Our University Part 2 (New changes to the old one)

[JoeBulls]

I would like all of you "raise tuition" folks to take a nice long read of this article.

I am sure you think that 1K dollar increase in tuition is going to be paid for by waiting a few more tables dont ya?

Nope -- it is going to be borrowed.

--------

Lending to students 'a gold mine' for creditors    

By David Washburn    Tuesday, April 24 2007, 01:38 AM EDT    Views: 232  

 

Get rich with no risk.

The classic business pitch is usually too good to be true - unless you're talking about the student loan business. Student loans, which banks and other lenders avoided in decades past, have become a creditor's dream.

Their product is desperately needed, the multibillion-dollar market is growing like gangbusters, and if things go south, lenders can turn to the government for a bailout.

The federal government estimates that college students and their families will take out $86 billion in loans this year, a 186 percent increase from 1995.

A sizable chunk of that money will flow to several companies in San Diego. Student Loan Corp., Goal Financial and Education Lending Group, which operates as Student Loan Xpress, held nearly $18 billion in student loans in 2005, according to Finaid.org, an informational Web site for borrowers.

Industry watchdogs have long alleged large profits, predatory lending practices and Draconian fees and penalties by these and other student loan companies. And recently, allegations of kickback schemes between lenders and college financial aid officers have surfaced.

Earlier in April, New York Attorney General Andrew Cuomo disclosed that the financial aid directors of three universities had held stock in Student Loan Xpress. Earlier, five other universities agreed to pay a $3.2 million settlement after an investigation by Cuomo's office revealed that the institutions were receiving payments from lenders.

Several recent calls to representatives of all three San Diego companies were not returned.

"It's very lucrative, a gold mine," said Deborah Fox, founder of Fox College Funding, a financial planning firm that specializes in helping families prepare for college.

So lucrative that Virginia-based student loan company SLM Corp., commonly known as Sallie Mae, is the third most profitable financial service firm in the world, said Finaid founder Mark Kantrowitz.

"They are the 2,000-pound gorilla of student loans," Kantrowitz said.

The growth of Sallie Mae is integral to the history of the student loan business.

Federally backed Perkins loans, which now have family income requirements, were first introduced in 1958. Stafford Loans, which do not factor in income, were introduced in the mid-1960s. But the government initially had a hard time persuading banks to lend money through the programs because students were considered bad credit risks.

So the government created Sallie Mae in 1972 as a government-sponsored enterprise. Its sole purpose was to buy existing student loans from banks, thereby limiting the banks' risk and freeing up capital for new loans.

Thus, a market was born. It picked up steam in the 1980s after the government introduced subsidized PLUS Loans for the parents of college students.

By the early 1990s, Sallie Mae and the private lenders were reaping huge profits, and drawing criticism from watchdog groups. So the Clinton administration pushed through a "direct lending" program that allowed the government to lend money directly through schools, thereby cutting out Sallie Mae and the private lenders.

Officials at Sallie Mae said the direct lending program was taking away its business, and that it would go under unless it was allowed to sever its government ties. Today, the direct lending program accounts for about 25 percent of all loans, Kantrowitz said.

Sallie Mae was given the right to go private in 1996 and completed the process in 2005. During that time, the company entered into every aspect of the student loan business, from loan origination to debt collection. The company now controls nearly half of the student loan market, and its net income went from $465 million in 2000 to more than $2 billion last year.

Much of the windfall to Sallie Mae and other lenders comes from soaring tuition costs and mushrooming college enrollment fueled by child-rearing baby boomers. College enrollment increased 21 percent from 1994 to 2004 and is expected to top out at 18 million students in 2012.

Following the enrollment boom has been a growth in companies specializing in student loans. Almost all of the major banks, including Citibank, Wells Fargo and Bank of America, have student loan divisions.

But beyond the fundamentals, student loan companies benefit from a confluence of government regulations that all but assure them hefty profits, say Fox and others.

To start, nearly $69 billion of the current $86 billion in student loans is backed by the U.S. Treasury, meaning that even if the loans go into default, the lenders are protected. These loans are subsidized by the government in order to keep interest rates low for borrowers and guarantee profits for lenders.

Between 1992 and 2004, the cumulative subsidy cost was $39 billion, according to U.S. PRIG, a federation of state public interest research groups.

Lenders face a little more risk with the $17 billion in private "alternative" loans that are not backed by the government, but not much. They can charge interest rates that approach those of credit cards, and federal regulations, strengthened with bankruptcy laws enacted in 2005, make it almost impossible for student loans to be discharged through bankruptcy.

If that is not enough help, the Supreme Court ruled in 2005 that lenders have the right to garnish even Social Security income from those who are delinquent on their student loans.

Finally, student borrowers are only allowed to consolidate, or refinance, their debt once after graduating. So when a borrower consolidates with a lender, he or she is committed to that lender for the life of the loan.

The Stafford and PLUS loans, which fall under the Federal Family Education Loan Program, now have fixed interest rate limits of 6.8 percent and 8.5 percent, respectively. Loans that are not federally backed can have initial rates above 12 percent, depending on a borrower's credit score, Kantrowitz said.

The terms of the federally backed loans always start at 10 years, but they can be extended for as long as 30 years if a borrower consolidates his or her loans after graduating.

If a student borrows $50,000 for college and makes prompt payments from graduation through the end of the 10-year term, he or she will pay approximately $20,000 in interest and fees.

But, consumer advocates say, if the borrower misses payments or allows the loan to go into default, the companies pounce. Late payment penalties that equal 25 percent of the loan's value are common, said Alan Collinge, founder of StudentLoanJustice.org, an advocacy group for borrowers.

"Who wouldn't want to be in that business? You can't lose. There is no bankruptcy protection, and you have the borrowers for life," Collinge said. "It has led to some really abusive situations."

And, as Cuomo's investigation revealed, some companies can gain an unfair advantage by cultivating relationships with financial aid officers at colleges and universities.

When students seek the advice of a financial aid office, they are often led to a list of "preferred lenders" that financial aid offices have presumably determined to be the best deals in terms of cost and service.

Landing a good spot on such lists is the student lender equivalent of finding the golden goose. As much as 90 percent of all student loans go to lenders high on the list.

At many colleges, 99 percent of loans go to the first company on the preferred list, according to Stephan Burd, a fellow at the Washington, D.C.-based New America Foundation who has reported on the industry for 15 years.

"The name of the game is to get as much loan volume as quickly as you can," Kantrowitz said. "And it causes some people to cross the line."

To be sure, Fox, who has been counseling families since 1998, said the majority of lenders operate above board.

"I know that certain lenders overstep their bounds," Fox said. "(But) it is important that the public know that it is a relatively small percentage."

Collinge says that this may be the year that Congress takes steps to protect borrowers. Sen. Hillary Clinton, D-N.Y., has reintroduced the Borrower's Bill of Rights, which, among other things, would bring back some bankruptcy protection for student loan borrowers and allow them to refinance more than once.

And Cuomo's investigation in New York has put tremendous pressure on the companies and financial aid directors to be more transparent in their handling of the "preferred lender" lists.

Cuomo's office disclosed that financial aid directors at Columbia University, the University of Texas and the University of Southern California held stock in Student Loan Xpress, a "preferred" lender at all three schools.

New Jersey-based CIT Group, which bought Student Loan Xpress in 2005, suspended three of the company's top executives, pending the outcome of the investigation.

Some colleges and universities have changed their policies recently regarding their preferred lender lists. And Sallie Mae and Citibank have agreed to $2 million settlements, and pledged to end some practices that Cuomo said were deceptive and unlawful.

Regardless of regulatory changes, Kantrowitz said, the business will remain hugely profitable. He points to investments in student loan companies made by investment banking titans Merrill Lynch and Goldman Sachs.

And a $25 billion offer for Sallie Mae was made recently by a consortium of J.C. Flowers and Friedman Fleischer & Lowe, two private equity firms, along with Bank of America and JPMorgan Chase.

"But," Kantrowitz said, "I do think all this will make consumers more wary, and there will be a more level playing field."

CNS writer Eleanor Yang Su contributed to this report.  

[Belle of the Bull]

my dear

an increase in tuition does not = better education

you are correct

HOWEVER: FL's higher ed system needs an entire overhaul. Things are bad. Really bad.

That costs money.

Its really not a hard concept. I don't understand why people don't understand.

For goodness sakes - read the Pappas Report and do a little research. The link is provided for you so you won't have to trouble yourself finding it. Also read the other posts from those who know a little bit about higher education and FL government.

I cannot force you, or anyone else, to do research about something before you speak/post. I do, however, think its a good idea.

[Belle of the Bull]

I would like all of you "raise tuition" folks to take a nice long read of this article.

I am sure you think that 1K dollar increase in tuition is going to be paid for by waiting a few more tables dont ya?

Nope -- it is going to be borrowed.

--------

Lending to students 'a gold mine' for creditors    

By David Washburn    Tuesday, April 24 2007, 01:38 AM EDT    Views: 232  

 

Get rich with no risk.

The classic business pitch is usually too good to be true - unless you're talking about the student loan business. Student loans, which banks and other lenders avoided in decades past, have become a creditor's dream.

Their product is desperately needed, the multibillion-dollar market is growing like gangbusters, and if things go south, lenders can turn to the government for a bailout.

The federal government estimates that college students and their families will take out $86 billion in loans this year, a 186 percent increase from 1995.

A sizable chunk of that money will flow to several companies in San Diego. Student Loan Corp., Goal Financial and Education Lending Group, which operates as Student Loan Xpress, held nearly $18 billion in student loans in 2005, according to Finaid.org, an informational Web site for borrowers.

Industry watchdogs have long alleged large profits, predatory lending practices and Draconian fees and penalties by these and other student loan companies. And recently, allegations of kickback schemes between lenders and college financial aid officers have surfaced.

Earlier in April, New York Attorney General Andrew Cuomo disclosed that the financial aid directors of three universities had held stock in Student Loan Xpress. Earlier, five other universities agreed to pay a $3.2 million settlement after an investigation by Cuomo's office revealed that the institutions were receiving payments from lenders.

Several recent calls to representatives of all three San Diego companies were not returned.

"It's very lucrative, a gold mine," said Deborah Fox, founder of Fox College Funding, a financial planning firm that specializes in helping families prepare for college.

So lucrative that Virginia-based student loan company SLM Corp., commonly known as Sallie Mae, is the third most profitable financial service firm in the world, said Finaid founder Mark Kantrowitz.

"They are the 2,000-pound gorilla of student loans," Kantrowitz said.

The growth of Sallie Mae is integral to the history of the student loan business.

Federally backed Perkins loans, which now have family income requirements, were first introduced in 1958. Stafford Loans, which do not factor in income, were introduced in the mid-1960s. But the government initially had a hard time persuading banks to lend money through the programs because students were considered bad credit risks.

So the government created Sallie Mae in 1972 as a government-sponsored enterprise. Its sole purpose was to buy existing student loans from banks, thereby limiting the banks' risk and freeing up capital for new loans.

Thus, a market was born. It picked up steam in the 1980s after the government introduced subsidized PLUS Loans for the parents of college students.

By the early 1990s, Sallie Mae and the private lenders were reaping huge profits, and drawing criticism from watchdog groups. So the Clinton administration pushed through a "direct lending" program that allowed the government to lend money directly through schools, thereby cutting out Sallie Mae and the private lenders.

Officials at Sallie Mae said the direct lending program was taking away its business, and that it would go under unless it was allowed to sever its government ties. Today, the direct lending program accounts for about 25 percent of all loans, Kantrowitz said.

Sallie Mae was given the right to go private in 1996 and completed the process in 2005. During that time, the company entered into every aspect of the student loan business, from loan origination to debt collection. The company now controls nearly half of the student loan market, and its net income went from $465 million in 2000 to more than $2 billion last year.

Much of the windfall to Sallie Mae and other lenders comes from soaring tuition costs and mushrooming college enrollment fueled by child-rearing baby boomers. College enrollment increased 21 percent from 1994 to 2004 and is expected to top out at 18 million students in 2012.

Following the enrollment boom has been a growth in companies specializing in student loans. Almost all of the major banks, including Citibank, Wells Fargo and Bank of America, have student loan divisions.

But beyond the fundamentals, student loan companies benefit from a confluence of government regulations that all but assure them hefty profits, say Fox and others.

To start, nearly $69 billion of the current $86 billion in student loans is backed by the U.S. Treasury, meaning that even if the loans go into default, the lenders are protected. These loans are subsidized by the government in order to keep interest rates low for borrowers and guarantee profits for lenders.

Between 1992 and 2004, the cumulative subsidy cost was $39 billion, according to U.S. PRIG, a federation of state public interest research groups.

Lenders face a little more risk with the $17 billion in private "alternative" loans that are not backed by the government, but not much. They can charge interest rates that approach those of credit cards, and federal regulations, strengthened with bankruptcy laws enacted in 2005, make it almost impossible for student loans to be discharged through bankruptcy.

If that is not enough help, the Supreme Court ruled in 2005 that lenders have the right to garnish even Social Security income from those who are delinquent on their student loans.

Finally, student borrowers are only allowed to consolidate, or refinance, their debt once after graduating. So when a borrower consolidates with a lender, he or she is committed to that lender for the life of the loan.

The Stafford and PLUS loans, which fall under the Federal Family Education Loan Program, now have fixed interest rate limits of 6.8 percent and 8.5 percent, respectively. Loans that are not federally backed can have initial rates above 12 percent, depending on a borrower's credit score, Kantrowitz said.

The terms of the federally backed loans always start at 10 years, but they can be extended for as long as 30 years if a borrower consolidates his or her loans after graduating.

If a student borrows $50,000 for college and makes prompt payments from graduation through the end of the 10-year term, he or she will pay approximately $20,000 in interest and fees.

But, consumer advocates say, if the borrower misses payments or allows the loan to go into default, the companies pounce. Late payment penalties that equal 25 percent of the loan's value are common, said Alan Collinge, founder of StudentLoanJustice.org, an advocacy group for borrowers.

"Who wouldn't want to be in that business? You can't lose. There is no bankruptcy protection, and you have the borrowers for life," Collinge said. "It has led to some really abusive situations."

And, as Cuomo's investigation revealed, some companies can gain an unfair advantage by cultivating relationships with financial aid officers at colleges and universities.

When students seek the advice of a financial aid office, they are often led to a list of "preferred lenders" that financial aid offices have presumably determined to be the best deals in terms of cost and service.

Landing a good spot on such lists is the student lender equivalent of finding the golden goose. As much as 90 percent of all student loans go to lenders high on the list.

At many colleges, 99 percent of loans go to the first company on the preferred list, according to Stephan Burd, a fellow at the Washington, D.C.-based New America Foundation who has reported on the industry for 15 years.

"The name of the game is to get as much loan volume as quickly as you can," Kantrowitz said. "And it causes some people to cross the line."

To be sure, Fox, who has been counseling families since 1998, said the majority of lenders operate above board.

"I know that certain lenders overstep their bounds," Fox said. "(But) it is important that the public know that it is a relatively small percentage."

Collinge says that this may be the year that Congress takes steps to protect borrowers. Sen. Hillary Clinton, D-N.Y., has reintroduced the Borrower's Bill of Rights, which, among other things, would bring back some bankruptcy protection for student loan borrowers and allow them to refinance more than once.

And Cuomo's investigation in New York has put tremendous pressure on the companies and financial aid directors to be more transparent in their handling of the "preferred lender" lists.

Cuomo's office disclosed that financial aid directors at Columbia University, the University of Texas and the University of Southern California held stock in Student Loan Xpress, a "preferred" lender at all three schools.

New Jersey-based CIT Group, which bought Student Loan Xpress in 2005, suspended three of the company's top executives, pending the outcome of the investigation.

Some colleges and universities have changed their policies recently regarding their preferred lender lists. And Sallie Mae and Citibank have agreed to $2 million settlements, and pledged to end some practices that Cuomo said were deceptive and unlawful.

Regardless of regulatory changes, Kantrowitz said, the business will remain hugely profitable. He points to investments in student loan companies made by investment banking titans Merrill Lynch and Goldman Sachs.

And a $25 billion offer for Sallie Mae was made recently by a consortium of J.C. Flowers and Friedman Fleischer & Lowe, two private equity firms, along with Bank of America and JPMorgan Chase.

"But," Kantrowitz said, "I do think all this will make consumers more wary, and there will be a more level playing field."

CNS writer Eleanor Yang Su contributed to this report.  

http://www.signonsandiego.com/news/education/20070415-9999-1n15loans.html

you forgot the link so we could see it was from "Sign On San Diego"  

[JoeBulls]

I am not saying that USF doesn't need more money..

I am simply saying that raising tuition rates because Bernie Meachem at the University of Florida doesn't have the political will to campaign around this state for a increase in taxes or a cut in programs to fund the needed programs is beyond immoral.

How about a split package....?

draw 50% of the revenue from the general fund and 50% of the needed revenue from an increase in taxes or a cut in present programs?

Because it would never pass.

This debate isn't about a need for an increase in fuding -- its about who should pay for it.

Tuition at USF has been raised in some form or another about every single year I have lived in Tampa.

If it isn't an activity fee -- or a parking fee -- or an overall increase in tuition rates -- it is something else.

This Democrat says that we need to "hold the line on higher education costs."

Genshaft is making 600K -- I am sure she can find a way to raise the needed funds without slappipng the undergraduate with a 50% increase in tuition -- that he or she is going to do nothing but finance..

I am just looking out for the kid who is trying to get through school and not have 30K in student loan debt.  

[Belle of the Bull]

I am not saying that USF doesn't need more money..

I am simply saying that raising tuition rates because Bernie Meachem at the University of Florida doesn't have the political will to campaign around this state for a increase in taxes or a cut in programs to fund the need programs is beyond immoral.

How about a split package....?

draw 50% of the revenue from the general fund and 50% of the needed revenue from an increase in taxes or a cut in present programs?

Because it would never pass.

This debate isn't about a need for an increase in fuding -- its about who should pay for it.

That is all.

totally - but there are too many special interest groups (elderly/health care/pharm companies) that would never let the $$$ come from taxes.

I think BF is really great - but we let too many kids have access to it that would otherwise not get in anywhere outside of FL.

FL politics is so screwed up - I don't know what will fix it. I do know that things are going to hit the fan in about 10 years if the government doesnt step up and start taxing. I don't want college kids to take out loans either - that hurts the economy too - bc new grads have to worry about loan payments and not buying their first house/condo, spending $$ at local businesses and saving their money for future investments and retirement.

All I am saying is that we are in a bad bad bad place. The only thing that I see getting passed is a tuition increase. And even that - i am not sure about. Fl has spent a lot of $$$$ getting recomendations about how to fix things over the years and then doing NOTHING with those recomendations. Christ isn't helping things either- although I do like him quite a bit - I think he is majorly missing the boat on this one. Instead the state is busy funding 2 new med schools, building branch campuses and trying to pay tuition for kids who, quite frankly, arent that bright a lot of the time.

Seems like this might be the only option that has a even a slight chance at passing...

[Buller64]

I've been off the board for much of the day but some observations.  

1. Higher tuition does not equal better education but it does equal better opportunity for better education.

2. The Pappas report is very general, I don't thnink it was intended to slight humanities and other liberal arts, but instead was focused on hoe the program would help the state.

3. BF is a joke.  The rules for qualifying are too easy.  This was intended to be a way to keep the best florida students in florida, not provide access for every Tom, ****, and Sally who are above average.  Under the rules in place when I attended I did not qualify, under today's rules I would be receiving 100% scholarship.

4. The structure of the SUS that the Pappas report lists is a pretty good one, it would make going to college convenient for everyone, but would also limit costs by limiting grad programs and the very expensive major research programs.  

5. The distinction between what they refer to as a research school and teaching school looks only at the focus of the school, it does not prevent research coming from teaching schools only that the focus should be on teaching.  The current construct is (10 month contract) 5 courses.  The teaching school contract (10 months) is usually 8 courses, but publication requirements are also reduced.  Look at Villanova, Notre Dame for teaching schools as an example of how it can be run.

6.  All this is academic because ourr state legislature will not implement any of it, they hven't done so in the last three studies so I don't expect them to do it this time.

[JoeBulls]

I have never understood why we saddle kids with 30K dollars worth of debt so that they can get a college degree.

It just makes zero sense economically.

[Belle of the Bull]

I've been off the board for much of the day but some observations.  

1. Higher tuition does not equal better education but it does equal better opportunity for better education.

2. The Pappas report is very general, I don't thnink it was intended to slight humanities and other liberal arts, but instead was focused on hoe the program would help the state.

3. BF is a joke.  The rules for qualifying are too easy.  This was intended to be a way to keep the best florida students in florida, not provide access for every Tom, ****, and Sally who are above average.  Under the rules in place when I attended I did not qualify, under today's rules I would be receiving 100% scholarship.

4. The structure of the SUS that the Pappas report lists is a pretty good one, it would make going to college convenient for everyone, but would also limit costs by limiting grad programs and the very expensive major research programs.  

5. The distinction between what they refer to as a research school and teaching school looks only at the focus of the school, it does not prevent research coming from teaching schools only that the focus should be on teaching.  The current construct is (10 month contract) 5 courses.  The teaching school contract (10 months) is usually 8 courses, but publication requirements are also reduced.  Look at Villanova, Notre Dame for teaching schools as an example of how it can be run.

6.  All this is academic because ourr state legislature will not implement any of it, they hven't done so in the last three studies so I don't expect them to do it this time.

1. very true. (except that notre dame has many academic departments that require a high pub rate).

2. I don't think it meant to slight the humanities either. (thats just what happens when the focus is on economics - because - lets face it- art history doesnt bring in as much money as engineering or health communucation).

3. the idea/attitude that "everyone who wants to go to college should go to college- and they should go for free" is what is keeping the BF standards so low. It is also the same logic that has replaced the american dream with a logic that rewards medocrity. People want to strive for average-ness. I see it in my students up here too. They don't want to reach for the stars- they want to reach for a beer. A cheap beer.

4. The focus of a teaching school should be on teaching and that is what the report recomended - schools would be allowed to keep their graduate progmams (so UCF and the like would still have them) but expanding graduate education would not be something that they would be encouraged to do. I can see why they would be uspet by that. Under these recomendations - they would not have gotten their med school! However - not all 11 (plus miami) public universities SHOULD be research 1s. Thats how you get a lot of half a$$ pseudo-high schools that like to call themselves a university.  You get lots of big universities in size - but not in clout. (kind of like how it is now actually- sorry but its true).

5. Under the report's recomendations -- branch campuses would also be come teaching colleges that are part of this state college system -- so it would allievate the financial burden away from USF so we could pour the $$$ into the main campus (for a change). That would be good for us.

5.You are so right about our state legislature not listening to any of this. Its so sad. We need to get a Bull as governor and stack the house and senate with young bull blood. then you will see stuff get done. until then... its apathy (and a lot of hot air) all the way down.  

[USF03]

The Senate/House have never come closer to passing such legislation in Florida history.  It would be a major change in the way we look at Florida higher ed.  Of course, students will have to pay a little more, but will it be worth it?  Could universities cut back the pork spending?  DUH... and they should... but would that even do the trick?

Should the state pay their fair share?  Yes.  Will it happen?  Maybe.  

Someone has to pay for classrooms, professors, the library, etc.  Someone mentioned older folk not wanting higher taxes.  It's true... yell at them!

Everything aside, lets get past the socialist "the state pays for everything."  Everyone has to pay... and while working two jobs and having a loan... I'm not complaining about an increase.  But thats my personal opinion.

[JoeBulls]

socialst --- the state pays for everything?

give me a break.

Enjoy that loan of yours too.

I guess you think that is a postive thing......students borrowing thousands of dollars.