Generation Debt

Writer Daniel Auld brought this story to our attention in a comment:

Ohio Congressman Boehner's "Tricks" Are Not For Kids
By Daniel Auld

When Ohio Congressman John Boehner recently told a gathering of student loan bankers that he had some "tricks up my sleeve to protect you," he wasn't talking about new tricks.

He was talking about the oldest trick in the book: "Protecting" business people from competition and innovation. Stopping consumers from getting lower rates and better terms for their student loans.

These tricks are not for kids.

The student loan business is now one of the most profitable in America, says Fortune Magazine. And it did not get that way because student loan bankers are smarter, better or less expensive than bankers in other industries.

It is more profitable because they have more protection from competition. And now Boehner, head of the House Committee that oversees student loan legislation, is promising them even more protection from the one force that drives down prices, improves service, and stimulates innovation: Competition, of course. Which in the student loan business in almost non-existent.

Thank you, Congressman Boehner.

That is the way it was until earlier this year, when in January, the Department of Education ruled that borrowers looking to reconsolidate their student loans could sidestep the longstanding anti-competitive rule against doing so.

It was cumbersome, but effective. Borrowers had to use a two-step process of reconsolidating into the federal governement's Direct Loan Program, then reconsolidating again with a private lender offering better rates. Before then, borrowers were locked in to their current lender no matter what other lenders offered them a better deal.

In May, the Department of Education set aside another longstanding anti-consumer policy by ruling that borrowers who are still in school could convert their variable rate student loans into fixed-rate consolidaton loans before rates increased in July. That way they could take advantage of historically low interest rates, much as millions of other borrowers do with their home loans.

While borrowers celebrated, consumer bankers plotted.

Enter Boehner. Buried deep in legislation to raise prices on student loans are provisions that will largely outlaw the reforms that introduced so much competition into student loans earlier this year.

If passed, student loans would once again be the only thing sold in America that cannot be freely refinanced.

Columnist Dick Morris calls the anti-refinancing scheme an "obnoxious .. ripoff." Terry Savage, the financial columnist of TheStreet.com, says there is "no way" borrowers should support this plan." The New York Times calls it "Robbing Joe College to Pay Sallie Mae," the country's largest student loan provider. The Times Union of New York, calls plans to outlaw refinancing a "student loan shame.'

Boehner's tricks are not for kids.