Generation Debt

Last week we told you about a collection of Education Lobbyists who were not satisfied with the recent Congressional efforts. The group sent letters to the Committee on Higher Education about issues they found with H.R. 4283. Today the Chronicle of Higher Education reports that two House Republicans have fired back at the Lobbyists. (Sorry, the story will only be available for 5 days without subscription.) Stephen Burd of the Chronicle writes:

"In a sharply written letter that they mailed to the college groups on Monday, the representatives -- John A. Boehner, the Ohio Republican who heads the House Committee on Education and the Workforce, and Howard P. (Buck) McKeon, the California Republican who leads the panel's subcommittee on higher education -- expressed outrage that the lobbyists called for "billions in new federal spending" on higher education at the same time that they "oppose reforms that would give more power to higher-education consumers and encourage federally subsidized colleges and universities to be more accountable."
...
"College lobbyists who had seen the congressmen's letter said they found it disheartening. "While their letter is high on rhetoric, they refuse to acknowledge the many problems in the bill and pointedly ignore the dozens of proposed solutions we offered," said Terry W. Hartle, senior vice president for government and public affairs at the American Council on Education, which had written to the lawmakers on behalf of itself and 44 other college groups."
...
"Mr. Hartle said that colleges would take them up on that offer. "The letter's rhetoric is pretty harsh, and that's probably in response to some of the rhetoric in the letters they received from us," he said. "But their bottom line is that they want concrete proposals with legislative language to make changes. So the onus is on us to provide them with that."

Posted by Liz at 01:58 PM | Permalink | Comments (0)

Anyone in DC who is available tomorrow might want to pop into Rayburn Building (Room 2175) at 10:30 AM. The full Committee on Education and the Workforce will be holding a hearing on HR. 4283. The topic is "Are Students at Proprietary Institutions Treated Equitably under Current Law?". No word on who the speakers might be but you can check out the Live Webcast tomorrow.

Posted by Liz at 11:00 AM | Permalink | Comments (0)

Sent in by Ian Sacs:

today on cnn.com:
http://www.cnn.com/2004/EDUCATION/06/07/student.loans.ap/index.html

am i reading this wrong, or is the text in this article totally inaccurate? it says:

"...The government began allowing students to consolidate loans in 1986 as a convenience that would let them make a single monthly payment. But as interest rates have fallen in recent years, it has become a popular way for students to refinance debt at a cheaper rate. That, in turn, has made the program more expensive for the government, which offers lenders a guaranteed rate of return. Millions of students have consolidated at low rates, forcing the government to pay lenders the difference."

to me this doesn't make any sense. nobody is able to "refinance debt at a cheaper rate". all borrowers are familiar with the "weighted average" calculation, so whatever your total interest (in dollars) was before consolidation, it will be the same after consolidation. the consolidation process doesn't reduce anyone's interest rates. i can't understand why there's all this talk about how "unfair" it is for students to consolidate their student loans, when all that is (at the moment) is a convenience (as stated in article) to pay one lender. the way i see it, the consolidation process has absolutely nothing to do with the current subsidy the government is paying to student loan lenders. student borrowers agree to borrow money from lenders at the going rate. this is a fixed rate, and lenders wouldn't offer it unless it was profitable. normally lower interest rates are offered only to those with the best credit, but the student loan program guarantees the loans, which is why lenders can afford to offer such low rates (and still make money since defaults are paid by the doe). and this doesn't even address all of us borrowers who are sitting on 5%-8% fixed interest rates with no option to refinance while the current rate less than 4% (and keep in mind the lenders, while still conservative, are still making money on 4%...just look at any local bank's website, can you find a money market rate higher than that?)

if you read the above referenced article, you'll see that all these politicians and interest groups are arguing about a totally inconsequential issue to the fed's budget concerns, whether or not student borrowers should have a fixed or variable interest rate, or in other words, totally sidestepping the real issue, which is that the loan industry lobbyists (and all their pseudonym interest groups) want variable interest rates for one reason only, because they know they can make even more money. the facts are clear, this bill is not going to help the federal government with it's budgeting for student loan programs, instead the benefit goes directly to the lenders. which, by the way, is what kerry is saying.

Posted by Liz at 01:49 PM | Permalink | Comments (3)

Published in the latest issue of The Chronicle of Higher Education (sorry, subscription only) is an interesting article about how Congress will not receive support from the American Council on Education (ACE) and other similar organizations for H.R. 4283. Most the of details can be found online in a letter to Reps. John Boehner and Howard "Buck McKeon from ACE President David Ward stating it "cannot support" the College Access and Opportunity Act of 2004 in its current form.

Unfortunately, they disagree with the act for reasons quite the opposite of our stated goals. As Mr. Ward states in his letter "In particular, we are deeply concerned by the enormous regulatory and reporting burden imposed by the bill." One of the stated "burdens" as defined by the American Council on Education is SEC. 485:

Loan exit counseling requirements expanded to include disclosure of consequences of consolidation including:

• Impact on total interest paid, fees paid and length of repayment
  
• Impact on underlying loan benefits including forgiveness, cancellation and deferment
  
• Ability to prepay, pay on shorter schedule and change payment plans
  
• Tax benefits for which borrower may be eligible, and
  
• Consequences of default

Posted by Liz at 12:05 PM | Permalink | Comments (0)

Since we've never actually heard anything from the Kerry campaign despite our attempts at communication with them, it was a joy to find this little tidbit in the middle of an AP story on Student Loans...

Presumed Democratic presidential nominee Sen. John Kerry, has also criticized it, saying variable rates would harm students and enrich lenders.

Posted by Liz at 11:00 AM | Permalink | Comments (0)

Michelle Singletary's Washington Post article grades The College Access & Opportunity Act. (The Washinton Post site requires registration to read the article, but it's free.)

• Thumbs down (way down) for a move that would change from fixed to variable the interest rate for consolidation loans. This is probably the most controversial issue in the bill. Anyone who has taken out student loans should be paying attention to this proposal. Right now, student borrowers can bundle their various loans into one low, fixed-rate loan that can be stretched out as long as 30 years. But we all know that interest rates are not likely to stay as low as they have been recently. If the provision passes and the loan rate is changed to variable, a lot of people will pay thousands of dollars more on their consolidated student loans.

A big thanks to Michelle Singletary for tirelessly talking about student loan consolidation (in particular the one-time consolidation rule) to so many different media sources. In addition to the Washington Post and syndicated columns around the country, she can now also be heard on NPR's Tuesday show "Day to Day".

Posted by Diana at 11:40 AM | Permalink | Comments (0)

While many loan lenders and the Republican leadership of the house have put their full weight behind HR 4283 (The College Access and Opportunity Act of 2004) as THE bill to reauthorize the Higher Education Act, the proposed legislation is starting to get detractors. Charlotte Fraas, the American Federation of Teacher's director of legislation sent a strongly worded letter to the House Committee on Education and the Workforce stating, [the bill] "promotes the financial interests of the for-profit higher education industry at the expense of the needs of students."

Posted by Liz at 11:20 AM | Permalink | Comments (1)

The full transcript for the House Committee Meeting on HR 4283 is now available on the committee's website. Sarah Wasserman of the United States Student Association gave what appears to be the only beneficial remarks about student loan consolidation, but even those did not address the needs of former students and the one-time consolidation rule:

Consolidation is an important tool that helps low and middle-income students manage their debt and makes college affordable.  Congress should not deny student borrowers this benefit now when they need the help the most.

While we share the concern that the costs of the consolidation loan program have the potential to increase significantly over the next decade, we are shocked that the leadership of this committee has decided to bend to the will of the big lenders and deny low and middle-income students the choice to lock in a low-fixed interest rate.

The fact of the matter is that the big lenders that participate in the student loan program do not like the consolidation program because they are forced to pay fees to participate and because it increases competition in the market-as most students (but not all) can shop around to find the best deal and service for their loans.  Due to low interest rates in the past few years, more and more students have consolidated their loans, increasing the likelihood that these students will switch lenders.  The lenders that hold the lion's share of the total outstanding student loan debt would like to eliminate the current low-fixed rate benefit in order to do away with the competitive market so that they can protect their portfolios and profit margins. 

The elimination of the current low-fixed rate benefit in H.R. 4283 comes as lenders in the student loan program continue to earn huge profits.   According to a recent issue of Fortune magazine, Sallie Mae is the second most profitable company in the United States with a 37 percent return on their revenues in 2003.  To give people context, the median return for the 500 biggest companies in the United States was 5 percent in 2003.  In addition, according to a U.S. News and World Reports article, in 2002, Sallie Mae's chief executive, Albert Lord, pocketed nearly $34 million in salary, bonus, and stock option payments.

Posted by Liz at 12:03 PM | Permalink | Comments (0)

Ranking Democrat in the Committee on Education & The Workforce, George Miller, has released his statement on the Republican sponsored College Access and Opportunity Act (H.R. 4283).

His comments include:

It is imperative that we return to the original premise of the Higher Education Act of 1965—that no college-qualified student should be denied a college education because he or she is lacks the financial resources.

Unfortunately, while the bill before us today includes some good provisions – such as reducing student origination fees and reducing some of the excessive subsidies to banks – overall it actually makes college more expensive and reduces college opportunities.

...

Despite the fact that an estimated 40 percent of all borrowers graduate with unmanageable debt levels, the Republican bill denies students’ ability to lock in a low fixed interest rate on their student loans through consolidation. Consolidating at a low fixed rate has helped millions of low and middle-income students manage their debt and make ends meet.

According to an analysis by the Congressional Research Service, eliminating this benefit will force the typical student borrower to pay $5,500 more for his or her student loans.

Without having gone through the entire 203 pg bill (!!) yet... it doesn't appear that this new legislation will fix the current one-time consolidation rule but in fact eliminate the option of consolidation for future students.

Posted by Liz at 12:20 PM | Permalink | Comments (0)

Tomorrow (May 12) 10:30 AM EDT, the full Committee on Education and the Workforce will be holding a hearing on H.R. 4283 "College Access & Opportunity Act". A full WEBCAST of the hearing should be available then.

The announced speakers are:
Mr. Jim Boyle
President of College Parents of America - Washington, D.C.

Dr. Dallas Martin
President of National Association of Student Financial Aid Administrators - Washington, D.C.

Dr. Charles Reed
Chancellor of California State University System- Long Beach, California

Mr. Michael Grayer
Recent Graduate of Virginia College - Jackson, Mississippi

I wish we could tell you what HR. 4283 is, but the text of the bill has not yet been received by Thomas. We can guess that the one-time consolidation rule might be at play here based upon the appearance of a former student. We'll let you know when we have more information.

Posted by Liz at 10:41 AM | Permalink | Comments (1)

H.R. 3384 - Student Loan Interest Full Deductibility Act

Amends the Internal Revenue Code to repeal the limitations on the maximum amount of the deduction of interest on education loans.

It looks like this bill would also strike the Revenue Code section that limits the deduction based on modified gross income.

Posted by Diana at 11:18 AM | Permalink | Comments (2)

S. 1742 - Higher Education Loan Plan Act of 2003

This bill only deals with first time consolidation loans; it does not provide for refinancing.

Posted by Diana at 11:12 AM | Permalink | Comments (0)

S. 835 - Consolidation Student Loan Flexibility Act of 2003

Amends the Higher Education Act of 1965 to allow student loan borrowers to choose a lender for loan consolidation. (Eliminates the requirement that: (1) the consolidation loan lender must already hold an outstanding student loan of the borrower; or (2) the borrower must certify to having sought and been unable to obtain a consolidation loan with income-sensitive repayment terms from any holders of the outstanding loans selected for consolidation.)

Requires clear and conspicuous notice to be provided to student loan applicants, and to student loan borrowers at their exit interviews, describing the effects of using consolidation loans, and including specified information for applicants or borrowers respectively.

This bill only deals with first-time consolidation loans; it does not provide for refinancing.

Posted by Diana at 11:10 AM | Permalink | Comments (0)