Eric and Sheila Washington, pastors of Texas church Fishers of Men Worhsip Center, along with the church’s secretary and treasurer, have been charged by federal prosecutors with student loan fraud. From KHOU.com:
Prosecutors claim the accused would recruit church members who were students, file for student loans in their names and pocket the cash.
They are also accused of committing fraud against FEMA by overstating the number of Katrina victims their church was assisting.
The South Carolina Student Loan Corporation, the largest lender in that state, has announced that it will stop making private loans. In the current year, about 12,000 students rely on those loans to fund their education.
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.
The New York Times reports that bankruptcies rose nearly 8% between September and October, due to the ongoing economic crisis, particularly dropping home values and the credit crunch. Over 100,000 filings were made in October, the first time the number has gotten that high since the new, harsher bankruptcy law was passed in 2005. Additionally, people filing for bankruptcy have more debt than in past years:
A recent study found that the typical family who filed for bankruptcy in 2007 was carrying about 21 percent more in secured debts, like mortgages and car loans, and about 44 percent more in unsecured debts, like credit cards and medical and utility bills, than filers in 2001.
I was struck that this article didn’t mention student loans at all or the fact that it is nearly impossible to clear them in bankruptcy. The people interviewed certainly had sympathetic stories – homes lost to foreclosure, medical bills, etc., but I wondered about the other people out there – those who are having some of the same issues and can’t get relief through bankruptcy. How are they going to survive?
Amid speculation that Hillary Clinton and Bill Richardson are on Obama’s shortlist for Secretary of State, news about who will be the next Secretary of Education has taken a back seat. Still, a few updates:
First, Jim Hunt, former North Carolina governor declared last week that he is out of the running. From Hunt, who has worked on education issues across the board from early childhood to the college level:
“I just spent several days with the top Obama people,” Hunt said. “Many encouraged me to do it. I told them I would not go to Washington.”
Additionally, Pulitzer-Prize winning columnist Clarence Page showed skepticism about the Colin Powell speculation:
As for Gen. Colin Powell, who served as President Bush’s first secretary of state, Page said the speculation of Powell being appointed secretary of education was “wishful thinking,” even though he thinks Powell would do a great job.
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.
*Update – A commenter has provided a lot of additional information on this issue; I encourage readers of this post to check out the comments section.
Michael Berger, one of the lawyers in the lawsuit against Silver State Helicopters Flight Academy, reported on his blog November 10th that one of the lenders in the case, Citibank, is now offering students 100% loan forgiveness on loans taken out to attend the now-bankrupt school in exchange for being released from future claims. From his web-site:
On November 5, 2008, Citibank began offering 100% loan forgiveness of Citibank SSH student loans in exchange for an assignment of the student’s claims against SSH and against Citibank. We highly recommend that all of our clients with Citibank loans accept this offer. 100% Loan forgiveness has always been our highest goal for each and every one of our SSH clients. It is a complete victory for each and every one of our Citibank clients. It sets the bar high for KeyBank and Student Loan Xpress, the 2 other banks that wrote the majority of the SSH student loans.
I don’t know much about this case, but apparently Silver State had students pay tuition, approximately $70k, up front using loans that the school helped them arrange through private lenders. The school wound up declaring bankruptcy in February of this year, leaving hundreds of students in the lurch. Berger’s firm has been investigating whether there was collusion between the school and student loan lenders.