The Department of Education is rapidly becoming the only student loan consolidation option for new graduates, The Pittsburgh Tribune-Review reports today. The article noted that many lenders, including Sallie Mae, which I reported on previously, have suspended their consolidation programs because in the current credit climate, they say, it is no longer economical:
The Pennsylvania Higher Education Assistance Agency, PHEAA, suspended its consolidation program in February. Sallie Mae, Nelnet and Next Student – all among the top 10 consolidators in 2007 — followed suit. Of the top 100 consolidators, 68 have suspended consolidations, said Mark Kantrowitz of Cranberry, publisher of FinAid, an online resource about financial aid…
In July 2006, federal loans began to carry a fixed 6.8 percent interest rate, so there are now fewer benefits to consolidating, and it’s more expensive for lenders, said Martha Holler, a spokeswoman for student loan lender Sallie Mae.
“It’s just not economical to make these loans,” she said. “The current credit crisis; the turbulence in the capital markets would have to settle down (in order for Sallie Mae to resume consolidation loans.)”
This might not be such a big deal except that many private and state loans are ineligible for consolidation through the Department of Education, which means that consolidating doesn’t necessarily come with one of its biggest benefits anymore – one monthly payment instead of several.
A group of about 50 students protested student loan debt outside of the Department of Education in Washington D.C. Saturday, reports WTOPNews.com:
They danced and chanted “Education is a right! Student power! Fight, fight, fight!”
The protesters also had letters delivered to national education officials requesting that they ease student college debt.
Good for them! It’s always great to see people taking action for a cause they believe in, and it would be interesting to see what would happen if a nation-wide coordinated movement were developed like what happened Saturday with the Prop 8 protests.
At least somebody’s profiting from the economic downturn.
IndyStar.com reports today that Premiere Credit, which has a lucrative contract with the Department of Education to collect on delinquent student loans, is expected to double in size in the next few months, in sharp contrast to other debt collection agencies, which have been struggling as the poor economy makes it more difficult than ever to collect on bad debts. The reason Premiere is doing so well?:
…[G]overnment-backed student loans are much easier to settle than unsecured loans, such as those for credit cards. Not only are there myriad ways to repay student loans, but debt collectors also have the law on their side.
There’s no statute of limitations on collection efforts. The loans, more often than not, can’t be discharged in a bankruptcy. Collections agents can garnish wages, tax refunds and Social Security payments, and they can access a federal database of new hires that makes it easier to find employed people who can pay.
“Student loan collection agencies have tools at their disposal that are the envy of collectors serving other markets,” Legrady said.
Maybe those 300 jobs will be filled by some of those unemployed new graduates out there who won’t be able to pay their loans any time soon. They can call and harass themselves! They can garnish their own wages! It will be a paragon of efficiency! Who says the student loan industry is rotten?
There’s an announcement on the Department of Education web-site today that Under Secretary Sara Martinez Tucker is leaving her position, effective November 21. The press release doesn’t state why she’s leaving – only that she will be “returning home to California.”
Tucker’s responsibilities, which include implementing policy to make higher education more accessible and affordable, will be taken over by Kent Talbert, currently the Department’s general counsel.
Higher Ed Watch has a great blog post today clearly outlining their hopes for college funding and student loan reform in an Obama administration.
Here’s the short version of their list:
1. Better oversite at the Dept. of Education and better (or heck, any) enforcement when lenders break laws protecting students.
2. Reassess the need for two competing federal student loan programs and clean up the way they are run.
3. Reform the bankruptcy law to provide protection for private student loan borrowers.
4. Crack down on unscrupulous, for-profit trade schools.
5. Simplify and stream-line the federal aid system.
The Higher Ed Watch blog has a short discussion/analysis of the newly released Department of Education Final Regulations, which address the new Public Service Loan Forgiveness Program. I’m still learning about this program myself, but from what I gather, the program does not make it clear up front who will be eligible for the loan forgiveness. Borrowers could be working in low-paying jobs for up to TEN YEARS only to find out that they don’t qualify:
In its final rules, the Department did not commit to providing periodic confirmation notices to borrowers about their eligibility. Instead, the agency said that the onus will be on borrowers “to document” their eligibility over time. Department officials said that they do not want to provide borrowers “with a contractual right to the benefit,” as Congress may decide to eliminate the program in the future. Higher Ed Watch hopes that Congress will revisit this issue next year to insure that the program lives up to its promise.