March 18, 2008

Lawmakers Ask Federal Reserve to Rescue Student-Loan Companies Next

Washington — As the nation’s financial woes deepen, members of Congress are asking the Federal Reserve to intervene in the student-loan market.

In a letter sent on Monday, Rep. Paul E. Kanjorski, a Democrat of Pennsylvania, and 31 other lawmakers urged the Federal Reserve chairman, Ben S. Bernanke, to use his emergency authority to inject cash into the student-loan market.

The request came a day after the central bank played a key role in coming up with a rescue plan for the troubled investment firm of Bear Stearns & Company, and amid continuing disruptions in the market for asset-backed securities. Those disruptions have made it harder for some lenders to obtain financing for their loans, and have forced some of the nation’s largest lenders to either scale back or end their participation in the federally guaranteed student-loan program.

So far, the lender departures do not appear to have made federal loans less available to students. But despite assurances from the Education Department, some fear that students could have difficulty obtaining loans this fall if conditions worsen and more lenders withdraw from the program.

In the letter, the lawmakers urged Mr. Bernanke to help restore stability to the student-loan market to ensure continued access to student loans.

In February, Mr. Kanjorski and several other lawmakers sent a letter to the Treasury and Education Departments, asking them to work with institutions such as the Federal Financing Bank, the Federal Home Loan Bank System, and the Federal Reserve System to bolster the student-loan system. —Kelly Field

Comments

1. How about reducing student loan interest rates? Increased access to Grants and Scholarships? How about creating loan forgiveness incentives to encourage students to seek employment in certain industries. Better yet. Instead of issuing rebate checks, why not forgive up to $1,200 in student loan debt per person. Americans are in serious debt and assistance in that arena is very helpful.

   — Frank    Mar 19, 07:39 AM    #

2. Why not do student loan reduction instead of rebates? While I wasn’t a fan of the rebate to start with…you think like a typical college academic and forget that there is still a vast majority of citizens who do not attend college. Your plan does more of the same—reward the haves and forget the rest.

   — CS    Mar 19, 08:21 AM    #

3. Rescue student loan companies? I fail to understand why we would want to spend money on an industry grounded in the exploitation of students. We should determine ways to help students that do not end up putting incredible amounts of money into the pockets of loan companies. My own example – I have paid over 60,000 dollars to a student loan company over the past ten years and my principle has gone down only 2500 dollars. These people need a bail-out? Please . . .

   — Charles William Miller    Mar 19, 09:27 AM    #

4. All three comments are right on. Businesses are getting rich on the backs of students causing students to mortgaging their futures. It’s a crisis brewing right below the sub prime mortgage debacle. Start by cutting interest rates for student loans.

   — Mary Ann    Mar 19, 09:47 AM    #

5. This over reaction comes about when the media helps fan the flames by not distinguishing between those lenders who’ve chosen to exit for their own reasons (decreased profits?) within the ffel program and the alternative /private student loan companies who provide high interest loans to a student population desperate for any funds to attend the school of their choice or any school for that matter. The ffelp loan limits are woefully inadequate. Rather than make changes to the limits or create a federal loan program to fill the gap or (gasp!) fund students with aid that will allow them to become tax-paying citizens themselves congress once again choses corporations over individuals. There is much more to this than meets the eye but what we will see this summer and fall is a drying up of the private student loan credit availability for the all kinds of students attending all kinds of schools. This is indicative of a much larger problem congress refuses to address. This is an easy bailout by congress and an expensive lesson for the rest of us.

   — md    Mar 19, 09:55 AM    #

6. if some one needs to borrower 60k to go to school, then we need to look at the problem, what is causing them to borrow 60k in loans…. high price tuition….also most student do not want to work, so they BORROW to pay rent, food, gas, and so on….If a student, went to a local state school, stayed at home, they would not need 60k to go to school… Borrowing money is a privelage not a right….I worked hard in High School, got a full tuition waiver, and I worked 40 hrs a week to pay for living expensives, and save… College is a privelage, not a right…. A person should either work hard to pay for it, or only borrower the stafford loan (6.8%) to pay for state school….. Don’t blame a lender if you want to attend a expensive school, and want to borrow for living expenses…people know the terms of borrowing before the sign up…. people are glad to get the money, but hate paying it back…. maybe high schools should explain to a 17 year old that borrowing 60k, regardless of the rate, is a bad idea, and they should go to a community college for 2 years, and then a university.

   — mikey    Mar 19, 10:19 AM    #

7. I say lets close down all Private lending companies and only have the government with a 9 trillion dollar deficit and an empty social security fund, finance all students in America to go to school. To add on to that, lets close FedEx and UPS and only have the US Post Office to take care all mail, shame on those companies charging us more for excellent service at the expense of poor citizens.

   — steli    Mar 19, 11:05 AM    #

8. Steli, I agree…. At the same time, lets close down all private colleges…. lets only have a few state schools….then there will be less students to spread out federal aid to….also, there would be no need for other lenders if 95% of schools closed down.

   — mikey    Mar 19, 11:10 AM    #

9. The student loan crisis is based on the credit crunch, if lenders where making so much money on student loans, then why would the government have to entice the lenders to participate by subsidizing the lenders spread to begin with. The government doesn’t subsidize lenders for car loans, mortgages, etc. I agree with Mikey, borrow only what is necessary to get an education, not to subsidize the college students lifestyle…

   — tja    Mar 19, 11:22 AM    #

10. Nicely put Mikey! There is a lot of truth to that statement. I have worked both for a school financial aid office and for a lender, and what I am seeing congress do is absolutely insane. They call it the “cost reduction act” but it is not aimed at reducing college costs. Colleges will still be the same price as before, and will still jump 7-10% every year in tuition increases. And for the ignorant victims of the first few comments, good lenders can actually save you money over the long run. Here in my state the lender and servicer pay the two fees that congress mandates meaning students don’t pay those fees. Borrower benefits are also good meaning students don’t pay the full 6.8% interest rate. If and when the government takes over using Direct Lending, expect to pay more for a student loan. Lenders are the ones being punished by congress, and that punishment is and will be passed on to students. Thank a congressman for the reason you are paying more for your student loan, and for the fact that more students will now be forced to look into private loans because tuition costs are growing yet federal loan amounts remain stagnant. As per comment #3, YOU chose to go to an overly expensive school, YOU CHOSE to get a $60,000 loan, and now you are seeing the consequense of your CHOICES. Don’t blame the lender. YOU signed the paperwork. Suck it up and deal with YOUR bad choices and hope others learn from your mistakes. As per #5, congress didn’t choose coorporations over individuals, they chose to make an attempt to make themselves look like they were actually doing something. They failed the country and more importantly, they failed students!

    — almost a graduate    Mar 19, 12:11 PM    #

11. It is amazing to me to see so many people blame lenders for the high cost of a college education. Interest rates on student loans have always been lower than any other type of loan or credit card. Why do so many people fail to realize the amount of money generated by schools themselves. The amount of debt and the cost are directly related to the “prices” charged by the schools and the amount or lack thereof of financial aid available. Student loans are not the problem. They are available as part of the mix when students make choices about which school to attend. At some point more students have to start choosing schools that provide a quality education at a lower cost and stop blaming lenders for providing the lowest cost financing available anywhere.

    — sc    Mar 19, 12:37 PM    #

12. As a response to tja (comment #9,) the reason that the government issued subsidies to lenders is because these are federal loans and they still have a certain amount of risk of default. Don’t forget that the government doesn’t subsidize the entire amount of the loan but a small portion, and if the student defaults the lender takes a hit on it. You made the point that the government doesn’t subsidize car loans or mortgages and I am trying to make the connection here!! You see, once you default on the car or mortgage the bank will reposses the secured article to recover the loss, but once a student defaults on his/her loan the lender eats the loss because they haven’t found a way yet to reposses someone’s education!!

    — steli    Mar 19, 01:28 PM    #

13. Let me get this straight: Mikey is a COLLEGE GRADUATE? Forget what it cost and what Mikey paid; that writing is the product of a college education? I shudder.

    It amazes me how many people EXPECT to receive a college education; practically DEMAND such; yet have never made the first plans to pay for it. For those who are not socio-economically capable of paying for college, there need to be better options than currently exist. (Universal K-16?) For those who COULD HAVE planned, but chose not to, your complaint is…what, exactly? That you borrowed for what you viewed as being almost a birthright?

    Bank-based student lending, like higher education itself, is a business, and businesses have to make money to survive. We’re seeing who the surviving lenders are now that the easy money is drying up. Will the same be true when certain schools can’t steer their students to readily-available loans? Only time will tell.

    — Saddened and amazed    Mar 19, 01:30 PM    #

14. — Saddened and amazed, I did not realize we were writing a term paper.

    — mikey    Mar 19, 05:27 PM    #

15. “In 20 Years the Average Private School Tuition will be just under $75,000
    The Average Public School Tuition will be just under $25,000.” “Over the past 10 years the average private school tuition has increased at a mean of 5.8% while the public colleges have increased more rapidly at a mean of 6.9%. Taking these averages and applying them to future years can give us a rough estimate of what a year of college may cost down the road.”

    http://www.thinkfinancial.com/blog/student-loans/the-rising-cost-of-college-be-prepared-for-increasing-tuition/

    — mikey    Mar 19, 06:19 PM    #

16. Charles William Miller

    Tell that to the thousands that have been laid off because off the government cuts , and the 6.7 million who will need loans within the next year. Lets see, you borrowed 60,000 to further your education and now you have the nerve to blame the lenders?! The rates are set by the government not the lenders. You make zero sense!!!!

    — peter    Mar 20, 01:00 AM    #

17. Its not just the student loan industry that needs overhauling, its the total lack by the government to ensure that ITS position on Garenteed student loans is made clear to the students. I think the government has, and has had, some responsiblity to ensure that the schools using HEA loans to fund their studentds, are making full disclosure of the terms of the student loan contract, are selling a real asset, a viable education, and are not engaged in student loan farming as so many private trade schools of the 1980’s were doing. Lack of government oversight during that time lead to one of the highest default rates in Higher education history. Some of those schools are still selling eucations that are worthless, and are still graduating only 1/3rd of their start up class size and placing less than half of the graduating class. Why is government allowing schools like that to participate in government garenteed loans?

    Furthermore accredation needs to be made universal as a condition to particpating in HEA loans. The whole system is in a mess, and for most students, once a student defaults, his or her life is ruined for the most part, unless they win the lottery or become totaly disabled, or they die.

    The predatory system of student loans in America is a SHAME on all of us.

    And Congress still has not yet addressed the issue of dealing with victims of the student loan farming that went on in the late 70’s thru the end of the 1980’s, nor has it offered any real relief to those who are still being victimized by those schools some 20+ years later.

    — VOPS    Mar 20, 12:46 PM    #

18. Mikey (#14) – just because this isn’t a term paper doesn’t mean you don’t need to write intelligibly. Even if you don’t have loans that remind you of your higher education experience you can still generalize the skills you (presumably) learned to life after graduation. And learn to recognize sarcasm – I think Steli gave an example of it.

    — Beth    Mar 21, 08:27 AM    #

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