There has been lots of coverage about the new “reforms” Congress has passed regarding student loan lending. Despite evidence that suggests the government is not the best entity to manage such a program, that taxpayers will not save any money and in fact, may end up spending a lot more, and that the new plan holds little, if any, benefit for most student loan borrowers, Congress is determined to prove to the nation that it has the ability to get something done. Sadly, instead of doing something useful, this reform is where the Congressional Democrats have planted their flag.

The issue of loan consolidation keeps coming up. It’s a big one, since the Senate plan allows loan consolidation only under an extremely limited set of circumstances. For the most part, student loan borrowers will no longer be able to consolidate loans. Combined with the fact that the Federal government may force student loan borrowers to use as many as three different borrowers for a four-year degree, the loss of loan consolidation is a major blow.

Naturally, it gets worse. Some lenders use offshore loan servicing companies to provide customer service support for their loans. When you call the 800- number, your lender will route your call to a call center in India, Southeast Asia, or Eastern Europe where operators read from prepared scripts to deliver customer service. Under the new system, the borrower has no ability to consolidate loans, meaning that you can no longer vote with your feet when your lender turns out to be a dud. You’re stuck with that lender until you pay off your loan.

Just think about it: under the new program, you could get stuck with two or three dud lenders, and the great lender that your brother, sister or friend had when they were in college is no longer even part of the program. Offshore loan servicing, poor customer service and no mechanism to transfer your loan to a more responsive lender. Be sure to thank Senator Kennedy and the Congressional Democrats for that when you’re stuck in Student Loan Hell.

America is all about competition, but for some reason, Washington doesn’t see it that way. They don’t want competition in the traditional sense. They don’t want competition that benefits you, the consumer. They want sham “competition” where you have a “choice” of perhaps as many as two lenders in your state. You might only have one “choice” and if no lenders in your state want to participate in the program, the Feds will throw you to the “lender of last resort.” What kind of loan servicing do you think the Lender of Last Resort provides? Will they job out your loan problems to the Loan Servicer of Last Resort? You can pretty much count on that.

Tell your Congressmen and Senators that you want real competition in student loan lending, that you want a choice in lending, and that you want a workable mechanism for consolidating your student loans. Tell them to stop taking away your right to choose.

It still baffles me that the Congressional Research Office can tell your Representatives and Senators that their plan won’t save you money, and that very few of you will realize any benefit at all, and yet Congress persists in pushing this unworkable mess down our throats.

The Congressional Democrats are truly excited about what the Kennedy Plan will save you. What the plan is going to cost you is really much more to the point. Let’s take a look at what you’re going to lose.

First, you won’t have a choice of lender. The Kennedy plan sets up a ridiculous “auction” scheme, where the government has already capped the maximum interest rate it will accept from lenders, and limits the “winning bids” to two institutions per state.

Second, you’ll lose stability. If your state musters two lenders who are willing to make loans under these absurd conditions, they’ll only have the right to make these loans for two years at a time. After two years, the government again “auctions” the right to make student loans. You may get stuck with two or three lenders in the time it takes you to complete an undergraduate degree, and if you go to grad school, you might end up with lenders four and five. Is that kind of complexity really what you want?

Third, you’ll lose the ability to consolidate your loans. This is the thorn in Congress’ side, and they want it out bad. They were the ones who originally decided that you should be able to consolidate loans. When interest rates fell, however, that cost the Feds a lot, and they’re very unhappy about it. It seems like they’re taking it out on the FFELP lenders. In truth, they’re sticking you – the borrower. Under Kennedy’s plan, you won’t be able to consolidate your loans anymore. You could be paying five different student loan bills every month after you graduate. Five!

Fourth, the Kennedy Plan relies on deficit spending to fund student loans. Government issued bonds are long-term obligations. What this means for you is that after you finish your student loan payments, you’re still stuck paying the interest on the bonds the government issued to fund your loan in the first place. There’s no savings in this plan for you. You’ll be paying for this plan long after your itemized debt has been retired.

If this doesn’t really sound like a good way to save a few bucks, you’re right. It isn’t. Call your Senators and Representatives and tell them that you’re not interested in losing choice, stability, your ability to consolidate loans and that you don’t want to fund student loan programs through deficit spending.

Protect your right to choose. If you don’t speak up now, your rights may be gone forever.

Congress is still wrestling with the mess it made of student loan lending with last month’s legislation. The President has already indicated that he’s not interested in signing a plan like the one the Senate passed. The House plan is virtually incomprehensible, and promises pie-in-the-sky interest rate cuts that the Senate won’t deliver.

In the mean time, the borrowers are stuck in the middle. What’s the best course of action? First, learn about your options. Many people will tell you to get subsidized Federal student loans as a first preference, because they’ll save you money. Not true. That advice is about as helpful as telling you to go win the lottery is.

Not every prospective borrower is eligible for Federal student loans. Subsidized Federal student loans are available only to a small percentage of applicants, and a student’s financial need determines their award. If you and your family don’t meet specific income criteria, you don’t get subsidized loans.

You probably don’t get the best deal with Federal loans. FFELP lenders compete for your business. They offer interest rate cuts, origination and other fee waivers, and incentives for developing a good payment history. You don’t get any of that with Federal student loan programs, and with the exception of PLUS loans, the FDLP offers the same starting interest rates that the FFELP lenders do. Chances are good that you’ll save money by going with an FFELP lender over the FDLP.

After you’ve learned about your options, do some homework on potential lenders. Unlike the lies that the Congressional Democrats and Andrew Cuomo would have you believe, most FFELP lenders are honest, fair and forthright. They’re not in the game to take advantage of you and your university. Under the FFELP program, you have the right to choose any lender you like, regardless of whether they’re listed as a preferred loan vendor by your institution or not. You are always in control of your choice of lender. (That won’t be true under the Kennedy Plan, though.)

Choose the lender that best fits your needs and offers the incentives that best suit your situation. Lenders will compete for your business and can put together some very attractive financing packages. Pay attention to loan interest rates, but also pay attention to loan servicing. The direct impact of your loan servicing will mean more to you in the long run than the interest rate will. Congress caps the student loan interest rate for lenders in the FFEL program. The caps do not apply to non-FFELP loans, so it always pays to know whom you’re dealing with and what kind of loan you’re getting.

Congress wants to eliminate your choice. I suppose that’s one way of simplifying the process, but there’s a real, negative cost to simplicity, and that’s loss of choice. If you want to preserve choice and options, tell your Congressmen and Senators to stop shoehorning you into the Kennedy loan program

In a conference call with reporters recently, Secretary of Education Margaret Spellings outlined a plan to provide additional oversight to student loan lenders. Ed’s plans include meeting with other representatives from other Federal agencies, such as the FDIC and the FTC. She also stated that Ed was in a “fact-finding” phase.

Ed is supposed to be supplying oversight to the student loan lenders right now. The questionable practices of a few student loan lenders arose under the watchful eye of Ed. Ed never said a word about these practices, never raised a single concern, never issued a warning, made a regulation, or investigated a single lender, even though Ed is vested with this authority, and frankly, it’s Ed’s job.

After all of the media coverage, investigations and even action by Congress, Spellings’ announcement that Ed is “fact-finding” goes beyond the pale, straight into the theater of the absurd. This is the agency that Congress has tapped to oversee the newly increased responsibilities of the Federal Direct Lending Program. You know, the one that Congress thinks will do a better job of managing the student loan program than private lenders will do?

The vast majority of FFELP lenders are honest, dependable to a fault, and provide the best possible lending terms and servicing programs to their borrowers. FFELP lenders have proudly served this country and its students for more than 40 years. It’s unfortunate that the actions of a few rogue lenders have tainted the reputations and the contributions of the FFELP lenders who have delivered service, convenience, and competitive loan products to America’s college population since Lyndon Johnson was in the White House.

In some ways, Ed has contributed significantly to the problems by failing to provide adequate advice and guidance to both borrowers and lenders, regulation of participants and sanctions against lenders who have abused the system. It’s not that Ed doesn’t have the power to make regulations; all Federal government agencies have basic regulatory powers in the absence of legislative direction. Ed could have done something to correct these problems, and instead, chose to do nothing.

Congress rewards this failure and lack of accountability by giving more responsibility to a slow, unresponsive agency that can’t even manage its own lending program properly. This approach shows just how far out of touch with reality Congress is. One of the real problems is that Ed isn’t providing oversight – so fix the real problem. Fix Ed and stop blaming honest, fair and diligent FFELP lenders who work within the program rules.

Tell your representatives in Congress that the real problem is that Ed is asleep at the switch. Honest FFELP lenders will have no problem cooperating fully with reform. They have already shown their willingness to correct improper or questionable lending practices without legislation. Once Ed starts providing real oversight, borrowers, lenders, politicians and the public will see real reform in student loan lending.

The Billings Gazette ran http://www.billingsgazette.net/articles/2007/08/04/opinion/guest/50-standards.txt
on August 4 regarding the way FFELP lenders work in Montana. It clearly explains the good that Montana’s FFELP lenders have done, and it illustrates just how backwards and damaging the proposed legislation will be.

To start, local lenders make most of Montana’s FFELP student loans. Students invest locally by borrowing from local lenders. By itself, this is a tremendous benefit of the FFELP program; students borrow from lenders they know and trust. They build a relationship with a lender that can last a lifetime.

The Montana Higher Education Student Assistance Corporation (MHESAC) buys eighty-five percent of these local loans for loan servicing. This non-profit company operates in Montana for the benefit of Montana’s lenders and student borrowers. By buying loans from the local lenders, MHESAC provides additional funds that local lenders can re-issue to new student borrowers. Again, this is another beautiful benefit of the FFELP public-private partnership.

MHESAC lends only to the residents of Montana who also attend Montana’s higher education institutions. MHESAC doesn’t want to service the world; they only want to do what’s best for Montana’s college students. Here is another powerful illustration of the benefit of the FFELP programs and how they benefit their own communities.

MHESAC’s products provide substantial benefits to the borrower: fee-less FFELP student loans, principal forgiveness, and interest rate reductions. According to the article MHESAC has provided more than $1.5 billion dollars for Montana’s college students and more than $34 million in borrower benefits since 1980.

How could this possibly get any better? The Student Aid Foundation works with the MHESAC to provide day-to-day loan servicing to Montana’s student borrowers. The SAF has given more than $106 million in grants and other benefits to Montanans since 2000. SAF’s grants have gone to students in need and community groups; and have provided funding for outreach programs, financial aid nights, debt management programs and also fund the Montana Career Information System on the Web, and the Montana College Goal Sunday programs.

Once again, Congress has gotten it all wrong! Congress has the nerve to accuse FFELP lenders just like the MHESAC and SAF of profiteering at the expense of borrowers, and Congress wants to destroy programs like this. Montana lenders, like many others throughout the country, have taken the money given to them through the FFEL program and have invested it in their states and their communities in ways that benefit everyone.

Contact your Congressman or Senator immediately and tell them to stop their shameful persecution of FFELP lenders like MHESAC and SAF, that their profits to benefit their local communities.

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Tell your friends the truth about the proposed student loan legislation

On August 2, the Congressional Research Service concluded that the student loan “relief” being proposed by Congress would provide very little relief to most students, and many students don’t really need relief in the first place.

This is a classic example of Congress dreaming up a problem that doesn’t really exist, and then crafting the worst possible solution for the pseudo-problem. The Congressional Research Service is a Congressional agency. It’s their job is to research the facts and then provide them to Congress. Congressional researchers are saying what the student loan lenders have been saying all along: the Congressional Democrats have got it all wrong!

According to the report, the average college student would save $18 per month, if the government enacts these reforms. $18 per month! The Congressional Democrats are vilifying student loan lenders, accusing them of all manner of malfeasance, and blaming them for the high level of student loan debt when students leave college. They make matters worse by promising real reform, and the best they can come up with is $18 per month?

$18 per month might buy six gallons of gasoline or three modest lunches at McDonalds. It amounts to $216 per year. They’re complaining about students coming out of school with $25,000 or more in debts at the end of college and the most effective reforms they can come up with will return an average of $216 per year. That’s not real reform. That’s insulting.

FFELP lenders provide far more in relief each year per borrower. Fee waivers, interest rate reductions, consolidations, and outright debt forgiveness allowed under the current system do much more to reduce student loan debt than a $216 reform would.

Aside from the fact that the FFELP programs provide much more in relief right now than the government’s cock-and-bull plan would, most students don’t need relief from student loan debt. For most students, the report finds that student loan debt is entirely manageable when a borrower begins to work full-time.

That’s because FFELP lenders work hard to make sure that students can repay the loans they have taken out. Students can choose to repay loans over 10 years or longer, and there are no penalties for paying off loans early. In fact, early repayment is encouraged because it makes more money available for new borrowers.

Tell your Congressmen and Senators to start paying attention to their own researchers: most student loan borrowers don’t have difficulty paying back their student loans, and the proposed relief isn’t going to help anyone.

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Congressional Democrats want you to believe that they really care about the amount of debt that college graduates have. Senators want you to believe that the FFELP is so rife with corruption and the financial misdeeds of greedy corporate and private lenders that they simply must act!

The truth is that no major legislation has come out of Congress in years. The politicians in Congress don’t get along, don’t work together, and put politics and polemics above the needs of the average taxpayer every single day. They’ve taken a lot of heat lately from the voters, who are tired of hearing their Congressional representatives and Senators point the finger at each other and blame the other side of the aisle for their inability to get things done.

Congressional Democrats think they have a shot at the White House in 2008 and they’re desperate to prove to the voters that they are a party of action that they’ll do anything to make themselves look good, and distract the voters from the fact that they’ve been wholly ineffective for years.

The student loan lending legislation is just a tool for the Congressional Democrats to make voters think they can get something done. It doesn’t matter what it is, they just want to make themselves look busy.

They don’t care about the impact that these devastating pieces of legislation will have on middle-class America. They don’t care if the measures they’ve offered have very little benefit to anyone. They don’t really care about what happens to the poorest of students. Congressional Democrats are willing to railroad the most marginalized students into a shoddy, government-run program so they can make themselves look good. If it weren’t student loan lending this year, it would have been something else. It could be something else. Next year, it will be something else

Here’s the real danger: Congress isn’t going to look back on student loan legislation until 2013. It doesn’t matter how much the cost of tuition and other expenses rise in that time. They will allocate a specific amount of money, and that’s that. This “set-and-forget” mentality is why the Stafford Loan caps went 15 years without adjustment, even though the cost of tuition was skyrocketing. That’s why the FFELP PLUS loans have a higher interest rate than the FDLP PLUS loans (a “typo” that Congress never bothered to go back and fix). That’s why Pell Grant amounts are so abysmally low.

Congress sets up a funding mechanism that lasts for years, but they never bother to go back to find out if the funding they projected was adequate for the task, or if it needs to be adjusted.

Tell your Congressmen and Senators that you don’t want them to forget. Tell them that you think the current funding mechanism is stable and well financed.

You can see the effects of government-run programs everywhere and it’s not pretty. The Federal government fully manages the Veterans Administration. To say that it’s an embarrassment is an understatement: Medicaid, Medicare, Social Security, HUD, the list goes on. None of these programs is well run or well funded. Not one accomplishes the goals for which they were established.

Recently, we saw the deadly consequences of Federal inaction in Minnesota, where a major interstate highway bridge, known to be structurally deficient, collapsed. This country has tens of thousands of bridges that are obsolete or dangerous, and Congress isn’t doing anything about it, even though it’s Congress’ job. Congress promises funding, but doesn’t allocate it, or allocates it, but diverts it.

Students can bet that a Federal student loan lending program will become just one more competing priority when it comes to funding. Congressional Democrats are coming out of the woodwork to support these measures right now, but where will their support be when it comes time to choose between funding student loan lending programs and bridge safety programs? Or anti-terrorism concerns? Or heath care? Or pension bailouts?

Right now, Congress doesn’t have to make that choice. FFELP lenders make money available to students for their tuition needs, and they put the issue of student aid above the fray of Congressional funding. Under the plans in front of Congress right now, funding for education will have to scrap it out with every other Federal program.

When it comes time to cut the budget, the Congressional Democrats will preach the importance of self-sufficiency, and how it’s really the responsibility of the family to plan for and provide a college education, especially if the Congress must choose between funding higher education and their pet pork barrel projects. Rest assured, Congress places no higher priority on higher education funding than it places on any other Federally- funded program. Veterans, poor people, health care, senior citizens, cities, bridges, and students – they all need money, and there’s only so much to go around.

When it comes to changing the system that’s in place, the Congressional Democrats can’t sign fast enough to put their support on a bill, but when it comes to funding, where will their priorities be? Congress had to create all of the other Federal programs, too. Those same Senators and Representatives had to pledge their support for every other line item on the budget. When it comes time to put up the money, where will their priorities lie?

Borrowers are the center and focus of a FFELP lender’s priorities. Borrowers don’t compete with other borrowers for funds because the FFELP lenders have enough combined resources make the billions of dollars in loans that students need each year to attend our nations colleges and universities.

Tell your Senators and Congressmen that you don’t believe that their support of student loan reforms will translate in to more funding for students.

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The Senate and the House are wrestling with the problem of reconciling two completely incompatible student loan lending bills. The House has made promises that the Senate doesn’t want to deliver, and the Senate has made promises that the White House doesn’t support. Stuck in the middle are student loan borrowers who might likely end up with nothing of value, and are currently at risk of losing the stable student loan system they’ve enjoyed for more than 40 years.

Congress doesn’t seem to plan ahead, so both of these bills are retroactive to July 1 of this year. If one of these disasters, or some mangled mixture of the two, survives the reconciliation process, all of the changes in the bill must somehow magically take effect immediately.

This includes the interest rate reduction that the House has promised (if it survives, that is), the auction system that Senator Kennedy and Company have dreamed up, and the opposing provisions of the Star Amendment and the Sunshine Act.

Fall semester classes will start in less than a month and this issue is nowhere near a done deal. With this proposed mess waiting in the wings, no student can be sure that his or her college finances are stable for the coming academic year.

At least with the FFELP lending program, students know immediately how much money they have, and they can count on the money being there. These so-called reforms introduced by the 110th Congress are not reforms at all: they’re chaos. The Department of Education is suddenly supposed to carry out a system of auctions to determine which lenders can participate in the program and which can’t, retroactive to July 1 of this year?

The Congressional Democrats’ ham-handed attempt to prove to the electorate that they have the ability to do something will only result in utter chaos for the student participants in the student loan program. Worse, it will also reduce to rubble the budgets of the colleges and universities that rely on the funds they receive in a timely way from the FFELP lenders.

The last time the Congress monkeyed around with student loan lending via the FDLP, the federal loan payments were so late that Congress had to pass an emergency spending measure to keep thousands of students from being dis-enrolled from their institutions for non-payment. Is this really the kind of stability you’re looking for? This is exactly the kind of stability you’re going to get if Congress gets its way.

Tell your Senators that you don’t want the stability of the current system jeopardized so that they can score a few meaningless points with the electorate. Let them know that the electorate will be far more concerned about the havoc that these changes will wreak on the student financial aid system.

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The Washington Post has been particularly interested in EduCap, lately. It reported that the largest private student loan lender in the country had laid off several staff members and was considering closure. The Post has printed several unfavorable articles about EduCap in the recent past.

I have no idea whether the Post’s accusations about EduCap are true, but for a moment, assume they are. EduCap’s current position proves beyond a shadow of a doubt that student loan lenders that engage in less-than-honorable lending practices can be reformed or removed from the industry under the current system. In other words, there’s no real need for Congress to make the draconian reforms it’s considering because the student loan lending industry can reform itself.

The Washington Post’s revelations are nothing new. EduCap has been laying off staff members for a year or more, due in part to a change in its financial circumstances. Why fewer students are approaching EduCap for loans, I don’t know. But, the fact that student borrowers are going elsewhere is a prime indication that competition works. Student borrowers are going elsewhere because they’re finding highly competitive deals elsewhere.

This fundamental right to choose one’s student loan lender is at the heart of a healthy, functional and competitive lending program. I’m talking about the same fundamental right to choice that your Senators and Congressmen want to abolish. If you want to restore choice in student loan lending, talk to your Congressmen, because the bill they passed doesn’t give anyone any choice at all. According to them, it’s the FDLP or nothing!

The Senate bill allows you to choose between no more than two lenders in your state. In reality, your state could end up with a single student loan lender lender, meaning that you would have only one “choice”. If things don’t go well at auction in your state, your state would have no qualified lenders, and the government would choose a lender for you. That’s some choice.

The system we have now works as designed. The lenders who take advantage of borrowers find themselves on the doorstep pretty quickly, thanks to free and open competition. Talk about sunshine. Nothing exposes a lender’s flaws better than true, honest competition.

The FFEL Program offers borrowers real, honest competition, where lenders compete with each other, and keep each other honest. Lenders are interested in your business, and they will compete with other lenders to get it. Under the plans Congress is now considering, you’ll end up with monopolistic or duopolistic lenders, if you’re lucky, or whatever the government scrapes together if you’re not.

If you want honest, true and fair competition, tell your Congressmen and Senators to stop tying your hands when it comes to choosing your student loan lenders.

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The House and Senate are preoccupied with choice in student loan lending. That is, they’re preoccupied with how to restrict your choice in student loan lending. For some reason, they seem to think that choice is bad. Competition among lenders is the best mechanism for generating choice, and for some reason, they don’t want lenders to compete for your business.

Wait a minute? What happened to the whole “free-market” thing? You know, the one where competition is good, and it forces consumer costs down – the one where the consumer wins. Congress wants to get rid of that one, and replace it with a little number of its own.

Don’t think of it as losing your lending options. Think of it like this: the government has helped you narrow down your choices to one or two lenders. You didn’t have time to do all that research into FFELP lenders that could have saved you thousands of dollars over the course of your loan, anyway.

To streamline the process even further, the government has eliminated all of those confusing options that the FFELP lenders offered, like fee waivers, loan consolidations and interest rate reductions that would have lowered your bill even further.

And now, if you can’t find any lenders in your state, the government will do an “easy pick” for you, just like the lottery. I’m absolutely certain that the Lender of Last Resort will make an excellent student loan lender for you. Don’t you? I’m sure that the LLR will find ways to help reduce your bill by providing loan consolidations, interest rate reductions, fee waivers and the like, don’t you?

No matter which approach you look at, Congress isn’t doing you any favors by reducing choice and eliminating lenders from the student loan program. The program that provides the most choice in lending works best for most families. There is no one-size-fits-all that works for everyone. Unfortunately, that’s exactly what the Democrats in Congress are trying to do. They want to take away your choice and disable the free-market components that are working to keep your student loan interest rates low.

Congress isn’t interested in helping most families when it comes to student loans. They’re not interested in what’s best for the majority of student borrowers and they really don’t care about what you need. They waive the promise of a 50-percent rate cut to garner support for their bill, then they take that away, and leave a chaotic, incoherent mess in its place that doesn’t help anyone, and hurts most middle-class families.

Tell your Senators and Representatives that you want the program that provides the most number of student loan lending choices and that benefits the most number of American families.

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From a news item on the KOMU.com (Columbia, MO) web site, dated August 10, 2007:

“A lawsuit by student loan holders seeks to block Governor Matt Blunt’s plan to take money from the state’s student loan authority to finance college construction projects.”

The story goes on to say that the lawsuit also names the Missouri Higher Education Loan Authority for allowing its money to fund building construction instead of student loans for Missouri’s college-bound students. This story beautifully illustrates the real danger in having the government manage student loan lending.

“Show-Me” a state that doesn’t care about investing in its students’ futures and I’ll show you the Missouri State Legislature and its Governor, who feel perfectly comfortable redirecting student loan money to fund the state’s other priorities. Unless a court intervenes by August 28, 2007, the politicians will rip off Missouri’s sons and daughters to the tune of millions because their student loan money will be hard at work constructing buildings on the very college campuses that these kids can no longer afford to attend.

While you’re at it, “Show-Me” where the proposed Kennedy legislation prohibits the Federal government from redirecting funds in exactly the same way that the Show-Me State has done. Students have no guarantees that the Feds won’t rip the rug out from under their feet. When priorities change in Washington, honey-pots like a richly funded Student Loan program start looking like a good source of ready cash for something else. If nothing prevents the good men and women on the Hill from helping themselves to it, you can bet that dollars earmarked for funding student loans will be funding something else instead.

The travesty in Missouri should serve as a clear warning to those of you who think that having the Federal government manage loan programs is a good idea. It’s the Feds’ money, and Congress can apportion it as they see fit. Under the current program, the money allocated to fund student loans actually funds student loans. FFELP lenders don’t redirect this money to other loan programs. It isn’t available to other borrowers. The money is available only to student borrowers for the express purpose of funding college educations. FFELP lenders manage Federal student loan funds, and they take their fiduciary responsibilities seriously.

Under the new Federal regulations, you can kiss that brand of responsibility goodbye. As long as the government is in charge of the money, you won’t ever be certain that the money will be there when you need it. If you don’t believe me, ask any college student from Missouri.

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The Congressional Democrats say that they can save you money by simply eliminating the subsidies they pay to FFELP lenders. They can certainly cut the line item on paper, but they can’t reduce the cost of the program. Despite what they want you to believe, adding more students to the program is only going to make things worse. The government has always tried to foist off the cost of administration onto the colleges and universities. That’s why the participation rate in the FDLP is so low. The major problem with the FDLP is that the government has made it absolutely clear that it expects something for nothing.

Now, under the Kennedy plan, colleges and universities won’t have a choice. If they want to accept federal student aid, they’ll have to participate in the FDLP. At some point, colleges and universities may decide that they can no longer accept Federal aid because taking it means that they take a loss, or they must pass the increased costs on to their students. Either way, the students lose.

There’s no bright spot for the students in this program. Choice of lender is gone. Caps and lifetime limits on loans and grants mean that even needy students won’t have enough money to go to school. Colleges and universities may decide that it’s too expensive to accept Federal aid, and there’s no guarantee that the long-term funding of the program is even stable.

Kennedy’s plan authorizes these reforms to exist for five years, but only funds them for two years. And there’s no protection to ensure that the money diverted from subsidies will continue to be used to fund student grants and loans. Even if it were, $18 billion isn’t anywhere near enough money to increase participation in the program, increase caps and restrictions, provide new financial aid funding for students and maintain solvency.

The FFELP lenders must make things look easy, because when the Congressional Democrats look at the FFEL program, they think that the Department of Education is up to the task of running a program that provides the same program benefits at a much lower cost. When everyone else looks at the FFEL program, they see a well-run solvent program that provides lasting benefit and a good return for the taxpayer’s dollar. This is more than just perception, however. The facts back up the success of the FFEL program.

FFELP lenders know how to manage money. The government, on the other hand, knows how to borrow money. It knows how to print money. Evidently, it is also very good at wasting money. I have yet to see a government agency, however, that knows how to manage money. Until the government can demonstrate that its results are better than those achieved in the private sector, however, as a taxpayer, I’d rather have my money in the hands of someone who knows how to take care of it, spend it wisely when necessary, and invest it in all other circumstances. Tell your senators that the government doesn’t belong in the business of lending. The government should leave lending to those who built the program and understand how to make it work for everyone.

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Tell your friends the truth about the proposed student loan legislation

The Congressional Democrats say they can save you money on your student loans by cutting out the subsidies the government currently pays to private lenders. If there are no private lenders, then all of those subsidies could go into increased aid to students. That’s the theory.

Let’s look at what the subsidies pay for. FFELP lenders use the subsidies to cover the costs associated with administering the program, and to fund the incentives they pay to borrowers. The incentives that Congress is complaining about are not cash bribes, as some in Washington would have you believe. Borrowers typically see incentives as reductions in interest rates or fee waivers for developing good payment histories, electronic payment participation, and on loan initiations and consolidations. These incentives directly benefit the borrower’s bottom line. Subsidies also fund borrower education, marketing and operational costs for the FFELP loans.

Congress says it can save money by eliminating these subsidies and redirecting a portion of these funds to student aid. Let’s put a little sunshine on that claim. In the FDLP, the government won’t pay for administrative costs associated with FDLP loans. The universities and colleges must pay those, which is why most higher ed institutions avoid the FDLP like the plague. The administrative costs for these loans are high!

If the Congressional Democrats get their way, colleges and universities will have no choice except to play the government’s game. The colleges and universities won’t absorb those costs, though. They will pass the costs on to their students in the form of tuition increases and fees. Students will have to borrow even more money to pay for college.

So what’s going to happen when more borrowers use the FDLP? That’s right – tuition’s going sky-high.

The Congressional Democrats are simply playing games with the numbers. They’re attempting to make you pay the administrative costs of their program. They don’t want to pay the administrative costs of the burdensome program they’ve created, and colleges and universities don’t want to pay that either, so guess who gets stuck with it. You.

For FFELP loans, the government does pay for its own administrative costs. Don’t believe the Congressional Democrats when they claim that these subsidies are profit for the student loan lenders. They’re not. The subsidies pay the administrative costs of the program – the same costs that the Congressional Democrats want to dump in your lap.

Don’t fall for this baloney. The government can’t design a program with no administrative costs, and the government doesn’t want to pay anyone to administer the program. The costs are real and someone’s going to pay them. For FFELP loans, the government pays for them. Under the Kennedy Plan, you’ll be paying these costs by yourself.

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Tell your friends the truth about the proposed student loan legislation

The Bush Administration says that it cannot support the Kennedy Plan to change the role of student loan lenders. The President believes that the government should be doing more to fund grants that students don’t have to repay. The Administration wants to combat the real problem: the rising cost of tuition. The government could better spend its money helping the poorest of students by giving money that students don’t have to repay. Students who don’t qualify for Federal grants will best benefit from a competitive student loan environment where lenders compete for student’s business.

Everyone would benefit if the Federal government started paying some attention to the reasons that college tuition is increasing so much. The cost of higher education, after all, is primarily determined by the cost of tuition, housing, and books – not the few percentage points in interest charged on student loans.

The real culprit in the amount of student loan debt a borrower has upon graduation has nothing to do with his or her interest rate. It has to do with how much the student borrowed. Students can’t and don’t borrow money they don’t need. They borrow what they need to cover their college expenses – namely, tuition, room and board, and books. If Congress wants to do something for the poor college student, it should take a long, hard look at the cost of tuition, and start asking why college tuition rises so much faster than the rate of inflation.

Amuse yourself and do a Google search on the phrase “rising faster than the rate of inflation” to find out what’s getting more expensive. Prescription drugs, health care costs, wages, energy costs, food prices, and college tuition are all rising faster that the rate of inflation. Colleges and universities have to pay for health care and prescription drug insurance, employee salaries, energy to heat large public buildings, and food for resident students.

Congress can do something about rising health care, prescription drug and energy costs, three of the largest culprits. They could be addressing the cost of rising health care and prescription drugs. They could be promoting alternative energy programs to help colleges and universities reduce their energy costs. Instead, they choose to attack student loan lenders. Talk about disconnecting from reality.

Tell your senators to tune into the real reasons college tuition rises so fast and start attacking those problems at their sources, instead of looking for someone to blame. If they insist upon having someone to blame, tell them to look in the mirror.

You can make a difference
Call your Senators
Send your Senators an e-mail
Download a letter and fax it to your Senators
Sign the petition and
Tell your friends the truth about the proposed student loan legislation