Take a Look at What The Republicans Just Did to the Student Loan Program

   If you're at all interested in education, politics, or economics, you will probably want to take a couple of minutes from your busy schedule to ponder this issue.

  And I'm not talking about the feds' recent economic decision to raise interest rates on student loans. 

  As much as that hurts, this change is worse. 

  The Republicans are also reducing competition in the marketplace. 

   For years students and parents have converted their variable-rate federally guaranteed college loans into fixed-rate federal consolidation loans in order to lock in favorable interest rates, in much the same way that homeowners do with their mortgages.  And for the same reasons.

   But when the new laws that were just passed as a part of the Budget Deficit Act go into effect this July, the vast majority of students and their parents who have already consolidated, or wish to consolidate in the future, will be legally barred from ever re-financing again, no matter what other lender might  have offered them a lower rate.   

   Legally barred from ever re-financing?  Yes. And there's more to the story. Much more.

   Borrowers whose loans are owned by a single lender have always been prohibited from shopping around for the best deal when it came time to consolidate, but the Congress had been promising to repeal that anti-competitive law, know as the Single Holder Rule.   Yet, that  proposal was mysteriously dropped from the Budget Deficit Act -- at the very last minute -- by the Republican leadership.

   Chicago Sun-Times columnist Terry Savage, in her February 6, 2006, column nicely summed up the re-financing issue with this question: "If you can re-finance your mortgage to take advantage of lower rates, why not your student loan?" 

   Savage went on to point out that some would argue that because the government is subsidizing student loans, open market re-financing is not appropriate. 

   But the facts are well documented: Under the just repealed laws once allowing reconsolidation, lenders, and not the taxpayer, absorbed the cost of lower rates offered to borrowers.  And every government report on the subject clearly documents the fact that the lower the interest rate and monthly payment, the lower the default rate.  

   Finally, Savage asks, "If re-financing to a lower rate doesn't cost the government any money, why object?" 

   That's a very good question. And, so far, it appears that the only objections to the concept of open market re-financing came from Sallie Mae and other big lenders who don't want the lure of lower rates tempting their customers to switch to competitors.       

   Nevertheless, the laws allowing re-consolidation were repealed. 

   Can you imagine the uproar if homeowners were suddenly told that they could no longer re-finance their home loans?  

   But in the lawmakers' defense, the Budget Deficit Act contained hundreds of pages of changes to current law. So, it's unfair to say that those who voted "yes" on the Budget Deficit Act were consciously voting "no" on re-consolidation.  In fact, the American Journal recently reported that very few Senators and House Members were even aware of the issue. And the few that had heard about it were incorrectly led to believe that the just repealed re-consolidation provisions were somehow costing the taxpayer money.

  Then, adding insult to injury, Sallie Mae, not unlike a football player spiking a ball after a game-winning touchdown, began celebrating.  Tom Joyce, a Sallie Mae VP, was quoted by USA TODAY as saying, "The consolidation loan program was never meant to be a re-financing bonanza for students."  And later, his crowing grew even louder when he told the Orlando Sentinel, "Smaller corporations will now think twice about getting into the student loan business." 

   Such ugly statements by Sallie Mae's chief media spokesperson seem to confirm what some industry insiders already suspected: Sallie Mae pretends to have the best interests of students and parents at heart, while they covertly work to pass anti-competitive legislation that cost students and parents billions of dollars.  That's right -- billions.

   Those dollars lost to higher interest rates, resulting from this type of restriction-of-trade legislation, will never show up in the Congressional Budget Office cost estimates that everyone quotes. And if you're wondering where those dollars will end up, you need only look so far as the bottom line of Sallie Mae's income statement.  That's why Sallie Mae lobbied so hard for these restrictions.  And as of now, they are winning most of the battles -- and even the war.  

   This story graphically emphasizes the immediate necessity of Republicans and Democrats joining forces to re-instate open competition in this very important marketplace.  And when it comes to Sallie Mae's requests for legal trade restrictions, it's time they become re-acquainted with two very important letters: "N" and "O."  -And I 'm not referring to the abbreviation for New Orleans. 

   Senator Lamar Alexander, former U.S. Secretary of Education, in recent testimony before the Commission on the Future of Higher Education, said, "I urge you to join me on the bandwagon for de-regulation of higher education. The greatest threat to the quality of American higher education is not under-funding. It is over-regulation."

   The House of Representatives has a new chair of the committee that oversees student loans. Congressman Howard P. "Buck" McKeon of California has replaced John Boehner of Ohio, who was elected House Majority Leader, and  Mr. McKeon is known as a tough and fair-minded businessman who's likely to give this issue a fair hearing.  But first, McKeon must hear from someone besides Sallie Mae.

   If you want to join Senator Alexander on the bandwagon for fairness to citizens with student loans, please let Congressman McKeon and our U.S. Senators and Congresspersons know that you believe students and their parents should be afforded the same rights as homeowners when it comes to re-financing.  

   You may reach any Senatorial or Congressional office by calling

202-224-3121.

   It's up to you, now.

C. Victoria Patrick Former Educator, College Administrator, Financial Adviser (retired)

P.S. Recent stories of interest (and a little snippet of political satire) on this subject may be found on the Web at:

A hysterical bit of political humor, that’s so true it hurts: http://StopSallie.nbnm.net

Student Loan Ripoff a Test of GOP Rhetoric

Congress gets an F for student loan move

Student loan shame — Page 1 — TimesUnion.com

The Times-Tribune - Opinion - 11/18/2005 - Let all students refinance

Finally, here's the link that facilitates writing and/or phoning our Senators and Congresspersons in Washington, D.C. I hope you'll use it.

EASY CONGRESSIONAL AND SENATORIAL CONTACT

http://www.visi.com/juan/congress/