Flunking Student Loans
"Reforming" Student Loans In Hugo Chavez Fashion
By California Yankee Posted in Congress — Comments (23) / Email this page » / Leave a comment »
The U.S. Department of Education operates two competing loan programs. Under the original Federal Family Education Loan (FFEL) program, private companies provide the capital and administer the loans, which are largely subsidized and insured by the government. Under the William D. Ford Direct Loan Program, the Department administers loans to borrowers.
In May the House of Representatives passed the Student Loan Sunshine Act in response to criticism of the $85 billion per year student loan industry.
The legislation would bar private companies from offering perks, a.k.a. kickbacks, to colleges and universities in exchange for student loan business and would require student loan companies to disclose their relationships with schools.
The Senate education committee approved its version of the legislation yesterday, one week after the House education panel took similar action. Senior Democrats predicted that the bills would come to a vote by the end of next month and would be reconciled without significant difficulty.
The House plan explicitly exempts the government's own student loan program from the new disclosure requirements. Prompting the Leslie Carbone to write in the Sun-Sentinel:
The Sunshine Act forces private companies, which operate under the FFEL program, into the light, but leaves the government's Direct Loan program under the cover of darkness.
Read on.
A similar thought caused Allison Kasic to post: "The Federal Government has found a new theme song in Bill Withers’ classic “Ain’t No Sunshine.”
According to Carbone, the Sunshine Act's hypocritical exemption of the Direct Loan program creates two sets of rules — one for the government and one for everybody else. This violation of American ideals will restrict students' consumer choice, allow the government's program to flourish, and is a step toward scaling back, or eliminating, the private sector FFEL program.
Citizens Against Government Waste (CAGW) analyzed the management of and cost differences between FFELP and FDLP as well as the extent to which such expenses are borne by taxpayers.
CAGW found the government program is losing money. In typical big government fashion it has paid more in interest to the Treasury than the amount of interest it has gotten back from borrowers. CAGW concluded:
After spending 10 years in college with little to show in return except an $13 billion deficit, it is apparent FDLP is flunking out.
Will so-called reform of the Student Loan industry become an issue in the 2008 presidential campaign? I doubt it, but Andrew Cuomo, attorney general of New York, sent a letter to presidential wannabee, Connecticut Senator Chris Dodd, complaining about how the school a student attends can determine the interest rate on student loans. Dodd, unable to gain in traction in his presidential race is willing to try to make anything a presidential campaign issue.
With Senator Kennedy and the Democrats trying to "reform" student loans in Hugo Chavez fashion - requiring the government to run it regardless of the financial losses, I'm reminded of what Everett Dirksen used to say about government programs:
A billion here, a billion there, and pretty soon you're talking real money.
I think I will just go listen to to more Bill Withers. Ain't no sunshine . . .
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Flunking Student Loans 23 Comments (0 topical, 23 editorial, 0 hidden) Post a comment »
I don't necessarily disagree with you, but as someone who has a William Ford government student loan, I am thankful I am not with a private lender.
#1 private lenders are charging much higher interest rates and in many interests, gouging people much like if they had financed on a credit card.
#2 I got out of school and started a business and then I moved on and just started another one. Both times I was barely making any money while the company got started. The Ford loan I was able to stop making payments for a while. The private companies don't allow that, and I would have been forced to quit my business and find a job working for someone else.
We should look at ways to fix and improve the system while not dumping all the burden on students or entrepreneurs right out of college, not making a lot of $$ at first.
they have no incentive to.
My gripe with student loans is several layers deep. First and foremost, there is nothing in the constitution that indicates I should be underwriting your student loan on the federal level. Cite me anything in the constitution that says so.
Next, one of the primary reasons for the current high levels of inflation of tuition is the availability of cheap money to students. Colleges have no incentive to hold down costs or evaluate many of the "majors" they offer. I have strong objections (posting rules prohibit me from expressing my true feelings on the matter) with schools running programs like "women's studies", for example, at a net financial loss. They can do that because they can run other departments at a hefty profit and not be concerned about the bottom line.
Next, if students had to actually be concerned about the value of the "education" they were receiving, because they were going to have to pay market rates for it, schools would have some accountability that they do not now have.
Finally, let the schools themselves provide or underwrite funding. If their product is good they shouldn't have a problem doing that. Very much like the automobile manufacturers who run finance operations to sell their cars. Let the schools assume the risk.
And with respect to your contention that the benefactors of the service should not assume the risk and the cost, sorry, no sale. The real world doesn't work that way.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
I had both direct and private loans, and, as you suggest, Uncle Sugar was a better lender, in one case a much better lender, than any of the private companies I took loans from. More flexible, better phone service, better website, etc. On the other hand, private lenders already hold ~75% of all student loans. Somehow I suspect, even with these restrictions, they will still make money. The loans are guaranteed by the government and are very difficult to get out of (eg bankruptcy does not discharge your obligation to repay student loans).
"And with respect to your contention that the benefactors of the service should not assume the risk and the cost, sorry, no sale."
Wondering what you read where I said Universities shouldn't assume the risk?
The Constitution doesn't say that you should underwrite my loan. But it doesn't say we should be underwriting 99% of what govt does, and as long as corporations are getting billions of dollars in free money from the gov't that they never have to pay back, and as long as Congress is building bridges to nowhere, I sleep OK knowing that the gov't loaned me $$ so I could go to school. Money that I will pay back, with interest. Money that is so minute in the context of things.
But it doesn't say we should be underwriting 99% of what govt does
Sure... other people are getting free money... why shouldn't I be on the free money train. That's a good way to look at things.
Money that I will pay back, with interest.
And it's still a giveaway program, because you are paying less than the market price for that money. The government wouldn't have to be involved if you wanted to borrow it at market rates. Why stop at college tuition and mortgage programs? Why don't we create government loan programs for home appliances? Government backed credit cards to buy daily essentials? Government backed auto loans?
Money that is so minute in the context of things.
So is every earmark added to a bill. The bridge to nowhere wasn't even pocket change by federal standards. It was lint. But it all adds up.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
The university is the "provider" of the service.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
benefactor
Main Entry: ben·e·fac·tor
Pronunciation: 'be-n&-"fak-t&r
Function: noun
: one that confers a benefit; especially : one that makes a gift or bequest
"And with respect to your contention that the benefactors of the service should not assume the risk and the cost, sorry, no sale."
Wondering what you read where I said Universities shouldn't assume the risk?
Universities aren't the "benefactors" either. They are every bit as much a beneficiary as the student is. So it looks to me like you didn't have any problem understanding what he meant.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
then the government has no business being involved - minutia and all - so let's let the market supply the loans at market rates. Or, if it's so important, let the schools assume the underwriting risk.
And, I'm perfectly willing to cut off funds for the other stuff the government does that isn't part of the enumerated powers.
And finally, how you sleep is of no concern to me whatsoever.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
To each their own I guess. 99% of the time I am a very limited government person. But I am glad the government helps people get started in education so they can better their lives and move up the income ladder. That is a good thing. You can look down at people like me because you never had to use a student loan. I am fine with that. If you think 25% interest on a student loan from a private company that is kicking $$ back to the school is a "market rate" then so be it.
Some of you need to have the financial stability knocked out from under you and see how the other half lives. Then you won't be so quick to judge and stand up a lecture.
First of all, I don't "look down" on people because they have student loans and I never had one. Neither, by the way have my sons. My issue is with schools, not students. Student loans provide a cash cow for schools to insulate themselves from the market. Incidentally, the product of schools continues to decline. A BA or BS is generally perceived to have significantly less value than it did 10 or 20 or 30 years ago. Hence the rise in the marketing of MBA's and other "advanced" degrees.
Believe me or not, I've had the financial stability knocked out from under me more times than you could imagine. It comes with being self employed. It's also something that, when it happens to you, you get the opportunity to figure out whether your "education" is really worth what you paid for it. I've paid for the right to be a judge on this subject several times over.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
...a long habit of not thinking a thing wrong, gives it a superficial appearance of being right...
---Thomas Paine---
“Some of you need to have the financial stability knocked out from under you and see how the other half lives. Then you won't be so quick to judge and stand up a lecture.”
I am a former alcoholic. I drank myself into extreme poverty in the mid-1990’s. During the alcoholic phase of my life I lived in an urban he%4hole. Moreover, I have never accepted a transfer payment in my life. No person that is even remotely able-bodied and able-minded needs any aspect of the welfare state to survive. Heck even at my worst I was able to afford a roof over my head (though it did fall in once or twice), food, transportation, and a half-gallon of vodka a day. Once I sobered up I found I could afford housing that was structurally sound, food, transportation, and an education at a competitively priced private university.
...a long habit of not thinking a thing wrong, gives it a superficial appearance of being right...
---Thomas Paine---
It's only because of the ridiculous amount of taxpayer money going into this market, that students have stopped price shopping, and the schools have been able to get away with raising prices far faster than inflation.
We need to remove the subsidies in order to MAKE the services affordable, not keep or worse enhance them.
Run like Reagan!
"Student loans provide a cash cow for schools to insulate themselves from the market."
That is something I agree with. I also get tired of University faculty telling people that education should be "affordable" to all when they do nothing to control the cost of tuition or the text books they publish and make their students purchase.
My point on gov't loans is that I had a financial downturn a few years ago as I tried to start a business. If I had taken out my student loans with a private lender, I would probably be bankrupt right now with lousy credit and in a much worse situation.
just like the Democrats want to limit the salaries of CEO's why not limit the salaries of professors and university presidents?
Lets try that one next time they pipe up about the unequal distribution of wealth.
"Nothing works like freedom, Nothing succeeds like liberty"
Kyle
1. Community colleges charge virtually nothing.
2. State colleges are not - depending on where you live - all that expensive.
3. Private schools are another story.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
I hope you experience good value, heck, excellent value from your latest foray in school. Best of efforts on your business (luck shouldn't matter).
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
This CBO report (http://www.cbo.gov/ftpdocs/68xx/doc6874/11-16-StudentLoans.pdf) indicates that FFEL loans cost the government $15 for every $100 loaned, while direct loans produce a profit of about $2 for every $100 loaned.
Even when you look at CAGW's numbers (which are badly skewed because the direct loan program hasn't been around long enough for many of its loans to come out of the grace period yet), the cost of the direct loan program is only about $8 per $100 loaned.
It seems silly to believe that paying private lenders to make nearly risk free loans could work out as a net positive for the federal budget.
If the federal government is going to do something, it may as well do it efficiently.
As to mbecker908's assertion that the federal government should get out of the student loan business, gosh, I'd love to see mainstream Republicans running on that plank. I can hardly imagine the interest rate an 18-year-old would get on a $30,000 unsecured loan. "Want your kids to be paying 20% on their student loans? Vote Republican!"
Help underwrite somebody else's 18 year old kid's student loan... Sheesh.
Let the schools manage the loan programs and assume the default risk. It works for the automobile manufacturers. Of course, if the product the schools are putting out won't stand muster of cost/benefit, that might be a problem.
The feds shouldn't be doing this. Period.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
But I had some ideas about student funding a while back.
involved in the business of providing loans to or loan guarantees for college students. The program should operate on free market principles, period.
How about the colleges and universities setting up their own student loan programs, kinda like GMAC or Ford Finance does for auto purchases. Let the risk and the collections fall to the benefactors, namely the schools.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.