March 8, 2007
Pres. Bush and Sen. Kennedy agree – student loans need shakeup!
It’s extraordinary! President Bush and Senator Ted Kennedy agree on something – that student loans need fixing! Read the article here, from the Plain Dealer on Cleveland.com.
Washington takes swing at student loan industry
Bush, Kennedy say students need more assistance
Thursday, March 08, 2007Stephen Koff
Plain Dealer Bureau Chief
Washington- What do Ted Kennedy and President Bush have in common?
Both are making the multibillion-dollar student loan industry incredibly nervous.
Both want to slice the taxpayer subsidies the industry enjoys – subsidies that make student loans “the second most profitable business for banks, after credit cards,” says Kennedy. Both say students will benefit.
While Kennedy and Bush come at it from different angles, their simultaneous attacks on the student loan industry are extraordinary, say experts in student lending, some of whom are displeased, others ecstatic at the prospect of a shakeup.
“I don’t think we’ve seen the climate that we see now, at least in my recent memory,” said Kevin Bruns, executive director of America’s Student Loan Providers, a trade group of lenders who worry that slimmer margins will drive some out of business.
Tally Hart, Ohio State University’s senior adviser for economic access, called it “one of the more refreshing times in my career,” because ideas are emerging that could put college within reach for more families.
While the loan industry says students will suffer from fewer choices if the changes push lenders away, it also acknowledges it has hurt its own cause through a series of stumbles and scandals.
House Democrats George Miller of California and Barney Frank of Massachusetts, chairmen of committees on education and financial services, respectively, are looking into a stock sale by Albert Lord, chairman of loan giant Sallie Mae.
Lord sold more than $18 million in company stock in early February, three days before Bush’s 2008 budget came out proposing more than $18 billion in cuts to industry subsidies. Sallie Mae’s stock fell 9 percent on Bush’s news.
Sallie Mae says Lord had no warning that he’d better sell before Bush’s announcement.
“The timing was unfortunate but completely coincidental,” said Tom Joyce, the company’s spokesman.
Another major lender, Nebraska-based Nelnet, is under Congress’ lens for allegedly collecting hundreds of millions in excess subsidies from the government.
This occurred, according to the Department of Education’s inspector general, through billing of a program that guaranteed lenders a return of 9.5 percent interest – a program that was supposed to end in this era of lower rates.
Nelnet denied overcharging the government, and in settling the matter in January, the Education Department agreed to ignore $278 million that Nelnet received in questionable subsidies.
The department said repayment could drive out smaller lenders who also may have abused the program, and that would be bad for students.
Nelnet spokesman Ben Kiser said that the company considers the matter closed.
But a group of 10 House members – seven of them Republicans – does not. On Monday, they wrote to the department, taking it to task for “setting a poor precedent that we believe will encourage further abuse by lenders.”
These were not liberal lawmakers; among them was Rep. Jeff Flake, a fiscal conservative of Arizona.
“He’s coming at it from a government-waste, good government perspective,” said his spokesman, Matthew Specht.