Category Archives: Student Loans

Round Up

DB’s not done a round up recently, which is a bad thing because there are some excellent posts and articles that deserve highlighting:

The Nevada Progressive sat in on Rep. Joe Heck’s (R-NV3) social media ‘town hall’ and reports how the Congressman’s Tea Party Agenda is definitely showing.  ICYMI: The Gleaner is promising more posts! Hurray! And this post is worth the click for wordsmithing excellence like describing Dean Heller as “Senator By Appointment Only.”   Speaking of the Senator By Appointment Only, The Nevada View takes a look at the Slippery Solon’s outreach to Hispanic citizens and his actual voting record.  The Nevada Rural Democratic Caucus blog itemizes the differences in the priorities of Our Senator By Appointment Only and his challenger, Rep. Shelley Berkley (D-NV1).

The Sin City Siren asks what word the Speaker of the Michigan House would substitute for “vagina?”  Good question!  Adalia Woodbury covers the Michigan protests at PoliticusUSAGOP Stupidity has the video. Adriana Vasquez, a janitor for the JPMorganChase Tower in Houston, TX has a question for CEO Jamie Dimon –  Why don’t you pay your employees a living wage?  It would take Ms. Vasquez 2,500 years to earn what Mr. Dimon makes in one year.  [Crooks & Liars]  Speaking of Underpaid — what about food service workers?  More at Obsidian Wings. And what’s not to love about Nuns On A Bus? (Video from Political Carnival)

What War on Women? Deep in the heartlessness of Texas, 50 votes in 10 years against health care for women. See the Burnt Orange Report.

Hey kids! Look at the Calendar — the lower student loan interest rate expires on June 30th.  NRDC informs us that the average student indebtedness in Nevada is $16,662.  For more information see the Obama campaign web page “Making College Affordable.”  Don’t miss this one: “Disaster Capitalism, K-12 Education, and Corporate Takeovers of Progressive Organizations,” in Odd Times Signatures.

The economics corner:  Is the German economy getting a little bubbly? Angry Bear takes a look at the construction industry.   Clusterstock has two really interesting pieces — “How the London Whale Got Away With Murder” — and “Jamie Dimon Exposes a Huge Loophole…”   Don’t miss the Economic History of the Last 2000 Years, from Atlantic, in four charts.

Bonus Chart for the Day: From The Gavel.

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Filed under 2012 election, Berkley, Congress, Economy, education, financial regulation, Heck, Heller, Nevada politics, Student Loans, Women's Issues, Womens' Rights

Double Trouble: Rate for Student Loans on a Tight Calendar

Famous last words?  “We’re confident that if Congressional Republicans are serious about sparing more than 7 million students the equivalent of a $1,000 tax hike, Members of both parties can come together and get this done before rates double in two weeks,” White House spokesman Matt Lehrich said.”  [Roll Call] First, some of those 7 million individuals staring down the barrel of a doubled student loan interest rate are right here in Nevada.  Secondly,  the two parties aren’t all that far apart.

There’s the GOP version of how to pay for the program: “The Republicans offered an increase in current employee contributions to the Civil Service Retirement System over the next three years to offset the cost.”  And, there’s the Democratic version: “ Reid proposed a payfor that already was agreed to by Republicans in a Senate transportation bill. Reid suggested creating fewer tax deductions for pension contributions and increasing premiums that employers pay in to the Pension Benefit Guaranty Corp.”  [Roll Call]

There are TWO weeks before the deadline.  There are only six more work days on the House of Representatives calendar. [House]  The Senate recesses for “state work” sessions on May 28th. [Senate] Movement with a bit more alacrity might be in order.

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Filed under 2012 election, House of Representatives, Reid, Senate, Student Loans

Reid Suggests Compromise on Student Loan Rates

From the e-mail inbox, Senator Harry Reid (D-NV): “Washington, D.C. – In a letter to Speaker John Boehner and Minority Leader Mitch McConnell, Senate Majority Leader Harry Reid today offered two bipartisan proposals to pay for a one-year extension of student loan rates to prevent them from doubling on July 1st. The first proposal expands an offset that recently passed the Senate on a strong bipartisan vote of 74-22 as part of the transportation jobs bill. The combination offers a bipartisan path forward to break the impasse currently facing the student loan bill.”

OK, but I’m still not happy.  First, there is really no excuse for putting student loan interest rates up for revision on an annual basis.   Last time I looked it still took four years to get a college degree, and longer if the individual was interested in advanced degrees.  Advanced degrees being the kind that get a person into the 3.6% and below unemployment categories. [DoL]

Secondly, not so long ago it was declared unnecessary to put the cost of military operations in Iraq and Afghanistan  on the books, and thus the Bush Administration ran those activities via emergency supplemental appropriations without any mention of “pay fors.”  Neither was it deemed necessary to subject  the Medicare Part D program to “pay fors,” with some demonstrably budget busting results as of January 1, 2006.   However, when we’re speaking of educating our future work force — now, suddenly it’s absolutely essential we “pay for” every federal expenditure.

Granted, it is more fiscally responsible to know from whence the money is coming to pay for federal expenditures.  However, would it crush the Job Cremators so much to have a loophole for ultra-wealthy hedge fund and lobby shop operators closed? — as was suggested, and as caused Senator Dean Heller (R-NV) to issue his usual  cri de coeur for “small business.”

And thus we continue to tinker, Senator Reid offering the following:

(1)    Reforms to employer pension payment contributions. The proposal outlined by Senator Reid would create a “stabilization range” for employers to compute their pension liabilities. Instead of being forced to use the two-year corporate bond rates in computing their pension liabilities, the new proposal would allow them to compute liabilities using rates for a 25-year period within which the two-year rates must fall.  To the extent that the two-year rates fall outside this range, the company would be allowed to use a rate closest to the two-year rate that falls within the stabilization range to compute its pension funding requirements.  This more flexible approach would narrow fluctuations in computing pension contributions and result in businesses taking fewer tax deductions for contributions.

(2)  Change contributions to Pension Benefit Guarantee Corporation premiums. In addition, Senator Reid proposed increasing premiums paid by employers for the insurance provided by the Pension Benefit Guaranty Corporation.  Currently, employers pay a flat dollar premium of $35 per pension plan participant as well as a variable premium equal to $9 for each $1,000 that the plan is underfunded.  To help improve the PBGC’s finances, these premiums could be increased as part of this proposal.

“The combination of these two proposals will provide sufficient resources to fund both a one-year extension of the current student loan interest rate and re-authorization of the nation’s surface transportation programs.”

OK, if we adopt these proposals then we get a continuance of the 3.4% student loan rate AND the re-authorization of the surface transportation programs.  And, I can hear it now — OMG, a more flexible approach to calculating pension fund contributions will be “a plague upon Capitalism?”  Or, increasing the premiums for the PBGC will be a “onerous burden on job creators?”   The former argument is offset by the fact that BUSINESS groups are the ones asking for the recalculation of the pension funding formula. [WallStJournal]

There are reasons to be concerned about the recalculation of pension fund contributions, none of which have anything to do with plaguing Capitalism.  One major cause for careful consideration is that changing the formula could have detrimental effects on defined benefit plans.  [WallStJournal]

The Pension Benefit Guarantee Corporation is already facing some serious issues, some of which were outlined in a 2010 report from the GAO:

“Plans in the worst condition may find that the options of increasing employer contributions or reducing benefits are insufficient to address their underfunding and demographic challenges. For these plans, the effects of the economic downturn, declines in collective bargaining, the withdrawal of contributing employers, and an aging workforce will likely increase their risk of insolvency. Without additional options to address plan underfunding or to attract new employers to contribute to plans, plans may be more likely to require financial assistance from PBGC.  Additional claims would further strain PBGC’s insurance program that, already in deficit, it can ill afford.”

Economic growth, as we’ve seen in the private sector over the past 27 months, will help these issues, but asking employers to pay increased premiums to backstop an already serious issue isn’t too much to ask.  If the corporations make additional contributions, then the PBGC isn’t further behind the eight-ball when companies fail.

On the optimistic side, both suggestions from Senator Reid have received bi-partisan support in the past.  On the pessimistic side, chucking their previously held positions over the side has become a Republican art form — witness the individual mandate for health care insurance coverage, and “cap and trade” schemes for pollution elimination.

Since it’s been “campaign season” since January 20, 2009 I am a bit leery of Republican cooperation in the U.S. Senate.  Meanwhile, the clock is ticking as students and their parents try to get body and soul together concerning educational expenses for the next school term.

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Filed under Economy, education, employment, Heller, Reid, Student Loans, unemployment

Student Loan Rates Will Double So GOP Can Protect Top 0.5%?

The deadline’s looming and this is what we get from Senator Dean Heller (R-NV):  “Instead of compromising, the Democrats want to raise taxes on small business at a time when we need jobs,” Nevada Sen. Dean Heller said of the Democrats’ plan last month, calling their insistence on their bill “further proof that Washington is broken.”  [LVSun](emphasis added) Note the “small business” insertion.  It’s required in all GOP utterances about taxation.

What’s on the table?  “Take the student loans debate. In the past month, Senate Democrats lost a vote on their bill to offset the $6 billion cost of keeping student loan interest rates at 3.4 percent by closing a tax loophole on hedge funds. Senate Republicans lost a vote on their bill to offset it by stripping money from a health care prevention fund.” [LVSun] (emphasis added)

Now, go back and substitute “hedge funds” for “small business” and you will have the drift of the Republican argument.  It is better to allow student loans rates to double to 6.8% than it is to close a tax loophole on hedge funds.

This raises some questions about the core message of the Republicans, Senator Heller included.

#1.  What is a Small Business?  “… what Congressional Republicans Define as “Small Businesses” are Predominately Millionaires and Billionaires, Corporate Law Partners, Hedge Fund Managers. Congressional Republicans define as small businesses any individual who receives “small business income”.” [Wh]  OK, so what is “Small Business Income?

Back in August 2011 the OTA attempted to define what constitutes a small business for tax purposes (pdf).   The OTA suggests that previous definitions are overly generous:

“Although “small business owners” are often the subject of tax policy debate, a consensus does not exist regarding the specific attributes that distinguish small businesses from other firms. Previously, the Office of Tax Analysis had counted a small business owner as any individual who receives flow-through income from a sole proprietorship, partnership, S corporation, farming operation or miscellaneous rental activity. This overly broad definition was used because, for the majority of flow-through business income (partnerships and S corporations), it was not possible to trace income from the business entity to the respective owner(s). Due to newly accessible tax data, this technical constraint has been overcome.” [OTA pdf]  (emphasis added)

Notice that the old definition classified a small business person as ANYONE receiving flow through income from just about anywhere.  Major money makers took full advantage of this rather loose categorization.

Over half of the 400 Highest Earners in the United States Would Be “Small Businesses”: According to IRS data, in 2009, among the 400 taxpayers with the highest adjusted gross income – group that averages over $200 million each in taxable income – at least 237 would have qualified as “small businesses” under this definition. [Wh]

How nice for them, because these “small business persons” are NOT necessarily the butcher, the baker, the candlestick maker, the auto parts dealer, the retail grocery owner, the furniture store owner, the beauty shop proprietor, the catering service, the garage owner, or the corner bodega shop keeper.

If we count absolutely ANYONE who gets income from S corporations, proprietorships, and partnerships, then each and every member of a law firm’s partnership is categorized as a small business person, including the lobby shops in Washington, D.C.  Each and every partner in a hedge fund is categorized as a small business person. Each and every individual getting passive investment income is a small business person.

The definition of a small business is problematic, but even suggestions that accounting treatments be changed brings howls of “tax increases” to “job creators” from the Republican side of the aisle.  During the last big debate on student loan rate reductions:

“…the Republicans would not accept the Senate Democrats’ proposal to pay for a one-year extension by changing a law that allows some wealthy taxpayers to avoid paying Social Security and Medicare taxes by classifying their pay as dividends, not cash income.”  [NYT]

This is nice work if you can get it.  You are a “small business” if ANY of your income passes through from passive investments, hedge funds, law firms, and lobby shops.  AND for the wealthiest among us you get to avoid paying payroll taxes by classifying earnings as dividends and not cash income.

#2.  Exactly what “small businesses” would have be affected by S. 2343? Here’s the loophole the Democratic leadership was trying to close:

Amends the Internal Revenue Code and title II (Old Age, Survivors and Disability Insurance) of the Social Security Act to require certain shareholders of a subchapter S corporation engaged as a partner in a professional service business to include income or loss attributable to such business in their net earnings from self-employment for employment tax purposes.

Restricts such tax treatment to shareholders whose modified adjusted gross income exceeds a specified amount that varies based on their tax filing status.

Defines a “professional service business” as any trade or business providing services in the fields of health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services.  [Thomas]

The loophole would be closed for anyone earning over at least $250,000 AGI from a proprietorship, S corporation, or partnership.  [Thomas]

To get an idea of just how few people would be discomfited by this change in accounting treatment, note that the average annual earnings for a  medical practice is about $158,000.  Average mean annual earnings range from about $154,000 to $199,860.  [BLS]

The Bureau of Labor Statistics reports that the average earnings for members of the legal profession range from $75,350 annually for lawyers working with insurance carriers  to $199,850 for lawyers in the energy sector.  Architects and engineers may expect to see a range of annual earnings from about $73,000 annually up to approximately $105,000. [BLS] Salaries for accountants range from $40,000 to about $110,000 annually. [BLS] For all the brouhaha about over-paid athletes, most professionals can expect to earn about $79,830 annually. [BLS]  The annual mean earnings for farm and ranch operations comes in at approximately $70,000 [BLS]

So, what small businesses are  Senator Heller and his Republican cohorts so diligently protecting?    The average sports agent is taking in about $92,500.  The average personal financial adviser earns $90,900.  The average chief executive officer earns about $176,550.  [BLS] The majority of those people engaged in the specific occupational fields set forth in the terms of S. 2343 would not be affected at all by the changing accounting treatment.

When it all boils out, what’s left is the notion that the top 0.5% must be assuaged, even if the sons and daughters of most health care professionals, most lawyers, most architects, engineers, and accountants, most sports agents, and most management consultants pay double the current rate on their Stafford Student loans.

Thus, to the farmer, the rancher, the architect, the lawyer, the physician, the accountant, the agent, the engineer, the broker, the financial adviser, and the management consultant…. and to the artist, baker, clothing shop owner, computer specialist, landscape company proprietor, right on to the veterinarian and the zoologist…. Senator Heller’s message is clear.

It is more important that the ultra-rich be protected than it is for your son or daughter to find an affordable student loan.

Oh, wait, the Republican did offer another solution — just drop the preventative health care funding from the Affordable Care Act.   Stripping funding for cancer screenings, anti-obesity programs, and health care awareness for youngsters didn’t seem very popular, so now the GOP has come back with “tweaks” to the FY 13 budget for offsets.   These would include requiring federal employees to contribute 1.2% more to their own retirement funds, a revision of Medicaid taxes, auditing Social Security overpayments, and changing the timeline for the accrual of student loan interest.    The Republican wrote to the President, Senator Tom Harkin (D-IA) responded: “…if Republicans were really serious about negotiating a plan to pay for the bill, they would be meeting with Democrats on the Hill, not writing letters to the president.”  [USN]  Harkin also added that there was no way the Tweaks added up to a real solution.

And, what’s really interesting —  is that in the past there was Republican support for closing the very loophole the Democrats are now suggesting. [USN]  How do we spell O b s t r u c t i o n i s m?

You may never know what results come of your action, but if you do nothing there will be no result.”  Gandhi.

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Filed under Heller, Politics, Student Loans

Just a few late night questions

#1.  The Republicans on Capitol Hill appear determined to oppose reduction of the student loan interest rates without some “pay for.”  First, why was there no “pay for” when they passed tax reductions for the richest among us? Secondly, Bankrate.com is reporting that 30 year fixed mortgages cost 3.82%, a new car loan for 48 months has an interest rate of about 3.28%, and a home equity loan for $30,000 carries 5.78%, so why must student loans be more expensive than just about any other major form of credit?

#2.  Why did House Speaker refer to the Affordable Care Act provisions for cancer screenings for women as a “Slush Fund?”   Republicans would like to cut the $17 billion set aside for breast and cervical cancer screenings, child immunizations, and wellness education.

#3. Which is ultimately more important to the health and well being of our entire nation: (a) tax breaks on multimillion dollar estates, or (b) feeding school lunches to 280,000 children for the next ten years?

#4. What is more important to national commerce, protecting the Bush Tax Cuts for millionaires and billionaires, or doing something about the 69,220 highway bridges in this country that are structurally deficient?  [DoT, RITA table I-28]  Isn’t there something of a disconnect when we consider that bridges are generally built to last 50 years, but at the rate we are repairing and replacing them it may take 100  years to fix the problems we already have?

Just asking…

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Filed under Congress, Federal budget, highways, Republicans, Student Loans, Taxation, Women's Issues

>Angle’s Answers To Economic Recovery: Don’t Bail Out Corporations, Subsidize Them With Taxpayer Dollars

>There’s something neat and tidy about Nevada senatorial candidate Sharron Angle’s positions on how to avoid “bailouts” such as the TARP program enacted in the waning days of the Bush Administration. We’d not need bailouts under Angle’s proposals — we’d be subsidizing corporations with taxpayer dollars and all will be well. This is a little too neat, and not very tidy.

Social Security: Republican Candidate Angle would privatize the Social Security system granting a huge pot of money to the Wall Street bankers. “Phasing out” the Social Security system would put the contributions of approximately 96% of American workers into the coffers of Wall Street, all while significantly raising the national debt and reducing benefits. When we looked into privatizing Social Security during the Bush Administration,”An analysis of those proposals showed that paying for new personal accounts while continuing to provide benefits to Social Security’s current beneficiaries would require some combination of federal borrowing, tax increases, and benefit cuts amounting to between $2 trillion and $3 trillion over the coming decades.” [SSec CBPP]

Private investment houses and their trading desks, have sought to get their hands on those contributions from 96% of the working American public for years; Candidate Angle would hand them over on a platter.

Health Insurance: Republican Candidate Angle would restore greater profitability to the nation’s Health Insurance Corporations via the following recommendations from her pre-scrubbed web pages: Sharron Angle suggests the followings possible solutions, which could be implemented across the nation, for the reduction of healthcare costs: (1) Elimination of coverage mandates (2) Expanded client pools (3) Tort reform (4) Purchasing insurance across state lines (4) Tax credited health savings accounts. These were repeated on the “shiny new website.” Yes, indeed, the Health Insurance Corporations could save much coin of the realm were they not required to cover items like prostate examinations, mammograms, and vaccinations for children. Her call to repeal the recently enacted health care reform legislation is consistent on both sites, pre-and post-primary. [NVAppeal] So, Health Insurance Corporations could refuse to cover mandated items, and then when the individual became ill, the corporations could simply continue to abuse the rescission clauses and deny coverage for treating the subsequent illness. “Purchasing insurance across state lines” is insurance code-speak for avoiding state mandated coverage as well. Since Candidate Angle has mentioned this twice, we can reasonably assume that eliminating mandated coverage outright, or by “allowing” a company based in a state with the lowest possible coverage to sell policies nationally, is a high priority for her. It was a high priority for the Health Insurance Corporations too.

“Expanded client pools” is code for regional coverage, the problem is that we aren’t to know just how “expanded” these pools might be. Smaller, regional, pools would have little or no leverage in the system in terms of actually reducing costs, especially in contrast to the major Health Insurance Corporations. “Tort reform,” by the admission of the insurance industry itself, would reduce costs equivalent to little drops in the total bucket, but never mind [EDC] — this has been an agenda item for corporations for decades. If you are injured because of their recklessness, negligence, or outright fraud, their message is simple: “Get Over It; We Intend To Pay No Punitive Damages To Make It Costly To Reform Our Practices.”

We should also mention to Candidate Angle that Health Savings Accounts already exist. They work well for the healthy, wealthy, and young. Expanding the mandate for HSA’s would also serve to enhance the balance sheets of Wall Street investment firms. More money coming in equates to more money available to gamble in the Wall Street Casino.

Phase out Medicare: Candidate Angle would “phase out” Medicare, a position not likely to garner too much support from those who enjoy its benefits. “Angle said, “We need to phase Medicare and Social Security out in favor of something privatized.” [LVSun] And, that “something privatized” would be what? Candidate Angle has implied her support for portions of Rep. Paul Ryan’s “RoadMap Plan,” and since that is one of the few that the GOP has offered with any degree of specificity, lets review what that would do. According to Congressman Ryan we could “phase out” Medicare all at once by creating a voucher system ($11,000 per eligible person): “For future Medicare beneficiaries who are now under 55 or younger (those who first become eligible on or after 1 January 2021), the proposal creates a standard Medicare payment to be used for the purchase of private health coverage. Currently enrolled Medicare beneficiaries and those becoming eligible in the next 10 years (i.e. turning 65 by 1 January 2021) will see no changes in the current structure of their Medicare benefits. The payment will be made directly to the health plan designated by the beneficiary (similar to the administration of the refundable health care tax credit), with the beneficiary receiving any leftover amount as a payment from the health plan, or assuming financial responsibility for any difference in the payment and the total cost of the premium. This allows the Medicare beneficiary to invest the leftover amount in a Medical Savings Account [MSA] to pay for other medical expenses, or to purchase long-term care insurance.” The Republican romance with vouchers remains intact. These vouchers for taxpayer dollars would go, as seen in the emphasized portion above, directly to the “health plan,” read: Health Insurance Corporation.

De-regulate Wall Street: Candidate Angle is already on record opposing financial regulation reform [LVSun], and this perspective would allow major financial institutions to continue their merry way into that Wall Street Casino. Nothing might so warm a trader’s heart than to hear that the mean old SEC, Fed, or Consumer Financial Protection Agency, would as much as wiggle an accusing finger as third-generation synthetic CDOs were marketed to anyone willing to assume the risk — even if the marketing was solely designed to generate bonuses for the investment house. What music to their ears that commercial banks, as an element of a bank holding company, could use depositor’s accounts to leverage their own gambling on the street? Traders, under Angle’s proposals, would be perfectly free to indulge in “excessive enthusiasm” generating Bubble after Bubble, blithe-fully ignoring Black Swans and “Fat Tails” in their algorithmic trading models.

Subsidize the banks in the student loan business: As if Candidate Angle isn’t offering up enough fruit to financial institutions, she’s advocated eliminating the Department of Education. Before reforms enacted early this year, banks were subsidized by taxpayer dollars to make student loans. The system was relatively simple, the bank would make the loan and then the loan would be guaranteed by the Federal government. Bluntly speaking, this put all the profit in the hands of the bankers and all the losses on the taxpayers. Eliminating the middleman, the banks, in the Student Loan Program should yield about $68 billion in savings to the taxpayers over the next 11 years. [CSM] By eliminating the Department of Education, which administers the student loan program, Angle would return that $68 billion to the bank holding corporations, and put the burden of guaranteeing the loans back on the taxpayers. Nice for the bankers, not so nice if you are a taxpayer who is not a banker.

Let’s be very clear about this, what Candidate Angle is advocating is NOT free enterprise. If she were truly proposing “free market” solutions, she would not be supporting (1) the subsidization of unregulated Wall Street trading operations using retirement safety net funds contributed by 96% of American workers; (2) governmental subsidies or direct payments to Health Insurance Corporations; or, (3) the subsidization of bank holding corporations by letting them take all the profit and assume none of the risk for student loans. From the “Trite But True Department,” Candidate Angle is arguing for Socialism for the Rich, and Free Markets for the rest of us.

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Filed under Angle, Medicare, Social Security, Student Loans

>Dante and Astro-Turfing for Already Well Buttered Bread: Citigroup Lobbies Against More Affordable Student Loans

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Dante envisioned a special place with Plutus in the Fourth Circle for those avaricious souls who will spend eternity arguing with the prodigal. The denizens of the 5th Terrace will lie face down, weeping, praying, and calling out examples of greed. If Dante’s portrayal is accurate then we can expect the astro-turfing representatives of the student loan industry to spend a considerable amount of time on their tummies in punishment for their excessive attachment to quarterly and annual profits, at taxpayers’ expense.

Talking Points Memo reports that Citigroup, a beneficiary of a nice $45 billion bailout, is encouraging students to write to their congressional representatives in opposition to the Obama Administration’s student loan plan. Why would the executives at Citigroup risk spending eternity on their tummies on the 5th Terrace? Because not only is there a persistent figure being tossed about that the banks are making $15 million per day on student loans, there’s the residual underlying 9.5% loophole. A 1980 provision in the Higher Education Act guaranteed lenders a 9.5% return on the loans they issued to students – no matter what the actual interest rate of the loan. As of 2001, interest rates were less than 5%, meaning that for every loan “billed” under the auspices of the 9.5% loophole (subsidy), “the government was making up the difference by handing banks nearly twice as much as it gave the student borrowers.” [Salon] The 9.5% loophole was eventually closed, but not before outfits like NelNet had made off with millions. [Salon] In October, 2004, President Bush signed H.R. 5186, (PL 108-409) which closed the 9.5% loophole for one year. [NASFAA] In December 2008, with seven weeks left in the Bush presidency, lenders were clock watching after it was estimated they’d pulled more than $1 billion though that convenient 9.5% loophole. [CHE] However, the infamous loophole wasn’t the only prize won by the student loan industry.

The statutes protect the lenders by making student loans the only type of loans for which bankruptcy protection is prohibited. The lender is further protected by the fact that after one loan consolidation the borrower may not seek refinancing. [BG] Recent estimates say that the federal government (the American taxpayers) could save approximately $94 billion over the next ten years by ending the private student loan subsidy program. “The private lenders rake in huge profits with very little risk, because the taxpayers are backstopping the loans.” [MSN] And, speaking of CEO compensation – last year Sallie Mae awarded its CEO $4.6 million in cash and stock, and its Vice Chairman more than $13.2 million in cash and stock, including the use of a company plane.” [MSN] So, how are the executives in the student loan industry pitching their PR campaign?

Pitch One: “If you believe that competition and choice among student loan providers is valuable, you have an opportunity to make your voice heard.” [TPM] This is one of those ethereal arguments in which the pitchman offers up “competition and choice” as if the inclusion thereof will automatically yield benefits. Not. So. Fast. This might be true IF the theoretical “competition and choice” actually resulted in private loans being cheaper than their governmental counterparts. However, the only favorable comparison is actually with “credit card” alternatives: “Private education loans tend to cost more than the education loans offered by the federal government, but are less expensive than credit card debt. The federal education loans offer fixed interest rates that are lower than the variable rates offered by most private student loans. Federal education loans also offer better repayment and forgiveness options. Since federal education loans are less expensive than and offer better terms than private student loans, you should exhaust your eligibility for federal student loans before resorting to private student loans.” [FinAid]

Going a step further into the fine print, Citigroup itself admits at the very bottom of its online introduction to its student loans, “Private student loans are originated by Citibank, N.A. and assigned to The Student Loan Corporation.” Some choice? As for ‘differentiated benefits,’ “In no other federal financial aid program are schools or recipients provided a choice of fund delivery. Loan benefits are statutorily set and virtually no FFELP lenders are providing differentiated benefits; the concept of ‘choice’ is not relevant.” [MMA]

Pitch Two: You (the borrower) will miss out on “innovations.” Citigroup redundantly lists “a variety of borrower benefits that lower your cost of borrowing,” whatever on Earth those might be. [TPM] And, “financial literacy programs that educate you on how to borrow responsibly.” I’d hate to be the one breaking it to the financial industry, but there are “financial literacy programs” in abundance, ranging from Junior Achievement’s Personal Finance Center, to VISA’s Practical Money Skills, to the nonpartisan National Council on Economic Education’s resources. Getting a “financial literacy” benefit from taking out an expensive student loan is tantamount to those ads on TV telling you that you’ll get your credit report FREE…after you sign up for their product. “But, wait, there’s more!” The student loan industry wants you to know that you’ll get “web based tools and resources to advise you about your financing options.” Really?

Want “ web based tools and resources to advise you about your financing options?” How about trying MSM Money’s “Scholarship Search Wizard?” (Or, a person could also try one of those “non-web based” operations like the Counselor’s office or the Financial Aid officer.) Need a “Tuition Calculator” to see if you’re saving enough? Or, might someone need an introduction like a “5 minute guide to college costs?” Need to see Student Loan Averages by product and rate? Bankrate.com has this information on its home page. Also included on the Bankrate.com college finance home page is a handy “compare student loan rates calculator. The search for these resources which Citigroup wants students to believe are so esoteric and obscure that a person should take out a student loan to find them took me all of less than 15 minutes using The Google.

Pitch Three: You get “Default prevention services to help you pay back your loans.” And, presumably, you get collection agencies when you start missing payments. What’s conveniently omitted here is any reference to the fact that it’s the borrower’s credit rating that gets blasted, while the lending institution is guaranteed payback by the taxpayers.

Why does this matter? Simple, given shortfalls in state and local funding for institutions of higher education, very notably in Nevada, the cost of a college degree is going up while the opportunities for student employment, and person family wealth, are headed in the other direction.

University of Nevada registration fees are currently $129.50 per credit hour, and will increase to $142.75 per credit hour in the 2010/11 academic year. Graduate fees will increase from $198.00 per credit hour to $239.50 during the same period. Dormitory expenses? Expect $3,272.00 per semester for a double room with a phone. Eating? That could cost anywhere from $1,575 to $1,955. [UNS]

Those readers who believe that the student loan sector of the financial services industry should be directed by the very CEO’s who brought us the current meltdown, and that those business leaders have earned their multi-million dollar compensation packages and the use of the corporate jets – while the taxpayers are bailing them out and subsidizing their loans are cordially invited to sign up for Citigroup’s Astro-Turf ‘movement.’ On the other hand, those uncomfortable with wasting $94 billion over the next ten years might wish to contact their congressional representatives about supporting the Obama Administration’s plan for student financial aid.

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>Student Loan Bill Passes: Heller and Porter offer 50% support

>
If you are pleased to see that Congress has passed H.R. 2669, the College Cost Reduction and Access Act, lowering interest rates for student loans, it isn’t necessary to thank Nevada Representatives Heller (R-NV02) and Porter (R-NV03) both of whom voted against the consideration of the conference report on September 7, 2007. [roll call 861] The motion to consider the conference report passed anyway, 220-185, Rep. Berkley (D-NV01) voting in favor. Porter and Heller then “flip flopped” and voted in favor of the Act on roll call 864 along with Rep. Berkley. Both Nevada Senators Reid and Ensign voted in favor of the conference report. [roll call 326]

Although President Bush had previously announced he’d veto it, he’s now indicating that he will sign the Student Loan bill passed by Congress by votes of 292-97 [roll call 864] in the House, and 79-12 in the Senate. [HouChron] The bill would increase the maximum Pell Grant for low income college students and cut the interest rates on federally backed student loans from 6.8% per year to 3.4%. If the President does sign the bill it would take effect October 1st.

Rep. Buck McKeon (R), the ranking Republican on the House Education committee is critical of the rate cut, saying that students will have to pay the higher rate in four years or the taxpayers will “have to foot the bill for the cut to continue.” [HouChron] McKeon also objected to the bill saying it wouldn’t reduce the cost of a college education [NYT] although the purpose of the legislation is to reduce the cost of the loan program not necessarily the cost of the college education itself.

McKeon’s views may have been influenced by information from one of his major backers, the American Bankers Association, which donated $29,500 to his campaigns, although another major donor, the Career College Association, which has donated $36,308 to his campaigns and represents for-profit institutions that might see their students benefit from the legislation. [OS] However, the bottom line is that McKeon’s objections in large part mirror those of the President.

President Bush’s objections were outlined in a July 10, 2007 statement from his Office of Management and Budget (pdf) The bill, according to the President, might be vetoed because “it fails to target aid to the neediest students currently in college and creates new mandatory Federal programs and policies that are poorly designed and would have significant long term costs to the taxpayer.”

All that remains is for the President to sign the bill, and for analysts to parse the almost inevitable signing statement.
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On private loans: “Back to school time…” Desert Beacon

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>It’s Back to School Time: Do you know where your money is?

>There are three things about private student loans that young Nevada scholars about to launch their studies at UNR, UNLV, or the Community Colleges ought to know. There are no government guarantee programs backing these loans, there are no subsidized interest rates, and there are no mandatory repayment terms. A fourth item may well be that the “buyers need to beware” of this latest Loan Rush Boom.

Private loan borrowers are predominantly dependent students from middle to upper income families attending non-profit institutions, or from low to middle income families attending for-profit educational institutions. The share of undergraduates borrowing privately has increased from less than 1% in 1995-96 to 80% in 2003-04. [Acenet] So, why did these youngsters opt out of the Stafford program?

Some of the reasons sound remarkably similar to those given for other credit offerings. Private student loans may offer a low introductory interest rate, the application process is simplified, and students may lack comparative information about costs and benefits. Students may also be operating under some misperceptions about whether they are eligible for federal student loans. The result is that one out of five students forgo less expensive federal student loans, and half of these don’t even file the necessary paperwork to qualify for federal, state, and institutional grants in addition to federal student loans.

Granted that the eight page/100 question initial forms are daunting, and that the first forms indeed may not be the last, the question remains why would students pass up federally subsidized loans in favor of higher cost private loans just to save some relatively inexpensive ink?

Part of the answer lies in good old fashioned American Marketing, and the coterminous question: Why is this marketing attractive? The Consumers Union Report (pdf) on student loans reports that families may be confused by the college funding process. There are three types of federal loans that students are supposed to be able to compare to the unlimited “direct to consumer” marketing of private loans. If students and their parents lack readily accessible and comprehensible information about the loans it’s obvious how and why mistakes could be made.

Most consumers know to look under the hood of any “as is” motor vehicle on the sales lot. The problem with the student loan industry is that many borrowers don’t know what to look for once the hood is up. The advice about student loans should be exactly what is advised for any credit purchase: Shop Until You Drop. Government student financial aid sites could do a much better job of providing prospective borrowers with the strategic information necessary to make the best deal possible. Consumers Union also found that educational institutions could also do a much better job of clarifying the information contained in college financial aid award letters.

Consumers Union also recommends that borrowers be provided with “plain English” disclosures of rates and terms for private student loans, noting that students and their parents were generally unaware that private student loans are substantially more expensive than federal ones. Further, CU calls for requiring lenders of private student loans to report loan amounts, and terms to the Department of Education so that aggregate data could be used to compile college lending profiles, without, of course, using personally identifiable data.

The tripartite bottom line from Consumers Union: “Tap federal loans first; limit private student loans because of their higher costs; and never finance college with credit cards.” Just how good this advice is can be amply demonstrated by a chart from Temple University’s school of law which shows the variance of interest rates from private lenders associated with their program. Rates vary from 2.55% to 3.95% quarterly depending on credit rating to monthly rates calculated at Prime plus 1% (up to 6%). Some loans have no fees, others may require 2% to 3%, or as much as 6% without a co-borrower. [Temple] These rates are relatively tame compared to some purely commercial loan programs.

Astrive’s glitzy webpage advertises “Get up to $40,000 per year and don’t pay a cent until after you graduate.” There are two caveats included (1) the $40,000 is a maximum amount derived from their calculated “cost of attendance” and, (2) “undergraduates may choose to defer repayment of principal and interest until six months after graduation…” Defer, as we know from credit card debt, doesn’t translate into “doesn’t owe.” Then there’s this bit of fine print at the bottom about their reduced rates: “The 0.25% interest rate reduction is available for borrowers who elect to have monthly principal and interest payments transferred electronically from a savings or checking account…. One has to do a bit more searching on the site to discover that an immediate repayment 240 month loan has an APR of 9.25%, the interest only repayment option is 9.18%, and the deferred repayment option is 9.22%

Sallie Mae offers the “Tuition Answer” loan, it has an adjusted monthly interest rate, plus a margin depending on the borrowers credit history and the addition of a co-signer, touched off with a “one time supplemental fee added to the loan at disbursement.” With immediate repayment of principal and interest their monthly variable interest rate is from 0-5% with the APR ranging from 8.25% to 14.12%; the interest only option APR ranges from 9.5% to 15.25%, the deferment options APR ranges from 9.90% to 15.31.” [SalMae]

The interest rate for a student loan from National City is calculated by adding “a margin” to the London Interbank Offered Rate based on the borrowers and/or co-signers credit rating. Their APR’s range from 9.18% to 9.25%.

By contrast the current Stafford loans charge 6.8% and the PLUS loans are set at 8.5%. [Finaid] The difference between the commercial and the federal program interest rates ought to be sufficient to make a borrower think at least two or three times before finding the “$40,000 in fifteen minutes” pitch attractive.

However, until schools and financial advisers do a better job of explaining the terms, costs, and benefits to prospective students; and, until parents and students demand more transparency from the student loan industry, the Pitch Man will continue modern version of the seductive calls of Pisinoe, Aglaope, and Theixiepi to students in need of financial assistance.
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Acenet Report
“Helping families finance college: Improved student loan disclosures and counseling” Consumers Union
“Cleaning up student loans: with payola and inefficiency, federal aid fails needy students” Campus Progress
Update: See Senator Edward Kennedy’s article on the Huffington Post

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>Diversion 101: Republicans cry "Mom! It isn’t fair."

>As predicted, the Las Vegas Review Journal headlines the latest Republican “manufactured outrage moment” over Nevada Senator Harry Reid’s assessment of outgoing Joint Chief’s chair, General Peter Pace. [LVSun] For the record, such magic moments (Kerry’s botched joke, et. al.) will hereinafter be designated “MOMs” for Manufactured Outrage Moment — rather reminiscent of Paris Hilton’s scream for “Mom” when she found out the judge wasn’t kidding when he said she was going to actually have to serve jail time. And, again — why would the GOP need a MOM at the moment? Perhaps because today’s headlines aren’t much better than yesterday’s.

The botched up electrical system on the International Space Station isn’t the only problem NASA is having at the moment. Chairman Brad Miller and Ranking Member James Sensenbrenner of the House Science Subcommittee on Investigations and Oversight aren’t the least bit amused that Michael Wholly, NASA’s general counsel personally destroyed video records of an April 10 agency meeting between NASA administrator Michael Griffin and the staff of the Inspector General’s office. And, why did Wholly decide he should “break them into pieces and throw them in the trash?” Ans: Because “..if they were retained and filed, they would become (government) records by virture [sic] of that retention. From my perspective…I did not believe it wise to have these in any way become records, subject to release under the FOIA.” [Gavel] Representatives Miller and Sensenbrenner wrote yesterday to the Department of Justice urging that Mr. Wholly’s actions be investigated for possible prosecution. [Gavel]

More School Daze: A report released by Senator Edward Kennedy (D-MA) shows that the cosy relationship between student lenders and university officials was more pervasive than previously disclosed. [NYT]

Nelnet, a lender based in Nebraska, created an elaborate point system to reward college officials who advised it. Contributing an idea for a product earned 25 credits. Completing an online survey won another 25. The credits could be redeemed for donations to an “alma mater or college/university of choice.” Each was good for $1.” [NYT] *Nelnet was on Nevada Congressman Jon Porter’s (R-NV3) Top Twenty Contributors list in 2005-06, donating $11,000 to the Congressman’s campaign coffers. [OS]

The full report, “Marketing Practices in the Federal Family Education Loan Program,” is available on Sen. Kennedy’s website. (pdf)

Where are the MRAPs? Back in February 2005 the U.S. Marine Corps made an urgent request for 1,169 MRAPs (a vehicle designed to mitigate the effects of IEDs). The Pentagon sent more Humvees, and didn’t actually order the MRAPs until May 2006 — and then ordered only 185 of them. Defenses Secretary Robert Gates is now asking for an internal Pentagon investigation into why this “priority 1 urgent” request wasn’t processed correctly. [McClatchy] Five more U.S. soldiers were killed in Iraq a day after extremists fired shells into the Green Zone. Three of the soldiers were killed when a bomb exploded near their vehicle (type unspecified) near Kirkuk. [Army Times]

The Veterans Affairs Department has set aside $20 million in its budget to handle the latest data breach that put the identities of nearly a million physicians and VA patients at risk of identity theft. [GovExec]

Washington Senator Patty Murray (D-WA) met with administrators of a VA hospital in Seattle about the report indicating serious problems with psychiatric health care for veterans at the facility. She said she would make the report about the VA Medical Center in Seattle, the American Lake Hospital (Tacoma), and a VA outpatient clinic in Bremerton, public. [SPI]

Another worry for the Haves and Have Mores: Senators Max Baucus (D-MT) and Charles Grassley (R-IA) have introduced legislation from the Senate Finance Committee to change loophole in tax laws governing publicly traded partnerships that derive their income from investments. [The Hill]

Bandar-Bush and the BAE: The Los Angeles Times reports that the U.S. is investigating allegations that British defense company BAE systems, a major player in the U.S. defense industry, paid bribes to get contracts in Saudi Arabia, Chile, and elsewhere. One of the “persons of interest” is Prince Bandar bin Sultan, “former Saudi ambassador to the United States, and a close Bush administration ally.” Additional information available at the Guardian UK and the BBC

Not So Smiley Faced? Another ethics controversy at retail behemoth Wal-Mart erupted when an employee found herself looking for a job elsewhere for whistleblowing on possible ethics violations by a superior. [Business Week]

That should be just about enough to make the Republicans cry, “MOM?” Update: BTW, Glenn Greenwald asks: Where was all the outrage from the GOP when Republican Presidential Convention delegates were sporting those “Purple Heart Band-aids” mocking Senator John Kerry’s war record? Or, when Rep. Jean Schmidt called decorated war hero Rep. John Murtha a coward on the floor of the House? Or, when Republican Senator John McCain took after General George Casey?
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AB 396 info at Blue Sage Views

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