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.