Monday, August 07, 2006

College Aid Offices May Not Have Best Loan Deals: John F. Wasik

[Editor's note: OneSimpleLoan® knows that most school student aid offices do a fine job. However, according to the following editorial commentary by John F. Wasik of Bloomberg News, some finanical aid admnistratiors could provide their student borrowers with greater lending options.]

July 31 (Bloomberg) -- When students or parents approach a college financial-aid office for a federal loan, they may not be getting the best possible deal.

Borrowers are often given a ``preferred list'' of lenders certified by the college. You may believe that these are the best loans available since they are chosen by the aid office.

Getting a loan outside of the preferred list may even be discouraged by the college, which is heavily marketed by lenders.


``My client approached a school for a loan and was told by the school that his loan would be processed faster if he went with a lender on the preferred list,'' said John Pearson, a certified public accountant and certified college-planning specialist in Norwalk, Connecticut. ``The preferred system can often deter students from getting the best deal on a loan.''

``Colleges won't tell you that you can get a loan down the street and save money,'' adds Brian Greenberg, a CPA and certified college-planning specialist in Marlton, New Jersey. ``Anything is negotiable. You can get your money anywhere.''

How does a lender get on a school's preferred list? Is there some quid pro quo? The college-controlled lending process has been challenged recently by MyRichUncle.com, which is owned by MRU Holdings Inc., a small specialty finance company with $24 million in student loans through March 31.

Raza Khan, president of the company, alleges through national advertising that lenders offer colleges revenue-sharing deals, or a percentage of the profit of a loan; ``opportunity pools'' of loan money for high-risk borrowers; and gifts and trips to aid officials.

`Shop Around'
``We'd like to see the preferred lender list go away,'' Khan says. ``The students are not always getting the best deal. The only way they can do better is to shop around and compare.''


``The preferred lender lists are at the root of all of the allegations regarding these improprieties,'' said Henry Howard, a former college-aid officer and chief executive officer of U.S. Education Finance Group, a student-loan company based in Miami. ``The preferred lists are no longer necessary and should be eliminated.''

Doubtless, smaller lenders are peeved that they don't have unfettered access to borrowers through aid offices. There are plenty of finance companies and banks that want to do business directly with colleges.

For lenders, the Federal Family Education Loan Program is not only highly profitable, it's virtually risk-free because of government guarantees. At present, federal and private loans constitute an $86 billion business, accounting for 39 percent of the $222 billion spent on higher education. As college becomes costlier, more students turn to borrowing.

Competition for Loans
Yet does the preferred system quash competition because only the largest companies with marketing clout are represented?


Dallas Martin, a former aid official at three colleges and president of the Washington-based National Association of Student Financial Aid Administrators, which represents college aid officials, said while he estimates that 60 percent of universities have preferred programs, ``the vast majority of institutions are trying to look out for what's best for students. They don't want to send them off to a place that's not best for them. It could come back to haunt the institution.''

Doing pay-for-play deals, or offering ``inducements'' for student-loan business, is forbidden under the federal Higher Education Act.


The U.S. Education Department's Office of Inspector General, the agency's watchdog, has investigated potential abuses involving lender incentives to colleges. The office only probed two schools in 2003, issuing an ``alert memorandum'' to Sally Stroup, assistant secretary of education.

Lender Inducements
``Our review concluded there are bargaining practices between schools and lenders for federal preferred loan status,'' the Aug. 1, 2003, memo to Stroup stated.


More recently, Catherine Grant, a spokeswoman for the inspector general's office, stated in an e-mail that it found ``no specific evidence of improper lender inducements and does not have any audits or inspections under way following up on this issue at this time.''

Nevertheless, the inspector recommended that the Education Department ``re-evaluate the anti-inducement provision of the Higher Education Act.''

Martin, who said he is aware of opportunity pools and acknowledges that finance companies may entertain aid officials and appoint them to advisory boards, notes colleges are ``bombarded with lenders.''

Ways to Save
``We've heard of abuses and referred them to the Department of Education, and the department has gone after them. A lot of it is hearsay. But providing gifts to colleges is clearly outside the law. In the final analysis, if a school refuses to certify a loan, it should be reported to the department.''


While most aid administrators are probably acting ethically, don't assume that your college will give you the best deal.

Say you borrowed $20,000 through a 10-year federal loan at 6.8 percent annually. You'd pay $230 a month for total payments of $27,619, which includes $7,619 in interest.

Drop the rate on your loan 1 percentage point and you save $10 a month but $1,214 in total interest. Discounts are available if you compare lenders. The Internet is a good place to start.

With the recent increase in federal-loan rates, it's essential to ask questions:
-- Does your college receive any inducements from lenders? If so, these incentives should be disclosed.


Repayment Fees
-- Do the loans you're applying for have any pre-payment penalties? What would trigger the loan adjusting to a higher rate? Avoid loans with added expenses such as repayment or insurance fees.

-- What kinds of discounts apply to your loans? Can you get a rebate of origination fees or discounts for using auto-debits or paying on time? Keep in mind that the best loan terms are offered to borrowers with the best credit rating.

Although most colleges trumpet academic freedom, that sentiment may not apply to students trying to find the best loan deal on campus. Keep in mind that no matter what the college recommends, you're free to obtain better terms elsewhere.

(John F. Wasik, author of ``The Merchant of Power,'' is a Bloomberg News columnist. The opinions expressed are his own.)



Friday, February 24, 2006

Consolidate Your Student Loans Now, Before July 1, 2006:

To help fund the No Child Left Behind Act as well as reduce the Federal deficit, President Bush and Congress have changed student loan consolidation provisions of the Higher Education Act, with the added Deficit Reduction Act, to take effect July 1, 2006.

Specifically:

• Interest rates - GOING UP!

• Spousal consolidation loans - GONE!

• In-school consolidation loans - GONE!


If you want to take advantage of these consolidation options before July 1, 2006, please
apply now. We'll work with you to maximize grace period and other repayment options that'll be in your best interest.

Ever Wonder Why Student Loan Laws Are the Way Are? Some Insights...

SALLIE MAE CELEBRATING HUGE WIN IN CONGRESS ON STUDENT LOANS

(Credit to http://www.freemarketnews.com)

If you are at all interested in education, politics or economics, you will probably want to take a couple of minutes from your busy schedule to ponder this matter.

And this isn't about the economic decision Congress recently made to raise interest rates on new student loans.

As much as that decision will hurt students and parents, this change is worse.

They're reducing competition in the marketplace.

For years students and parents have converted their variable rate federally guaranteed college loans into fixed-rate federally guaranteed consolidation loans to lock-in favorable interest rates, in much the same way that homeowners do with their mortgages. And for the same reasons.


But when the new laws, which were just passed as a part of the Budget Deficit Act, go into effect this July, the vast majority of students and parents who have already consolidated, or do so in the future, will be legally barred from ever refinancing again, no matter what other lender later offers them a lower rate.

Legally barred from ever refinancing? Yes. And there's much more to the story.

Borrowers whose loans are owned by a single lender have always been prohibited from shopping around for the best deal when it came time to consolidate. Congress has been promising to repeal that anticompetitive law, know as the Single Holder Rule, but the proposal was mysteriously dropped from Budget Deficit Act at the very last minute.

Chicago Sun-Times columnist Terry Savage, in her February 6, 2006, column nicely summed up the refinancing issue with this question: "If you can refinance your mortgage to take advantage of lower rates, why not your student loan?"

Savage went on to point out that some people would argue that because the government is subsidizing student loans, open market refinancing is not appropriate.

But the facts are well documented: Under the just repealed laws allowing reconsolidation, lenders, not the taxpayers, absorbed the cost of lower rates offered to borrowers. And every government report on the subject clearly documents the fact that the lower the interest rate and monthly payment, the lower the default rate.

Finally, Savage asks, "If refinancing to a lower rate doesn't cost the government any money, why object?"

That's a very good question. And, so far, it appears that the only objections to the concept of open market refinancing are coming from Sallie Mae and the other big lenders who don't want the lure of lower rates tempting their customers to switch to competitors.

Nevertheless, the laws allowing reconsolidation were repealed.

Can you imagine the uproar if homeowners were suddenly told that they could no longer refinance their home loans?

But in the lawmaker's defense, the Budget Deficit Act contained hundreds of pages of changes to current law. So, it's not really fair to say that the lawmakers who voted "yes" on the Budget Deficit Act were actually voting "no" on reconsolidation. In fact, the American Journal recently reported that very few Senators and House Members were even aware of the issue. And the few that had heard about it were incorrectly led to believe that the just repealed reconsolidation provisions were somehow costing the taxpayers money.

Then, adding insult to injury, Sallie Mae, like a football player spiking a ball after a game-winning touchdown, began celebrating. Tom Joyce, a Sallie Mae VP, was quoted as by USA TODAY as saying, "The consolidation loan program was never meant to be a refinancing bonanza for students." And later, his crowing got even louder when he told the Orlando Sentinel, "Smaller corporations will now think twice about getting into the student loan business."

Those ugly statements by Sallie Mae's chief media spokesperson seem to confirm what some industry insiders already suspected: Sallie Mae pretends to have the best interests of the students and parents at heart, while they covertly work to pass anticompetitive legislation that will end up costing students and parents billions of dollars. That's right, billions of dollars.

And the billions lost to higher interest rates resulting from this type of restriction- of-trade legislation will never show up in the Congressional Budget Office cost estimates that everyone in Washington is always quoting.

If you are wondering where those dollars end up, you only need to look as far as the bottom line of Sallie Mae's income statement. That's why they have lobbied so hard for these restrictions. And as of now, they are winning most of the battles and the war.

This story graphically emphasizes the immediate necessity of Republicans and Democrats joining together to reinstate open competition in this very important marketplace. And when it comes to Sallie Mae's requests for legal trade restrictions, perhaps it's time they become reacquainted with two very important letters: N and O. And I am not referring to the abbreviation for New Orleans.

Senator Lamar Alexander, the former Secretary of Education, in recent testimony before the Commission on the Future of Higher Education, said, "I urge you to join me on the bandwagon for deregulation of higher education. The greatest threat to the quality of American higher education is not under-funding. It is over-regulation."

The House of Representatives will soon have a new chair of the committee that oversees student loans. Buck McKeon will be replacing John Boehner, who was just elected House Majority Leader. McKeon is known as a tough and fair-minded businessman who is likely to give this issue a fair hearing. But first, he must hear from someone besides Sallie Mae.

If you want to join Senator Alexander on the bandwagon, please let Mr. McKeon and your U.S. Senators and Congresspersons know that you believe students and parents should be afforded the same rights as homeowners when it comes to refinancing.

You may reach any Senatorial or Congressional office by calling 202-224-3121.