Lamar Alexander and Student Loans

This is also worth reading....

Floor Statement of Senator Lamar Alexander
On
FEDERAL STUDENT LOANS

September 23, 2009

"…I would like to say a few words about Federal student loans.


President Obama said the other day, in what I thought was a very perceptive comment, that he understood the health care debate and all its intensity is a proxy for a larger debate, and that is about the role of government in our society. What I and many Republicans believe and, I think, many Independents and Democrats, as well, in the State of Tennessee, and I suspect across the country, is that we have suddenly seen too many taxes, too much spending, too much debt, and too many Washington takeovers.

The President says, and he is correct to an extent with this, that some of these Washington takeovers were not his fault, were not his doing. I suppose he would say that about some of the bank takeovers and the insurance company takeovers. I am not so sure about the takeover of the automobile companies or the takeover of the farm bonds or the proposal to takeover health care. But here is a voluntary takeover that is absolutely unnecessary, is unwise, and the American people should pay attention to this.


This goes to the center of what the President said. If health care is a proxy for a debate about the extent to which the American Government ought to be involved in our society, then the proposal by the President to take over the entire student loan program and move it from the private sector into the government is a perfect example of what we ought not to be doing.

Let me speak first to the dimensions of this program. The United States has the best system of higher education in the world. One of the greatest aspects of it, one of the greatest contributors to its quality, is that we have a generous amount of Federal dollars which permit about half or more of our students to either get a Federal grant, which we usually call Pell grants, or a Federal student loan which follows them to the institution of their choice. So unlike our our elementary and secondary schools, your Pell grant -- your grant going all of the way back to the GI bill in 1944 -- can follow you wherever you go.

That choice and that competition and that money have helped to create not just some of the best colleges and universities in the world but virtually all of them. Most observers agree on that.

The higher education system today is 6,000 institutions. These are the universities of North Carolina and Tennessee. That is what we might think of first, but there are also community colleges, the 2-year schools. There are also nonprofit colleges. There are also the religious institutions -- Notre Dame and Brigham Young and many others. So there are 6,000 institutions.

Last year, 4,400 of those 6,000 institutions used the regular student loan program. That is the one where you go to the bank, usually your community bank or local bank, and you get a student loan. And 1,600 schools, or about one-fourth, used the direct loan program, which was put in at the time I was Secretary of Education about 20 years ago, and you just go to the U.S. Department of Education and get your money. On the private side of it, which is what 3 out of 4 students choose, there are 2,000 lenders that participate in the program.

This year, there are nearly 19 million loans to students and parents and 14 million of them are in the regular student loan program, 4.5 million through the government. There was $86 billion of loans made. So the regular student loan volume through the private lenders was about $64 billion; the direct loan volume was $22 billion.

So all in all outstanding, $617 billion of volume for both programs, and the President has said we are going to take all of that and put it in the U.S. Department of Education. So what his proposal is, if you are one of the 14 million students today who are getting their student loans from their local banks, starting in January you are out of luck. You better line up outside the U.S. Department of Education with the other 19 million people who want a student loan and hope they can provide you with the same sort of service your community bank or lending institution or nonprofit organization in your area provides you today.

There is a lack of evidence to show that the U.S. Department of Education can do a better job of making loans than banks can. I used to work at the U.S. Department of Education. I was the Secretary. It is one of the smaller departments in government. The people there know a lot about education, but none of them really is running for banker of the year.

Arne Duncan is President Obama's Education Secretary. He is one of his best appointments. I would much prefer seeing him in Memphis working on charter schools or in Denver trying to find ways to pay outstanding teachers more or trying to help create a better system of colleges and universities or community colleges instead of trying to manage the problem of, how do I grant $100 billion in new loans to 19 million people every single year? How do I replace 2,000 private lenders?

Let me give you an example of what a private lender might do. In Tennessee, we have EdSouth. This is a nonprofit provider. Here is what they do. They had five regional outreach counselors to canvass Tennessee to provide college and career planning, financial aid training, college admissions assistance, and financial aid literacy. They made 443 presentations at Tennessee schools through college fairs, guidance visits, and presentations. They worked with 12,000 Tennessee students to improve their understanding of the college admissions and financial aid process. They provided training to over 1,000 school counselors so those counselors could work better with their students. They distributed almost 1.5 million financial aid brochures to Tennessee students and families. Will the U.S. Department of Education start providing those services, or will the 19 million students who want student loans simply line up outside the U.S. Department of Education or one of its offices somewhere and apply for a loan? I think I know the answer to that question.

According to the Department of Education, it costs them about $700 million a year to administer the loans they make today. That is for one-quarter of all the loans. They estimate they can make those same loans to 19 million students with about the same amount of money. I doubt if that is true, which brings me to the point of the savings -- the alleged savings of this program.

Senator Gregg and I -- the Senator from New Hampshire, who is the former chairman of the Budget Committee, the ranking member now -- talked about the alleged savings in moving all of these loans from the lending institutions that make them to 19 million students today, to the U.S. Department of Education.
Senator Gregg received a letter from the Congressional Budget Office on July 27. I ask unanimous consent to have that letter printed in the Record.

Senator Gregg basically asked: Is it true that if we stop making loans through private and nonprofit lenders whereby the Federal Government guarantees the loans and pays a regulated subsidy to the lender -- if we stop that and start making all of them through the government directly, will we save $87 billion? And the short answer -- if you want the long answer, the letter is available -- the short answer is no, you do not save $87 billion; you are likely to realize $47 billion in savings over the next 10 years.

Instead of saving $87 billion, we save $47 billion. Then we have to deduct the administrative costs. Remember, instead of making some of the loans, the Department of Education is going to make 19 million loans. The Department estimates it might cost it $7 billion over the 10 years to do that. Others think it might cost $30 billion. So the real savings -- the real savings are either $47 billion or more like $20 billion or $23 billion in savings over 10 years.

In order to do that, of course, we are going to have to raise the Federal debt. We are going to have to borrow $1 billion a year for the next 5 years. So at a time when we are concerned that we are adding $9 trillion to the debt over the next 10 years, we are going to add another half trillion over 5 years so we can make student loans instead of doing it through private institutions.

Here is the real clincher. When you press and say: In order to make these loans, what is the real reason you think you can do this if the savings aren't really $87 billion but they are more like $47 billion or more like $23 billion over 10 years?

They say: Well, the real reason is the government can borrow money cheaper than the private banks can.

That is true. The government can borrow money at a quarter of a percentage point, and then it loans it to the students at 6.8 percentage points.

Well, my first point would be that I don't think the government ought to be making a profit by overcharging students for their student loans and then turn around and take credit for starting new programs. What the government is actually going to be doing is charging a student who has a job and is trying to get a student loan -- is going to say: OK, we are going to borrow the money at one-quarter of 1 percent and loan it to you at 6.8, and then we are going to take that money and pay for your Pell grant or pay for someone else's Pell grant.

In other words, they are going to overcharge the student to make the Congressman look good. That is what we are doing. We are going out and announcing all of these programs. So we are spending $87 billion, when it is really between $23 and $47 billion -- that is the amount we really have -- and we make that money by overcharging the students.

At the very least, if we are going to take all of these loans into the government, we ought to reduce the interest rate so we don't overcharge the students.

I see the Senator from Oklahoma. I am going to defer to him and welcome him to the floor. But I hope, as we think about the issue the President so accurately described -- he said: The health care debate is really a proxy for the role of government in our society. He is exactly right about that. And while some of the Washington takeovers may not have been avoidable at the beginning of the year, there is no reason in the world why Washington should take over 19 million student loans, eliminate 2,000 lenders, stop students on 6,000 campuses from having a choice in competition, and say: The government is the best banker in America; line up outside the Department of Education, all 19 million of you, in January and get your student loan.

So I am thinking of introducing an amendment that is called a truth-in-lending amendment if this legislation were to pass, and it would say to every one of the 19 million students: Truth in lending -- beware. Your government is overcharging you so that your Congressman and your Senator can take credit for starting a new program.

I yield the floor."

FFELP comments

I had a recent comment on my post about Obama and his socialist plan to take over not only the auto industry but the student loan industry. Instead of just sharing the comment and it likely going unread, I am going to publish it in a new post along with my comments. I appreciate the alternative point of view but disagree whole heartedly as someone who use to work in the industry and who is married to someone who still does.


Kudos to the President, the first president who actually had student loans.

The student loan industry is ripe with greed, arrogance, and corruption. The Sallie Mae CEO has taken nearly a half billion dollars personally as a middleman. He now owns three mansioned estates (annapolis, MD / Harwood, MD / Naples, FL), one with a private 18 hole golf course - although an old photo and the golf course is still under construction, you can see where taxpayer subsidy dollars go via Google Maps at coordinates 38°51'38.52"N, 76°40'4.47"W

I know of no industry that is not ripe with greed,
arrogance or corruption. When people are involved, these negative aspects
pop up. It’s not an excuse but it isn’t a reason for the government to
control the industry either.

Sallie Mae owns two private jets - they used to own three. The jets are tail numbered N50FD and N188AK.

And the President of my company, no doubt, owns a boat and a lovely house
but it doesn’t mean he shouldn’t.

That is where the taxpayer subsidies are going, private golf courses and private jets.

When a FFELP loan defaults, the taxpayer pays nearly twice the amount of the loan. Sallie Mae is allowed to attach fees, penalties, and crank the interest rate up to above credit card rates. After a period, they capitalize those fees, penalties, and interests and put the loan to the taxpayer for payoff. So, a 20k loan becomes more than 40k cost to the taxpayer. In the direct program, the 40k might still be the receivable, but it does not effect cash flow as we see with the middlemen involved. Why are we funding this madness?

When a loan defaults, the loan is turned over to the DOE. The DOE will add
additional fees and increase the rates in order to pay to collect the
debt. When you promise to pay a loan back and fail to do so, the lender
has the right to charge a fee. Unlike a mortgage, Sallie Mae and the like
cannot take away your education like a lender can take your home. Everyone
is a taxpayer- the CEO of Sallie Mae as well as you and me. So the
taxpayer who defaulted on their student loan will have to pay more than
borrowed; that is the nature of a loan a defaulted loan is even more
expensive. Student loans are the only loans that allow you to apply a
forbearance or deferment to your account. Try deferring your mortgage
payments because you have an economic hardship let alone your credit card
payments.

Let's not forget the corruption that the subsidies fund. The following student aid administrators got into more than a little hot water for taking kickbacks and other inducements from the student loan industry - most lost their jobs:
Ellen Frishberg - Johns Hopkins
Catherine Thomas - USC
David Charlow - Columbia
Lawrence Burt - University of Texas
Walter Cathie - Widener University
Tim Lehmann - Capella University
Daniel Pinch - Emerson College

Yes, there is corruption in some schools but you don’t cut down the apple tree because it produces one bad apple.

In the investigations of 2007, many Universities were fined for revenue sharing schemes. Specifically, University of Pennsylvania, New York University, Syracuse University, Fordham University, Long Island University and St. John's University have agreed to reimburse students a total of $3.27 million for inflated loan prices caused by revenue sharing agreements.

Perhaps we should nationalize those schools also…

And it just seems to never end. In May of 2009, "District attorney's investigators raided City College of San Francisco on Wednesday, seeking evidence that college officials had illegally spent public money on donations to education-related political campaigns. A copy of a search warrant served on the college shows that investigators are scrutinizing the actions of former Chancellor Philip Day, who left the college last year to work for an education lobbying firm in Washington, D.C." (from San Francisco Chronicle) Mr. Day happens to be CEO of the NASFAA, the organization that represents financial aid directors.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/07/MNJQ17FTEQ.DTL

Again, this is a college with corruption not a lender and not even corruption-
they were “seeking evidence” meaning none had been found as of yet.
Corruption exists from the White House to the taxpayer house. We are
imperfect people and cannot expect to have a perfect world or system.

CHOICE? Choice is a myth or a lie depending on how you look at it. In 2008, more than 100 Universities were under investigation for more than 90% of their FFELP loans going to one provider. The notion that there is competition in this "market" is ridiculous - the student loan companies pay or induce schools for preferred lender status resulting in nearly all loans at any one school going to one provider. In the above instances, those inducements were to the administrators themselves. From "School as Lender" to call centers to printing - the inducements to schools are great and the payoffs for the middlemen even greater.

There is competition; in most schools, you can choose from a multitude of
lenders. Have you had a different experience? Some schools however, do not allow the student to choose; they are forced to go with Direct…the government run lender. My personal experience is any student that enters these doors can choose from any lender who agrees to make the student loan for them.

Of course, some in congress receive so much cash from the student loan industry, they will try to derail this improvement. Particularly, Buck McKeon and John Boehner receive the most from the student loan industry. Buck and Boehner have been the champions of the industry for years and are responsible for much of the elimination of competition and stripping of consumer protections for student loans - all to the benefit of the middlemen lenders. There are no student loan companies in Buck or Boehner's districts and no meaningful employment by student lenders in those districts. Now, Lamar Alexander is joining in with them. This is pure pay for play.

And Barack Obama received a lot of money from Fannie Mae and Freddie Mac yet
bailed them out- Kudos to the President? Fannie Mae….sounds a lot like
Sallie Mae another of Obama’s favorite GSEs?

Regardless, it appears my point has been missed. The employees of these companies will be unemployed; where will they work? Will Obama help or is this the change he promised? There is more corruption in the government than in the private industry, as your comments proved; so why would we want to turn this industry completely over to the government?

Senator Alexander Statement on Motion to Instruct Conferees On the Budget Conference to Preserve Choice in Student Loan programs

Senator Alexander Statement on Motion to Instruct Conferees On the Budget Conference to Preserve Choice in Student Loan programs

April 24th, 2009 - This should be a relatively easy motion for our colleagues to support because it simply instructs the conferees to support a position that the entire Senate adopted unanimously. That provision during our budget debate was to accept the position of maintaining a competitive student loan program that provides students and institutions of higher education with a comprehensive choice of loan products and services.

Madam President, there are three reasons in support of maintaining a competitive student loan system. The first is that 12 million students rely on it today in New Hampshire, in Tennessee, in North Dakota -- all across our country.

Second is that now is not the time to be creating a new half-trillion-dollar national bank that would run up the debt, a bank that would replace 2,000 private lenders, and make $75 billion in new loans a year. That is not a proper function of the U.S. Department of Education.

And third, the cost savings that is alleged is -- and I will be gentle in my words -- a trick on students to make Congressmen look good. What we are going to be doing if we do not preserve this choice is saying to all the students who get a loan that we are going to take money from them and then give it to other students so that Congressmen can go home and brag that he or she has increased the amount of the Pell grants. Let me be specific in what I say.

I was the U.S. Secretary of Education in 1991 and 1992 when we created something called the Direct Loan Program. We have a federal student loan program. Most people who go to college are familiar with it. About two-thirds of the students at our 6,000 different institutions from the University of New Hampshire to the Nashville Auto Diesel College to Harvard to San Francisco State have a Federal grant or a loan. When you get a student loan, you take it to the institution of your choice.

We now have 2,000 lenders who help provide all those different kinds of loans. They give financial aid counseling, they give interest rate deductions, they help students and families plan on how to pay for college. In other words, they service the loans and then the Government supports that by guaranteeing almost all of the loans.

We set up a separate program which we called direct lending. That was, you could come straight to the Government to get your loan. In other words, we created a government bank run by the Department of Education. We said to the students and to the institutions: You make the choice. You may either have a private student loan guaranteed by the Government through your local bank or financial institution, or you may come to the U.S. Department of Education to get your loan.

We have had more than 15 years of experience with that now, and what have the students and institutions said? Three out of four say we like the regular student loan program, we like the choice, we like the private lender. Since we are getting the loan, we like the idea of going to a bank to get a loan because that is what banks do. If you want a car, you go to a car dealer. That may be changing. You may have to go to the Department of Treasury to get a loan the way the country is going. For 15, 16 years we market tested this and so we have that direct loan program.

The situation right now is we have 12 million students at 4,400 different institutions getting $52 billion in loans by their choice from banks instead of from the Government. One-fourth get it from the Government. It has been that way for a long time.

What the President's proposal wants to do is to take all those choices away from the students and say: Line up outside the Department of Education to get your student loan, all 15 million of you. There will be 4,400 institutions and 12 million students who may not like that.

Second point. Is a national bank a good idea? We read in the paper that the Government is going to take stocks in the biggest banks. So we are going to nationalize the banks. Then we read in the paper the Government is going to take stock in General Motors and Chrysler -- hopefully that is not true -- so we are going to have the Government deciding what kind of car we are going to be making, what kind of plants we will have, where the plants are going to be. I cannot think of a worse organization to do that. This is a proposal to say: All right, now the Government is going to be your bank. It is going to be the bank for your student loans. We are going to create a new national bank. It would have over a half trillion dollars in outstanding student loans. It would make 15 million student loans every year, $75 billion in loans a year.

We will run all this out of the U.S. Department of Education, a wonderful Department. I was myself there for 2 years. But what do we know about being a national bank? Not very much. Andrew Jackson would roll over in his grave about the idea of a national bank of this size.

My final point. This proposal, with all due respect, is a trick on students to make Congressmen look good, and here is why.

The budget we originally got said we will take $94 billion in savings and we will spend it on Pell grants. Let's think about that a minute. Common sense will tell you that the Department of Education is not going to know more, is not going to be able to replace 2,000 lenders at a cheaper cost. That simply is not going to work. That is what common sense would tell you.

The Congressional Budget Office has told us that in order for the Department of Education to administer these loans, it would cost about $28 billion over the next 10 years. That is the computation I have made. They estimate that the cost of administering the current Direct Loan Program is about $700 million a year. So if they did them all, that would be at least $2.8 billion a year.

Conservatively speaking, you don't have $94 billion in savings; you have 94 minus 28. So you have around 66. So you have $66 billion that goes somewhere out to banks, maybe to reduce loans, maybe to reduce interest rates, maybe to administer the loan program. But the bottom line is, if the Government takes this program over, it is going to be borrowing money at one-half of 1 percent and loaning it out to 15 million students at 6.8 percent. Borrowing at one-half of 1 percent and loaning it out at 6.8. On every student loan -- and I hope all 15 million students listen to this -- your friendly Government is going to take back 6.5 percent of the 6.8 percent interest you are paying. What is it going to do? The Congressman or Congresswoman can go home to Tennessee or wherever and say: I increased Pell grants. But they won't tell you: I took money from this student to give it to that student. That is not the way to do it.

What we should do, if that spread is too high right now, is let's cut it down -- if the savings is estimated at $90 billion. We know it is closer to $60. Maybe it is $20, maybe it is $30, maybe it is $35. Maybe we should lower the interest rate to 3 or 4 percent or 5 percent or whatever is the appropriate rate.

But that does not justify creating a national bank in the Department of Education to try to handle 15 million loans.

So my argument, Madam President, is this: There are colleagues on both sides of the aisle -- and there are a number of Democrats -- who strongly support the idea of competition and choice in higher education. That is why we have the best higher education system in the world. We have competition and choice all the way through it. The grants and the loans don't go to colleges; they go to the students, and the students choose the college. They can go to Nashville Auto Diesel College if they want or they can go to Harvard; it follows them to the school of their choice. They ought to be able to go to the lending institution of their choice and not line up outside of the Department of Education to get 15 million loans every year. That is not right. It is not the way our country ought to work. So the first is to preserve choice for the 15 million students who now have it at 4,400 institutions.

The second reason is, let's not be creating another nationalized asset in America. We need to be thinking of ways of getting the Government out of the private sector. I mean, this recession is not for the purpose of the Government taking over every auto company, every bank, all the student loans, and every business that is in trouble. We need to be thinking of ways of going the other direction. That is the America we know. That is the America we want.

So we don't need a new national bank.

Arne Duncan is the new Secretary of Education. I think he is the President's best appointee. He ought to be working on paying teachers more for teaching well, creating more charter schools, helping states create higher standards. That is his agenda. I don't think he came from Chicago to Washington to be named banker of the year, which is what he would be doing if he became a national bank president for student loans. That is what this proposal would do unless the Senate sticks to its position.

Finally, I don't want to be a part of any situation which has Congressmen and Senators playing a trick on 15 million students and saying: I am going to borrow money at a quarter of 1 percent and loan it to you at 6.8, and then I am going to take credit for giving the rest of it away. I think that will come home to roost, and it ought to come home to roost.

I appreciate the opportunity to make this motion to instruct, and I hope it will come to a vote. I hope it has the kind of bipartisan support it had before. I hope the President will think of all the other things there are to do that need attention, such as fixing the banks, getting credit flowing, restoring the auto companies, and leave the student loan system to continue to work in the way it should work.

FFELP Elimination- sounds like socialism

In a recent letter to the Secretary of Education, a friend of mine received a response that bothered me. So in response to his email, I wrote the following letter to Secretary Duncan and have yet to receive a response; wonder why. Perhaps it is because they have figured out I am a 'terrorist' under the DHS new guidelines about pro-life supporters.

Secretary Duncan,

The Obama Administration has recently proposed to eliminate the Federal Family Education Loan Program. Eliminating this program would not only hurt students but also cut nearly 35,000 jobs! In the current tumultuous job market, how does the Administration plan to supply those family’s basic needs once their income is removed? Surely, the Administration does not want these laid-off employees to become another statistic in the increasing unemployment rate and look for more government handouts.

It has been said that the FFELP is “barely functioning” and I question that statement. There are many FFELP lenders and servicers who are functioning and due to the poor economic situation are actually functioning better and more efficiently as they have cut unnecessary items from their budget. I also question the statement that the elimination of the FFELP will save the tax payers any money let alone $4 billion. It is going to cost the taxpayers nearly one-half trillion dollars in new Treasury debt over the next 5 years to even originate the federal student loans. Where exactly is that money going to come from, China again? We cannot borrow from Peter to pay Paul any longer. The elimination of the FFELP is not going to help American students it is going to hurt America by increasing the national debt once again with borrowed money from China.

It appears the past and current Administrations do not understand that in real companies (such as student loan lenders) and households, we have to deal with real money and real numbers. At the end of the month, we cannot have a $11,199,755,734,764.56 debt. We have to deal with real numbers not fictitious “play money”. I again ask where is this money going to come from to originate these student loans?

I have worked for a student loan lender and currently work for a higher education school. The FFEL Program has helped students and parents, not hurt them. It has increased competition and as a result, borrowers have reaped the benefits. The cost of loans for students is lower because each lender wants to compete for their business. They offer incentives in regards to repayment or discounted/no origination fees. Have you ever called the Direct Loan Servicing line? I have. I have a loan with both Direct and with EdFinancial. Direct’s customer service, or lack thereof, is evident from the unpleasant voice that “greets” your call. You receive the same treatment at the DMV or other government-run agencies. Pardon me, but do you ever hear any citizen who enjoys going to a government agency? Do they praise the efficiency or do they dread the trip and the people they will encounter? This is not the case with private lenders. They have to be pleasant because they are competing with others. Competition fosters customer service. Democracy is about competition; socialism loves government control and monopolization. To quote studentloanfacts.org, “Competition in the private sector student loan program has driven down the cost of this program to the point that in both 2003 and 2004 the lenders participating in the FFELP managed the entire program at no net cost to taxpayers – making it the only federal entitlement program to break even.”

America needs LESS nationalization of private corporations and entities and more corporate and government responsibility locally and nationally. I urge you to reconsider your position on eliminating the FFELP and 35,000 jobs of men and women who no doubt have families to support in these tough economic times. We cannot abandon the FFELP and turn our back on the people who have provided the means for students to attend college.