Tuesday, June 2, 2009

Direct Student Loans Draw Fire

The United Negro College Fund (UNCF) has serious reservations about the Clinton Administration's national volunteer service and direct student loan programs.
In the keynote speech at the annual Council for Advancement and Support of Education (CASE) national assembly in Washington, D.C., William
"Instead of concentrating resources on motivating young people to serve and providing more opportunities before, during and after college for people of all ages," said Gray, "H.R. 2010 provides costly subsidies to select individuals engaged in full-time national or community service.
"In our view," Gray continued, "H.R. 2010 needlessly limits opportunities for service while expending extraordinary costs per volunteer--150,000 slots over about a four- or five-year period at a cost of $7.4 billion. Under the existing Pell grant program, you could provide 5 million more people opportunities for higher education."
Gray told the assembly, "We don't need to provide my child or Jay Rockefeller's child subsidized public service to pay off his school debt. What we'd better be doing is investing the limited dollars we have where they will do the most good, and that means giving it to people based on need. The proposed program provides economic assistance precisely where we don't need it."
Gray also criticized the direct lending concept that has been proposed to fund the national service program, noting that having the loan program administered on college campuses rather than through outside lending institutions would present a hardship for small- to medium-size colleges.
"The United Negro College Fund presidents have been on record for the last three years in opposition to direct lending as it's constituted because we're not sure that the Department of Education, even under its capable new leadership, would be able to effectively administer a program such as this," he said.
* In a session entitled, "Building Community Ties After a Natural Disaster," Daniel Kalmanson, director of media relations, Florida Atlantic University, urged fund raisers to follow five steps in dealing with a natural disaster: 1. Review and update your crisis plan on an annual basis. 2. Update your emergency contact list. 3. Make sure you have a battery-operated computer and a cellular phone for use in an emergency. 4. Be flexible. 5. Don't forget the human element.

Local Student Loan Business a Family Affair

With a June 30 deadline looming to lock in lower fixed rates on consolidated student loans, the people at Goal Financial LLC are busier than ever.
The San Diego-based tender specializes in making federal guaranteed student consolidation loans, essentially refinancing multiple student loans at variable rates and converting it to a fixed rate over the full term.
"We had a record week last week and this one coming up we should break that record in terms of loan applications," said Ryan Katz, Goal Financial's chief executive and co-founder.
Three-year-old Goal Financial fielded about $100 million in loan applications for the week beginning June 13, he said.
Coincidentally, Ryan's older brother, Cary, is in the same business. He heads up another privately held student loan company in San Diego called College Loan Corp., which is also seeing a surge in business in recent weeks, driven by the impending increase on interest rates charged for student loans.
Mark Brenner, College Loan Corp.'s president, said with the interest rates on student loans ratcheting up nearly 2 percent starting July 1, many student borrowers are eager to lock in a fixed rate that could save them a considerable amount of money during the life of the loan.
According to a spreadsheet assembled by College Loan Corp., a student borrower with $20,500 in outstanding principal could save at least $2,272 over 10 years, compared with maintaining the variable rate loan.
The savings are even better if a borrower consolidates the loan within six months of graduation, or agrees to have the loan payments withdrawn automatically from their accounts, said College Loan Corp. spokeswoman Tracy Neumann.
As College Loan Corp.'s loan portfolio has expanded, so has its employment. It now has 505 staffers, compared with 450 at the end of 2004, Neumann said.
"We have about 37 openings right now in a range of positions in operations to sales and marketing," Brenner said.
Goal Financial said its loan portfolio today is more than $5 billion, making it the ninth largest of all student lenders. The largest, by far, is SLM Corp., better known as Sallie Mae. The former government agency and now publicly traded firm holds more than $100 billion in student loans.

Student Loan Changes

The first of July is an important date for federal student loans, when interest rates and other terms change. This year, besides the drop in costs for many loans, borrowers in public service professions can take a major step toward student loan forgiveness. Among the July 1 changes:
The fixed interest rate for new, subsidized Stafford loans will drop from 6.8% to 6.0% for undergraduates. Subsidized Stafford loans go primarily to students with family incomes under $80,000, and the government pays the interest while the student is in school (or in deferment). Also, the origination fees for all Stafford loans (subsidized and unsubsidized, undergraduate and graduate) will drop by half a percentage point, to 2% of the amount borrowed.
* More Loans Available. Undergraduates can borrow an additional $2,000 each year in unsubsidized Stafford loans at a fixed rate of 6.8%. Therefore, the total amount of Stafford loans (including subsidized and unsubsidized) that undergraduates can borrow increases to $31,000 for dependent students and $57,500 for independent students. Moreover, students who are interested in teaching and have good grades can receive another $4,000 each year for up to four years via the TEACH program. (TEACH grants become unsubsidized Stafford loans if students do not fulfill a teaching obligation.).

Public Service Loan Forgiveness (PSLF). PSLF is a new federal program that will forgive remaining federal student loan debt after 10 years of qualifying payments and eligible full-time employment. The program is designed for borrowers whose income is low relative to their debt for at least some of their time while in a public service job. (Public service includes employment by federal, state, local, or tribal governments, including the military and public schools and colleges, and by non-profit entities.).
However, PSLF only forgives debt in the Direct Loan program. Thus, to begin making qualifying payments: (1) borrowers who have already consolidated their federal loans with a private lender can reconsolidate into the Direct Loan program to become eligible; (2) once in the program, borrowers can choose one of three repayment plans to qualify: income-contingent repayment, income-based repayment (available in July 2009), or standard (10-year) repayment; and (3) borrowers who have not consolidated their federal loans can apply for a Direct consolidation loan at any time, and those who already have Direct Loans can switch repayment plans at any time.

Student loans and the credit crisis

The news earlier this month that the New Hampshire Higher Education Loan Corp., or NHHELCO, was suspending its alternative student loan programs may have seemed like just a small part of a seemingly interminable spate of bad-to-worse news about the health of the nation's credit system.In some ways,it may be. But in one very important way, it is not.
NHHELCO--a conservatively run student loan organization that's respected by its peers throughout the country--has found itself a victim of the turmoil and uncertainty that are afflicting the nation's credit and capital markets. Normally--meaning just months ago--NHHELCO would find itself paying about 3 percent to bondholders in order to help fund its loan portfolio. Not a giant return, but one in line with an organization that was disbursing loans averaging about 6 percent annual interest.

At this point, student loans still average about 6 percent, but because a recent auction of student loan bonds flailed to attract suitable bids, NHHELCO and others participating in the bond issue will be forced to pay 18 percent to their bondholders. In short, the loan organizations now find themselves in an impossible situation.
Alternative loans are loans that are not backed by the federal government. They are made directly to students who need resources beyond that of the assistance they receive from the college itself, through the federal Stafford Loan program and from their families. In other words, if a year's college tuition is $18,000 and a student's aid package totals $10,000, the student would have had the option of taking out an alternative loan to fund the difference.
In 2007-08, NHHELCO disbursed 4,769 alternative loans to New Hampshire residents, and another 1,500 were disbursed to non-residents. Without the alternative funding, it's anyone's guess how many of those more than 6,000 college students will be able to continue pursuing their education. And that's only in the small state of New Hampshire.

This is an issue that must be addressed sooner rather than later. For years, we have been told about not just the importance, but the necessity, of education in the future of the American economy. The failure to enable tens or even hundreds of thousands of students to pursue their education because of an overheated, greed-fueled adventure into sub-prime mortgage lending would be nothing short of a national disgrace. A nation that can spend hundreds of millions, if not billions, on funding Iraq and Afghanistan's education systems has the moral responsibility to find a way to resolve this deplorable situation at home.

House lowers rates on student loans

The U.S. House of Representatives voted to reduce interest rates on federal loans for college. The College Student Relief Act of 2007 (H.R. 5) was part of the Democrats' first 100 hours initiatives.
The legislation would cut interest rates on need-based federal loans
for undergraduate students to 3.4 percent from 6.8 percent between now and 2011. U.S. Rep. George Miller (D-Calif.), who introduced the bill, said the rate reductions will be funded by "making the program more efficient and effective tor students and the government, at no new cost to taxpayers." Fees for lenders would increase. Tuition and tees at four-year public colleges and universities have risen 41 percent after inflation since 2001.

Social Security Payments Can Offset Student Loans

The government can offset a portion of a debtor's Social Security benefits against student loans that have been outstanding for over 10 years, the U.S. Supreme Court has ruled.
The plaintiff took out federally guaranteed loans in the 1980s, but couldn't repay them because of health problems and economic difficulties. His only income was Social Security disability benefits, which the government used to offset his loan payments.
The plaintiff filed for bankruptcy, and argued that the collection of his student loans was time-barred by the 1982 Debt Collection Act's ten-year statute of limitations.
The 9th Circuit disagreed, allowing the offset.

It said that while the Debt Collection Act created a ten-year statute of limitations, the 1991 Higher Education Assistance Act eradicated that time limit, and a 1996 amendment to the Debt Collection Act specifically allowed for the offset of Social Security benefits.

In a unanimous decision, the U.S. Supreme Court agreed.

Student Loan Survival Guide

Drowning in student loans?
Save yourself from debt using our simple step-by-step plan.

Philip Jones wanted nothing more than to marry his fiancee, fly away to Costa Rica, and embark on the rest of his life. But something was holding him back--the $40,000 in student loans he owes to Direct Loans and Sallie Mae.
Jones, 30, was stressed out because he knew that if he fell .
behind on his loan payments, the U.S. Department of Education could provide offsets against Social Security payments and garnish his wages and tax refunds, without a court order. Until recently, only the Internal Revenue Service wielded such power.

Luckily, the 2004 graduate of Rutgers University College of Engineering knew a little something about forbearance, a temporary suspension of loan payments that most lenders will allow when times are tough. For Jones, his wallet was being pulled in too many directions; he was trying to pay for a house, a wedding, and a honeymoon within a six-month period.
"I didn't have to make a payment for six months, so that money went toward the wedding and honeymoon. It's easing the financial stress," says the mechanical engineer, who works for Hayes Pump Inc., an industrial equipment distributor in Fairfield, New Jersey.

For the class of 2002, the most current information available, the median student debt was $16,500, according to Sallie Mae, the nation's leading provider of education funding. And with the average college debt burden increasing, many recent grads are finding it hard to manage when the bills are due.
While Jones opted for forbearance, there are plenty of other ways to stay on track with student loan payments without breaking the bank. Erin Korsvall, spokeswoman for Sallie Mae, offers a few tips for taking the pain out of repayment.