacks in non loan aid, rising tuitions it is arguable the average student and family are desperate. A captive audience for a form of profit based BS which many of the current generation will never escape.
The mere fact they have been permitted to establish a lending system which would be the envy of a mine town company store or a corner loanshark entails having their own venue of BS. Panacea's calling these esteemed businessmen 'sharks' may not be too far off the mark. Enlightened commentators such as Dr. Warren have indicated much the same concern.
And why are lenders doing research, providing reminders, at no cost? There has to be a catch, and no doubt some reward is expected. Additionally by these companies doing research, and reminding it would seem the independence of those FA offices reliant on these services has been co-opted. Which would cause the question to arise, who is serving who, and who is getting served up?
5. illinois - September 14, 2009 at 03:07 pm
My college freshman daughter just received an advertisement from Sallie Mae offering a new loan that will "save students money." (quotation marks mine) How? Students are required to make payments on the loan's interest while they are still in school but don't make any payments on principle plus interest until they graduate, thus ensuring that Sallie Mae gets the full amount of interest money and preventing the graduates from saving money on interest by paying extra on the principle after graduation. And the fine print on the back of the ad: Sallie Mae reserves the right to make changes to the loan at any time for any reason. Student loans are now becoming credit cards??
saasaa, I hope the financial aid counselors at my daughter's school are not as dependent upon these lenders as you and your colleagues seem to be. Lenders are sharks. Student loans are the only type of loans that are exempt from consumer protection laws. Why do you think that is?
6. capewino - September 15, 2009 at 12:55 pm
Atana: Despite your obvious attempts to portray yourself as an informed intellectual, your lack of understanding of the basic facts betrays you once again.
"The contractual agreements for corporate and subsidized corporate loans are not exactly clear and concise"??? By "contractual agreements", are you referring to the Master Promissory Notes for federal student loans designed by the U.S. Department of Education (ED)which all lending entities, whether they be private lenders or ED itself, are required by federal regulation to use? The "Borrower Rights and Responsibilities", written in plain English, are the same for Direct Lending as they are for FFELP. If you can't read and understand them, then you shouldn't be going to college in the first place.
By "subsidized corporate loans", you must be referring to the hundreds of millions of dollars in actual negative subsidies that private lenders have paid to ED over the past few years? Yes, Atana, private lenders have not received government subsidies in several years. It is the federal government, not private lenders, that is earning a spread on federal student loans that is more than twice their cost of funds. So, who is actually profiting from federal student loans and perhaps gouging the students? Hmmmm....why don't you look into that more closely?
Too many people seem to forget that ED ran the entire student loan program up until the 70's, and they did such a horrendous job (mismanagement, high default rates, low recoveries, etc.) that it caused its own scandal and cost the taxpayers untold amounts. The legislature then created the lender-based and program and essentially begged for banks to take it over. At the time, federal guarantees and subsidies were offereds to lenders to entice them to participate in the program. Why else would a bank (or any financing company) make a below market-rate, non-collateralized, negatively amortizing loan to an 18-year old kid who wasn't working?
Next time before you spout off, Alana, why don't you bone up on the facts and your understanding of economics? Perhaps you don't want to let the facts get in the way of your constant whining about the student loan system and big, bad lenders.
"Illinois": while not defending Sallie Mae, the requirement to pay interest while your daughter is in school will actually save her (and/or you) a considerable amount in overall costs. Otherwise, the interest would be capitalized when she goes into repayment and you'd be paying interest on the new, higher principal amount. And, you could always pre-pay or agree to pay both interest and principal while in school without penalty. Your comment about "ensuring Sallie Mae gets the full amount of interest money and preventing the graduates from saving money on interest by paying extra on the principle after graduation" makes absolutely no sense.
Simple, if you don't understand the loan or trust the lender, don't submit an application. It's your choice, as it always has been.
BTW, it's "principal" not "principle". And, non-federal "private" student loans are in fact covered by consumer lending laws.
7. atana09 - September 16, 2009 at 09:37 am
Capewino- as noted in any number of reputable research sources including Collinge's recent book, and Dr. Warren's writings most of the meaningful consumer protections have indeed been stripped from student loans. Including the essential protection of bankruptcy, which is now only available in such extraodinary circumstances as to be a dead letter. Personal loans are indeed covered by consumer lending laws, but the sub loans have had most of those protections stripped.
This is very interesting since these companies have those rights in place for themselves, or have the ability to grab 'liquidity' funds from the goverment literally upon ringing up the right congresspersons phone.
Concerning the documents students don't understand, there are several including the initial promissary note, but these also include the problems of the ability these companies possess to unilaterally change the terms. Problems such as Illinois noted are fairly common.
Corporate loans?, Nelnet, Sallie Mae and the rest of that august company are corporations.
Concerning the old saw the USDOE was not effectively administering loan programs back in the 70's, they were and that program was more equitable for students and families. The stories about doctors walking away from loans and etc were implanted disinformation used to move the system to the model which we are inflicted with today. Basically it was a more effective variant of the 'welfare mom' lie so common in that era.
About typos and etc, well esteemed capewino you made several in your posting. However unlike others posting here I'll constrain myself from using that as a basis for personal insult.
And all these heated dispute does not change the basic element to M. Kelly's article that the cost of corporate loans would be more than alternative plans. And that includes the 13 billion estimated in lender fees, which gasp!, is a form of subsidy.