The government gives private lenders subsidies to market, process and distribute federal student loans. Some may have you believing that money goes straight into lenders pockets, but the truth is not only are those lenders incurring the costs of overhead, they are also giving a portion of those subsidies back to the student in the form of benefits. What benefits?

• Private lenders pay the origination fees on federal student loans—the Federal Direct Lending Program (FDLP) DOES NOT—and this can be thousands of dollars.

• Private lenders offer rebates for on-time payments—the FDLP DOES NOT.

• Private lenders offer interest rate reductions, sometimes up to 3 percent for on-time payments—the FDLP DOES NOT.

Why do private lenders give all this money back to students? Because the students are their CUSTOMERS, and to succeed in business the customer is king. If the government FORCES you to get money from the government, what happens? The student isn’t a customer anymore, he or she is just another cog in the wheel. Think about the customer service when you go to the DMV. Didn’t take long right? Right, because the DMV is part of the government, and it doesn’t offer customer service.

There is NO GUARANTEE that the subsidies the legislation proposes to stop paying Federal Family Education Loan Program (FFELP) providers will go back to support scholarships and education. Ask yourself, and your senator, how do we know where the money will go?

We are opposed to the proposed student loan legislation and middle-class families should be too! The government is taking money out of YOUR POCKET.

It only takes one minute to make a difference: call your senators, send your senators an e-mail, download a letter to fax to your senators, become part of our petition and help your friends find out the truth about the proposed student loan legislation.

Is the fact that college is so expensive the fault of student lenders?

Of course not. Attempting to connect the two is ridiculous. And if you think about it, it is an insult to the intelligence of any astute, independent individual who endeavors to separate fact from fiction in media.

Yet, this very thing seems to be the justification behind the politicians pushing through the new student loan legislation and their excuse to further regulate the industry, to the detriment of borrowers.

If it’s not broken, why fix it?

So why are our beloved public servants attempting to fix something that isn’t really broken (the student loan industry), instead of going to the source: colleges themselves?

My guess? You can’t build a political platform based on challenging one of the pillars of this great country: the institution of education. And my opinion is, if we want to fix what is broken, we need to start there.

We are opposed to the proposed student loan legislation and middle-class families should be too! The government is taking money out of YOUR POCKET.

It only takes one minute to make a difference: call your senators, send your senators an e-mail, download a letter to fax to your senators, become part of our petition and help your friends find out the truth about the proposed student loan legislation.

Why have the politicians targeted the student loan industry?

I think it’s because the student loan industry is an easy target. While the following scenario may seem “far out,” it appears that the politicians are using this strategy to get their student loan legislation passed and have formed a platform to do so.

Here’s what I think is really going on behind the scenes:

STEP 1:
Their ploy has been to connect two completely unrelated facts, mainly that:

“FACT” 1: College has become incredibly expensive.
“FACT” 2: The high cost of college is the fault of the student loan industry, so the student loan industry needs to be fixed.

STEP 2:
The next part of their plan was to dig up dirt (anything “bad”) on the industry. This “dirt” (or formerly widely accepted industry practices overlooked by the government) supports politicians’ position that “the student loan industry needs to be fixed,” is “bad,” and then rallies the public behind the politicians’ cause.

NOTE: Keep in mind that “FACT” 1 has absolutely nothing to do with “FACT” 2, yet the public is widely buying this stuff, hook, line and sinker.

Let me explain. The public believes what they’ve been told, that the student loan industry needs to be fixed since tuition costs are skyrocketing. Why? Because a few players in the student loan industry have done things that the government now considers “wrong.”

How’s that for logic? It just doesn’t make sense to me—and for any thinking individual, it shouldn’t either.

Several days ago, I started reading this article by Sen. Edward Kennedy, D-MA, that had to do with fixing the student loan system, since, according to him, it is “broken.”

I was so angry I couldn’t read beyond the first few paragraphs. Not only was what he said totally unrelated to what’s going on, but it was blatantly misleading. Unfortunately, most students, parents and others have fallen for Kennedy’s rhetoric, which entirely misses the point.

Kennedy: “College costs are expensive … that’s the fault of student lenders.”

To summarize his position, he starts out by saying that the student loan system is broken, then goes on to lament how college costs have skyrocketed.

Granted, college costs are exorbitant, with tuition increasing something like seven times the rate of inflation in the past decade, to the point that some parents pay more than $30,000 for one year of college.

But it is not the fault of student lenders that that is the case. Any freshman philosophy major (or anyone with half a brain) can easily see that.

Yet, hundreds of thousands have fallen for his platform and have rallied behind Kennedy in not only blaming student lenders, but penalizing them as a means of resolving the issue. An issue, I might add, that has absolutely nothing to do with lenders, other than these companies provide a valuable service: that of assisting students to pay for college, which has become so expensive that many can no longer afford it.

A tipping point is the moment in time when events that have been gathering momentum produce a toppling or change. More and more in our society “tipping points” are inorganically manufactured by way of the online media and the unabated access people have to information. Now don’t get me wrong; access to information is amazing. As they say, information is power, but what happens to an issue when one group can pay or politic to have their message spread across all media faster than the other side? The other side becomes crippled, and this is what’s happening to the student loan issue.

First proliferated was the news that H.R. 5 was being debated by the House, and the bill promised to cut interest rates on student loans. However, in order to pass the bill during its “First 100 Hours” in session, the House decided to pass the bill with interest rate cuts only on subsidized loans … a far cry from its original offer and surely a move that was orchestrated to give momentum to a new Congress.

Shortly after that the attorney general of New York, Andrew Cuomo, decided to get on the bandwagon and start attacking student loan officers. What can I say about that? Well, should one or two bad apples ruin the entire bunch? What about the good name of all those student loan officers out there who are helping students?

Next, onto the direct mail practices of some student loan companies … why are student loan companies being singled out? Mortgage companies, car insurance companies and a handful of other companies in other financial industries send out similar, if not more aggressive mailers.

Why is this happening? This is happening to manufacture a tipping point. By saturating the media with negative press about the student loan industry, politicians can make the change they want, not the change that is best for the students. They can sell out the students in order to pad their resumes. It’s counterintuitive, I know, but what about all the problems with the Federal Direct Lending Program (FDLP) that aren’t being attacked, such as its deficit or that the program doesn’t address students’ needs? What about the rising cost of education? That isn’t being addressed … the new student loan legislation is nothing more then a political sound bite or a political stepping stone. It’s a mess that the current politicians are creating for taxpayers and for future generations … future generations of politicians and future college students.

We are opposed to the proposed student loan legislation and middle-class families should be too! The government is taking money out of YOUR POCKET.

It only takes one minute to make a difference: call your senators, send your senators an e-mail, download a letter to fax to your senators, become part of our petition and help your friends find out the truth about the proposed student loan legislation.

When you buy a car, does the government tell you from whom you can borrow money? How about when you buy a house or plan your dream wedding? No, the government allows you to run your own affairs. So, why now is the government trying to tell you from whom you can borrower money to go to college and realize your dream of higher education? And just who benefits from the government’s monopoly on the student loan industry … the government does, not you, not the students, not the families trying to scrape together enough to meet even half the costs of college in the United States.

The student loan legislation that is currently being reviewed in Congress is really a raid on student loan benefits. It robs students of the interest rate reductions and customer service that private lenders provide and puts all the control in the hands of the government, which means more red tape and more bureaucracy. The United States is not a socialist company, yet our Congress takes up a socialist agenda, one that is against the individual and only supports large government.

This new legislation just about forces colleges to use the government’s Federal Direct Lending Program (FDLP), a program that does not give students benefits such as interest rate reductions or choice. By forcing schools to leave the Federal Family Education Loan Program (FFELP), the taxpayer will be burdened with the FDLP’s shortfalls: The FDLP has lost taxpayer money every year since 1997, totaling $16 BILLION!

Currently, 80 percent of America’s colleges and universities choose to work with FFELP because it delivers better service and more choices to their students than the Federal Direct Lending Program.

We are opposed to the proposed student loan legislation and middle-class families should be too! The government is taking money out of YOUR POCKET.

It only takes one minute to make a difference: call your senators, send your senators an e-mail, download a letter to fax to your senators, become part of our petition and help your friends find out the truth about the proposed student loan legislation.

I had another thought earlier today. In yesterday’s blog I spoke about what is happening in the student loan industry as politicians are attempting to limit our freedoms by restricting access to the National Student Loan Data System (NSLDS). I mentioned that if this “lock-out” continues, it will severely restrict students’ ability to gain access to the funds they need for college.

Let’s play out that scenario a bit. Characteristically, the weeks leading up to July 1, 2007 are some of the busiest of the year. July 1 is the date when the government announces the new interest rate for student loans, which will likely increase this year on that date.

This is the time when millions of students rush to contact student loan companies to get the funds they need for the following school year—before interest rates rise. My guess is that for the month of June the resources of such independent loan companies are stretched to the limit. That’s really no big deal, but here’s what is:

Imagine trying to get the money you need when you’re battling millions of other college students all calling at the same time, and now you’re at the mercy of a federal government representative at the NSLDS. Keep in mind that you’re now REQUIRED to speak to them, and wait times are already 20 minutes just to get through.

Increase that by a factor of 10 in June when everyone’s at it. The government agents at the NSLDS will never be able to handle that volume. That means that you won’t get your money!

The result?
Not only will we have millions of incredibly angry students and their parents who could never get through to the NSLDS at the high call time in June, but, as a result, you’ll probably have hundreds of thousands who won’t be able to attend college next year.

And this is what our political leaders call reform? Scary thought …

A nightmare waiting to happen? Definitely.

Are we powerless to act? Definitely not.

Take action today by signing the student loan petition. Or better yet, call your state senators and let them know what you think.

Just this week I discovered that the federal government due to concerns regarding the student loan industry decided to temporarily lock lenders out of the National Student Loan Data System (NSLDS). This is the tool used by lenders to verify borrowers’ loan information allowing students to get the funds they need.

Let’s first assume that this move is not an attempt to force Federal Family Education Loan Program (FFELP) lenders out of business so that borrowers have no choice but to use the government’s Federal Direct Lending Program (FDLP).

Now, I don’t want to get into any details that are going to make your head spin, but the bottom line here is that this decision will adversely affect borrowers and their ability to get the funds they need for college.

I’ve been hearing a lot of rumors that when students call into loan companies they now have to do the government “hurry up and wait” routine. It now takes them at least twice as long to get the information they need to get their funds. Since they now must jump through an extra hoop of speaking to a government customer service agent at the NSLDS instead of simply accessing the database.

If this is any hint of things to come, we are in for a painful experience, as inept bureaucrats attempt to “reform” the industry by destroying the future of college education and the free-market principles and choices that once drove this great nation.

The politicians are saying that the Federal Direct Lending Program (FDLP) costs less than the Federal Family Education Loan Program (FFELP) and, therefore should be the program that we use exclusively, on the basis of cost alone.

For argument’s sake, let’s assume that these government estimates are correct (though it’s much more than likely they’re not).

As of today, we still have the choice of which program to use and, thus, who covers the costs. If the new student loan legislation passes, we will no longer have that option. In my opinion, it’s a nightmare waiting to happen, and here’s why…

‘Costs?’ Not the right question to be asking
Realistically speaking, the question we should be asking is WHO pays for these programs and what is their track record?

Who pays for the programs?
When a borrower selects an FFELP lender, the lender covers the expense of running the program, as a cost of doing business. A fiscally healthy and responsible lender will make a profit above this cost to stay in business.

When a borrower selects the FDLP, the cost of doing business IS NOT ABSORBED by the FDLP, the Treasury Department or the government. It is passed on to the taxpayer, and is a “hidden cost” that the government sweeps under the carpet. So far the FDLP has a $16 billion tab which will be paid for by taxpayers.

What is their track record?
• As already mentioned, the FDLP is bankrupt and has been insolvent pretty much since the beginning. ($16 billion in deficits to be covered by taxpayers.)

• FFELP lenders have been satisfactorily serving customers for 40 years and have not cost taxpayers a dime.

I think we need to take a stand against the new student loan legislation. If it passes, we will lose thousands in benefits, as well as our right to choose those lenders that have an impressive track record of serving us. Perhaps this sounds funny to you, even contrary to what you’ve been reading lately in the popular media.

But here’s the truth. With the Federal Direct Lending Program (FDLP), YOU, the taxpayer/borrower, are forced to cover the government’s operational costs, marketing expenses, and all associated shortfalls related with that program. (So far that amounts to more than $16 billion).

Alternately, the many millions of borrowers who have taken out billions of dollars worth of loans through a Federal Family Education Loan Program (FFELP) lender have had these expenses picked up by the lender.

This represents millions in savings for borrowers that will disappear if the new student loan legislation passes. So, don’t fall for the party line, and start thinking for yourself. Sign the student loan petition now and save or you may pay for it later …

Sign the Petition

Here’s some food for thought. The U.S. government is dispensing financial advice. At first glance, this may not be all bad. But let’s look at what’s really going on. Recently, the public found out that the government is running a deficit, but not just any small financial shortfall. Try $2.3 trillion. Not million, even billion, but trillion. That’s more than many small countries generate in a year. In my book, we shouldn’t be in business. But let’s put that behind us.

If we are to believe the politicians, they are urging student borrowers to back a program, the Federal Direct Lending Program (FDLP), the government’s own baby, which has been in operation for several years.

Why should we buy this?
On one hand they say that the FDLP is cheaper and better than the Federal Family Education Loan Program (FFELP). The truth is the FDLP has been losing money, almost since it first started. Presently, it’s $16 billion in the whole. If we weren’t using anything but the government’s own creative accounting, by all intents and purposes, the FDLP would be out of business. And rightly so—it should be.

On the other hand, the FFELP has been making money, meeting its demands, and covering its obligations since it started. Not to mention, there are millions of happy, satisfied customers who can point to significant savings as a direct result of being involved with the FFELP.

Can the FDLP say the same thing? Doubtful. Look around. Who is pitching the program besides the politicians and their lobbyists? Honestly, I haven’t heard many testimonials from satisfied FDLP customers. Have you?

Here’s an interesting fact: More than 80 percent of borrowers elect to go with the Federal Family Education Loan Program (FFELP) rather than the Federal Direct Lending Program (FDLP).

Did you ever stop and ask yourself why?
Could it be the far superior customer service, embarrassingly better incentives and benefits, and that the FFELP lender covers your fees?

Or, could it have anything to do with the fact that the FFELP is run like a business (since it IS one and not an arm of the government as is the FDLP), delivering competitive services while running in the black as a result?

And the alternative?
The far inferior choice is the FDLP, a program of questionable value especially when you consider that the program is bankrupt or more than $16 billion in the red. Naturally, this tab is a cost that will be passed on to taxpayers, while at the same time our politicians are telling us that the FDLP is actually cheaper. How does that work? When you figure that one out, please let me know.

Can millions of consumers who yearly take out billions of dollars in loans be so terribly wrong?
Or, might this be another play that somehow benefits the government, while passing along dubious “benefits” to the borrower, benefits that actually do more harm than good (like that $16 billion that will have to be repaid)? …

Let’s take a walk down logic lane for a moment. The party line parroted by our civil servants is that the government’s Federal Direct Lending Program (FDLP) is cheaper or better or costs less than the private Federal Family Education Loan Program (FFELP). But here’s the real picture:

FDLP
Savings of .25% on interest rate
Fees paid by YOU (borrower)
$16 billion deficit

FFELP
Savings of up to 2.25% on interest rate
Fees covered by lender
Profitable since its inception

In this over simplified comparison, the FDLP is more expensive, costing taxpayers $16 billion dollars so far, while the FFELP hasn’t cost taxpayers a dime. The FFELP knocks 2.25% off your interest rate and pays origination and other fees, while the FDLP will take only .25% off your rate and passes the fees on to you.

If the Student Loan Legislation passes, borrowers lose. It’s that simple.

Just think of a time, any time when you made a decision to do something and committed to it. Did you get it done? Most likely you did. The same is true when you stick with a choice you’ve made. Choices oftentimes lead to change. I’ll stop beating around the bush. The choice I’m talking about here is the decision you could make to sign the Student Loan Petition and get involved.

By doing this, you not only take a stand for something, but you also stand for something that could save you a significant sum of money. If the student loan legislation passes, students stand to lose an awful lot of money.

Despite the fact that people in general hesitate to get involved, it is a relatively painless process that takes maybe a minute or two of your time. All you need to do is sign the petition, and fax a letter with personalized comments to the senator of your state. That’s it—then you’re finished!

Here’s the recap:

1. Call your state senator.
2. Sign the petition.
3. Fax a letter to your state senator.

When you’re done, think of the impact you’ll have, especially when this becomes a nationwide effort where several thousand people are doing the same thing. The rewards will be great!

I don’t know about you, but as a college student a few hundred bucks, not to mention $5,000, is a big deal.

With all this press about student loan legislation and conflicting information saying that it is both good and bad, I thought I’d do a little research of my own. What I found is surprising to say the least and disturbing at most.

After I scoured the facts, I thought I’d plug in some numbers to see where that took me. Here’s what I did. Students receive up to 2.25% in benefits from lenders. The average student loan is $20,000 for a 20-year term. That means it will cost the average student $4,854.80 over the life of the loan if the student loan legislation passes.

Rate: 2.25% (compounded)
Term: 20 years
Amount: $20,000

That’s $4,854.80, almost $5,000 that the average student stands to lose! So, if you don’t want to end up paying big time, take action by signing the student loan petition.