I'm going to begin a series of quick posts each week that pose important questions, and I hope that those in power will be open to responding. Here are a few that I have about the consolidation issue and problems I suspect are related to the Department of Education's refusal to help current borrowers:
-Why isn't the Department of Education doing anything about consolidation? There is strong evidence that suggests that it would save borrowers money and it would also save taxpayers money. Here's a great opportunity to help both parties, so why isn't the Dept. of Education moving on it? I am not aware of the scoring, but think it's safe to say that the savings could be enormous.
-We're not sure about the potential savings for borrowers and taxpayers, and that's why I ask this next question: how many old loans are out there, and how much could we be saving? (People in Washington only seem to care about saving money when it comes to their elections, so I'd like an answer to this question).
-Why does the Department of Education appear to be siding with lenders still? Is that because it is an institution that is just as broken and ineffectual as the S.E.C. (i.e., is it yet another case of the fox guarding the hen house, because that's how things seem to look these days in D.C. That at least would explains the callousness of people on the Hill)? That's really to say, is the Department of Education still filled to the brim with people that Bush put in there for the past 8 years? If that's the case, why hasn't the Obama Administration made an effort to clean it up?
Because the Student loan industry is far too large and complex for one federal agency to handle all alone. This is a Gov't muddled in foreign wars, down economy and oil spills. Now Another Gov't Agency is taking over Stafford loan processing, but it is too big a process to handle alone. Surprise, they still rely on Sallie Mae, Great Lakes, AES, and NelNet to work under contract with the federal Gov't as servicers. Its so big we cannot get away from it. They appear to be siding with lenders because they are the only game in town.
For Stafford Loan consolidations go here for Direct Loans, they handle it http://loanconsolidation.ed.gov/
Private loan consolidations are tricky right now. Lenders are still nervous about the economic environment. Students could consolidate but still default. A lot of it has to do with the fact that a ton of private loans for students got put out at medium to high interest rates with little credit check between 2002-2007. If I were a lender I may not want to take that private loan consolidation. Even applications with cosigners are shaky because parents are unemployed just like the kids now.
Re: Private loans. Citi holds some of mine. I'm out of the lender option forbearance period, with no job in sight. Apparently, the facility of a lender "option" becomes lost on them as soon as their policy ends, and they then just basically choose to throw you into default in order to get the benefit of the guarantee, which I suppose in this case is a private guarantee. The assclown I talked to the other day very condescendingly argued, "We're Citi. The bank. We're in the business of making money." And, you know, that's an interesting thought considering the hundreds of billions of bailout dollars they received nearly free of charge from the taxpayers, and the fact that two days later, Citi, disclosed a $9 billion error in its reporting. They reported $9 billion in debt as $9 billion in revenue. Small error. And they've also shortened their lender option forbearance period from 12 months to 6 months, which doesn't really help students keep a decent credit score, but which does help Citi get at deeper pockets faster.
"Why isn't the Department of Education doing anything about consolidation? There is strong evidence that suggests that it would save borrowers money and it would also save taxpayers money. Here's a great opportunity to help both parties, so why isn't the Dept. of Education moving on it? I am not aware of the scoring, but think it's safe to say that the savings could be enormous."
Half the student loan borrowers in repayment still have pre-2007 variable rate Staffords.
Although these variable Stafford interest rates are "only" declining from 2.48% to 2.47% on July 1 for borrowers in repayment (and from 1.88% to 1.87% for in-school, in-grace and deferred borrowers), these are still record-low interest rates.
For many borrowers, this is a strong, additional benefit to consider student loan consolidation, above and beyond the traditional benefit of the single monthly bill: the opportunity for student and parent borrowers with variable interest rate federal student loans to "lock in" a permanent fixed rate at today's 55-year-low interest rate levels.
Why is no one focusing on this, when, just a couple years ago, consolidation companies and the personal finance press were doing the opposite -- over-hyping the benefits of student loan consolidation?
Perhaps a key difference these days is that there are no consolidation companies trumpeting their products 24-7 by mail, telephone, email and TV commercial, as they did just a few years ago. First, the liquidity crisis sent many, or most, of them out of the federal student loan consolidation market in 2008 (including Sallie Mae).
Then, of course, per the recent student loan reform legislation, banks, nonprofits and state lenders lost the authorization to originate any new FFEL consolidations at all after 6-30-2010.
Thus, Direct Loan is the only game in town for consolidation -- http://loanconsolidation.ed.gov/index.html
Yes, it would also save the taxpayers significant money to get more people to consolidate. The cost savings might be even higher if they could identify the borrowers for whom lenders are getting a guaranteed rate of 9.5% on the borrowers' loans and get them to consolidate into direct loan.
Why would lenders not want to mention a benefit
that is available to many of their borrowers? They don't want the borrower to find out because they don't want to lose those loan assets to direct loan.
And schools simply do not like shifting the public policy discussion away from how the govt can help them provide financial aid to current/future students. Schools don't want discussion of how to help former students, for example, with more awareness and marketing of loan consolidation.
However, there is a lot of concern from the colleges since the temporary liquidity programs started two years ago about "split servicing" leading to higher default rates, or lower overall customer service, or both. In other words, a borrower's 2005-06 and 2006-07 FFELP Stafford/PLUS loans may be with a regular FFELP lender-servicer, but that borrower's 2007-08 and 2008-09 FFELP Stafford/PLUS loans may have been sold to DoEd and are serviced with one of DoEd's five FFELP servicers. Even if the borrower's FFELP loans are with one of the FFELP servicers that also has a DoEd servicing contract, the servicing is not combined, due to program integrity walls across the corporate structure. When you add to that situation (the borrower having loans in two places) the possibility that the same borrower may soon have loans in a third place -- direct loan (because of no new FFELP loans available after this month), then you then have the potential extent of "split servicing" that has led to Congress acting by enacting the temporary in-school consolidation provision -- which is really designed for the original purpose of loan consolidation -- not to time the Stafford interest rates but to help borrowers to get all their loans with one loan holder or one loan servicer, even if that means a slightly-higher interest rate, due to the rounding up (although the temporary consolidation authority notably does not round up the blended rate . . ). Again, what isn't the word getting out -- even about the temporary in-school consolidation program?
"is the Department of Education still filled to the brim with people that Bush put in there for the past 8 years? If that's the case, why hasn't the Obama Administration made an effort to clean it up?"
Yep, and some of them are now even in charge of implementing "100% direct lending," even though they either once worked at organizations that tried to crush direct lending or they themselves played some role in the effort to crush direct lending.
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