What to Look for in a Student Loan Consolidation

The key lies in finding the best borrower benefit package (Typically rate reductions offered for on-time payments or auto-debit payments) with the least amount of small print and misinformation. There are so many marketing gimmicks out there; "no fees," "grace-period rate reductions," "principal reductions,"etc. Thankfully there are comparison sites, such as "Simple Tuition" that are helping make the search somewhat easier, while companies such as "theLoanster.com" are offering best-in-group benefit packages.

Tuesday, April 3, 2007

Cuomo on Settlement w/Financial Aid Offices

Buffalo — A settlement with dozens ofschools and a major lenderwill make the student loan process fairer to students and their families, State Attorney General Andrew Cuomo said.
As part of the settlement, schools agreed to reimburse students a total of $3.27 million, Cuomo said, and Citibank, which does business at about 3,000 schools, agreed to donate $2 million to a national fund created to educate students and parents about the financial aid industry.
All 29 four-year State University of New York campuses, New York University, University of Pennsylvania, St. John’s University, Syracuse University, Fordham University, St. Lawrence University and Long Island University — agreed to abide by the code.
The agreements are part of a nationwide probe by Cuomo’s office into student lending. None of the schools admitted any wrongdoing.
“The college-loan industry has developed practices over the years that we believe are deceptive. We believe they’re unethical. We also believe they’re illegal at times,” Cuomo said at a news conference in his Manhattan office.
Cuomo’s investigators say they have found numerous arrangements benefiting schools and lenders at the expense of students.
An investigation continues into practices at schools and lenders that were not part of the settlement announced Monday, Cuomo said.

Monday, April 2, 2007

Cuomo agrees to settlements with University Financial Aid Offices and Lenders

Buffalo, NY (April 2, 2007) – Attorney General Andrew M. Cuomo today announced that his office has signed settlements concerning student-loan arrangements between schools and lenders. The settlements require schools to reimburse students money that the colleges were paid by lenders for loan business and to adopt a newCollege Code of Conduct.
The schools include the State University of New York’s 29 four-year campuses (SUNY), Fordham University, Long Island University (LIU), New York University (NYU), St. Lawrence University, Syracuse University and the University of Pennsylvania.
At the same time, Citibank, the nation’s largest bank with student-loan business at about 3,000 schools, agreed to voluntarily adopt practices in the Attorney General’s College Code of Conduct, which will now govern Citibank’s student loan business practices with all schools.
Citibank also agreed to commit $2 million to a newly created national fund administered by the state Office of the Attorney General to educate college-bound students and their parents about the student-loan industry.
Under the settlements, schools will make the following aggregate reimbursements to students:
NYU – $1,394,563.75 covering students who received loans issued over a five-year period.
St. John’s University – $80,553.00 for loans issued over a one-year period.
Syracuse University – $164,084.74 for loans issued over a two-year period.
Fordham University – $13,840.00 for loans issued over a one-year period.
University of Pennsylvania – $1,617,580.00 for loans issued over a two-year period.
Long Island University – $2,435.41 for loans issued over a one-year period.

Cuomo applauded the cooperation received from Citibank and the schools that agreed to the settlements announced today.
“These schools and Citibank have made the responsible choice and are showing themselves to be industry leaders by being the first to take a major step in cleaning up a system laden with conflicts of interest,” Cuomo said. “We are beginning the process of restoring trust between universities and students and now is the time for other schools and lenders to step up and end the conflicts, perks and revenue sharing that have been costing students in New York and across the country dearly. These schools and Citibank are setting the example the entire industry should live by.”
The Attorney General’s College Code of Conduct, included in all of the settlements announced today, prohibits revenue sharing from lenders to schools, includes disclosure standards and restrictions on how lenders are chosen for school “preferred lender” lists, and bans gifts or trips to the university employees from lenders. The Code of Conduct also prohibits lenders from staffing or paying for the staffing of any component of the university financial aid offices and outlines guidelines for other aspects of the lender-university relationship.
The Code of Conduct includes:
Colleges are prohibited from receiving anything of value from any lending institution in exchange for any advantage sought by the lending institution. This severs any inappropriate financial arrangements between lenders and schools and specifically prohibits "revenue sharing" arrangements. Lenders can no longer pay to get on a school’s preferred lender list.

College employees are prohibited from taking anything of more than nominal value from any lending institution. This includes a prohibition on trips for financial aid officers and other college officials paid for by lenders.
College employees are prohibited from receiving anything of value for serving on the advisory board of any lending institution.

College preferred lender lists must be based solely on the best interests of the students or parents who may use the list without regard to financial interests of the College. This ensures that preferred lenders will be those the school has determined should be preferred by students as opposed to preferred by the school.
On all preferred lender lists the College must clearly and fully disclose the criteria and process used to select preferred lenders. Students must also be told that they have the right and ability to select the lender of their choice regardless of the preferred lender list.

No lender may appear on a preferred lender list if the lender has an agreement to sell its loans to another lender without disclosing this fact. In addition, no lender may bargain to be a preferred lender with respect to a certain type of loan by providing benefits to a College as to another type of loan.
Colleges must ensure that employees of lenders never identify themselves to students as employees of the colleges. No employee of a lender may ever work in or provide staffing assistance a college financial aid office.

“Consumers Union commends Attorney General Cuomo for moving swiftly to stop unfair practices, secure compensation for students and their families and improve public oversight,” said Chuck Bell, programs director for Consumers Union, publishers of Consumer Reports Magazine. “With the skyrocketing costs of college tuition, students and parents need fair play and straight information from universities and lenders. This Code of Conduct will transform the lending process, result in more affordable loans for students and their families and should be viewed as a model for widespread adoption by schools and lenders across the nation.”
Cuomo said, “The College Code of Conduct spells out in black and white that no lender may pay a school for placement on a preferred lender list and no school may hide the reason it chose to recommend a particular lender.”
The settlements with New York University, Syracuse University and the University of Pennsylvania cover their relationship with Citibank by which the schools received payments from Citibank on the basis of loan volume. The SUNY, Fordham, LIU, St. Lawrence and St. John’s settlements covered their relationships with San Francisco-based Education Finance Partners (EFP) and/or other lenders.
The money will be distributed back to the individual students on a pro rata basis, depending on how much each student borrowed and at what rate. For students who cannot be located, the money designated for their account will be placed in the fund to educate college-bound students about the student lending industry.
Today’s announcement covered the first series of settlements in Cuomo’s ongoing and expanding nationwide investigation into conflicts of interest in the student loan industry. It also represented a landmark reform to the $85 billion-per-year student lending industry.
Michael Reardon, Chairman, President, and CEO of the Citibank Student Loan Corporation, stated, “Citibank Student Loan Corporation is proud to have provided access to higher education to millions of college students nationwide for nearly 50 years. We are pleased to work with the NY Attorney General and we thank him for his acknowledgment that the Citibank Student Loan Corporation has been and continues to be a leader in raising the standards of good practices and integrity in the higher education financing field. By taking the voluntary steps announced today, we are continuing this tradition.”
On March 22, Cuomo announced that his office had begun legal action against EFP for its scheme of providing payoffs to more than 60 schools across the country that steered student-loan business to them. That case is still pending and talks are ongoing with a variety of other schools and lenders. Since then, the investigation has broadened to more than 100 schools and more than six lenders.
The settlement agreements signed today set forth the Attorney General’s nationwide findings about conflict of interest in the student-loan industry. They include:
i. “Preferred Lender” Lists The lenders listed on an institution of higher education’s list of preferred lenders typically receive up to 90% of the loans taken out by the institution’s students and their parents. Despite the significant role that these lists play in determining the lenders from which students and parents borrow, many institutions did not inform their student and parent borrowers about the process and criteria used to formulate the lists of recommended or preferred lenders. Nor did they disclose the potential conflicts of interest on the part of their financial aid offices, which typically compile the preferred lender lists. These conflicts of interest may arise from: lender-funded travel expenses for institutions’ financial aid officials to attend meetings and seminars in attractive locations; the appointment of the institutions’ financial aid officials to “Boards” or “Committees” sponsored by the lenders; the lenders’ provision of staff and services to the institutions; the lenders’ provision of “Opportunity Loans;” and revenue sharing. These practices are described below.
ii. Revenue Sharing In the context of the education loan business, revenue sharing refers to an arrangement whereby a lender pays an institution of higher education a percentage of the principal of each loan directed toward the lender from a borrower at the institution, often, but not always, in exchange for the institution of higher education placing the given lender on the institution of higher education’s preferred lender lists. This type of arrangement is prohibited by federal regulation in the context of Stafford Loans, PLUS Loans and other federal loan programs; it occurs only in the alternative loan segment of the industry. The practice of revenue sharing creates a potential conflict of interest on the part of the institutions of higher education. When and if the institutions direct students to lenders, they should do so based solely on the best interests of the student and parents who may take out loans from the lenders; yet, the institutions have a financial interest in the selection of the lenders by the student and parents.
iii. Denial of Choice of Lender Some institutions of higher education have neglected to make clear that borrowers have a right to select the Stafford Loan and PLUS Loan lender of their choice, irrespective of whether the lender appears on any preferred lender lists. In the most egregious cases, institutions have gone so far as to abrogate this right, by stating or strongly implying that the student and parents were limited to the lenders on the list, or even to a single lender.
iv. Exclusive Consolidation Loan Marketing Agreements Former students may wish to combine their various education loans into a single package, called a “consolidation loan.” Some institutions of higher education have entered into agreements with the providers of such consolidation loans pursuant to which the institution agrees to encourage its former students to consolidate the former students’ loans with a particular lender and no other. In exchange, the institution secures revenue sharing or other benefits that inure directly or indirectly to the institution rather than the borrower. Once again, the institution is in a conflicted position because its advice and encouragement may be influenced by its financial self-interest.
v. Undisclosed Sales of Loans to Another Lender In many instances, institutions of higher education place several lenders on the institutions’ lists of preferred lenders causing the potential borrower to think that the lender list represents a real choice of options. But, the choice is illusory when, as sometimes occurs, all or a number of the lenders on a lender list have arranged with each other to sell any loans to one of the lenders immediately after one of the other complicit lenders disburses a loan. vi. Opportunity Loans Lenders have entered into undisclosed agreements with institutions of higher education to provide what are referred to as “Opportunity Loans.” These agreements provide that the lender will make loans up to a specified aggregate amount to students with poor or no credit history, or international students, who the lender claims would otherwise not be eligible for the lender’s alternative loan program. In exchange for the lender’s commitment to make such loans, the institution may provide concessions or promises to the lender that may prejudice other borrowers.

Monday, January 29, 2007

Return of In-School Consolidation?

Sen. Edward Kennedy (D-MA) introduced the Student Debt Relief Act of 2007 (S. 359) along with Senators Durbin (D-IL), Lieberman (D-CT), Mikulski (D-MD), Obama (D-IL), and Schumer (D-NY) as cosponsors.
"A new day has now dawned in Congress, and last week, our colleagues in the House showed they have their priorities right on college costs by cutting student loan interest rates in half," Kennedy stated in the Congressional Record. "Now it’s our turn in the Senate, but we won’t stop there."

In addition to the interest rate cuts in H.R 5, S.359 offers increased Pell grants, and a return to in-school consolidation.

Thursday, January 18, 2007

H.R.5; unintended consequences

As Senior Vice President of a FFELP Consolidation Lender and someone who has worked in Medical education in the past, I looked forward to this legislation. Unfortunately, the bill passed by the House yesterday leaves, as you are well aware, much to be desired.

Not only does the bill simply address the smallest loan group (Subsidized Stafford) it purports to assist paying for this by increasing fees/decreasing stipends to lenders, (and more specifically consolidation companies).

I am sure you are well aware that members of your association have been at the forefront of using consolidation as a means to temper the high costs of a medical education. Unfortunately, this bill will provide a direct hit to some of the incentives that smaller consolidation lenders are able to offer (See H.R.5; Items #7, #8). It is no wonder the larger lenders were lobbying for this portion of the legislation.

As of now, theLoanster.com is able offer a total of 2.25% in Rate Reductions for Auto-debit and on-time incentives. We are also able to make the 2% (On-Time) portion of the reduction permanent once it is earned (sans default). Throw in the ability to go into a residency deferment without losing borrower benefits and you can understand why larger lenders were interested in these details. After July 1st, all these benefits will need to be reassessed.

A medical student with $100,000 in Federal debt looking to consolidate stands to take a hit of approximately $25000 dollars over a 30 year consolidation.

This is a small first step indeed.


Tuesday, January 16, 2007

Dem's Move on Student Loans

The Democratic Majority in Congress announced legislation lowering the rates on some student loans to 3.4% by 2012.

Critics are clamoring for more, but from where theLoanster sits; it's better than a sharp stick in the eye.

The legislation is to be voted on tomorrow.

"House Democrats on Friday unveiled a bill that would cut interest rates on federally subsidized loans to college students by half over the next five years. They said they would finance the $6 billion measure by increasing costs that lenders pay to the government and reducing the largest lenders’ government-guaranteed profits."

Some in the student loan industry take issue with this approach;

“What we’re really seeing is Peter being robbed to pay Paul,” said Tom Joyce, a spokesman for Sallie Mae, the nation’s largest holder of student loans. “When you continue to cut and cut again, eventually who you’re hurting is not the banks but the students and the parents themselves,” said Mr. Joyce, suggesting that such reductions would ultimately impair services to borrowers."

Friday, January 12, 2007

Rally for Debt Relief

Student Groups joined with Democratic Leadership yesterday to lobby for rate breaks.-

Leaders of the House and Senate education committees joined college student groups on Thursday to rally support for the College Student Relief Act (H.R. 5) legislation that would cut the interest rate on subsidized Stafford loans in half over the next five years.
Speaking to a room crowded with press and college students, House Education and Labor Committee Chairman George Miller said the House would debate and "hopefully pass by an overwhelming bipartisan majority" the bill on Jan. 17. However, Miller did not offer any more clues about how he would offset the cost of the bill in order to comply with the "pay/go" budget provision the House approved. Democrats will reveal those details today when they formally introduce the bill in the House.
Miller noted that the interest rate cut was merely the beginning of Democrats' efforts to address the rising cost of college.
"It is not going to end with the first 100 hours; the first 100 hours is just the beginning," Miller said.
Miller added that Senate Health, Education, Labor and Pensions Committee Chairman Edward Kennedy (D-MA) and Democratic Whip Dick Durbin (D-IL) would introduce and get the bill passed in the Senate. Kennedy said his committee would hold hearings on the College Student Relief Act next week.
In addition to cutting student loan interest rates, Miller and Kennedy said Democrats hope to make it easier for students to attend college by:

  1. Increasing the maximum Pell Grant
  2. Capping student loan payments at 15 percent of monthly discretionary income
  3. Granting loan forgiveness to any college student who serves in a public service profession for 10 years

Thursday, January 11, 2007

Financial Aid Administrators endorse rate decreases

Dallas Martin, President of the National Association of Financial Aid Administrators released a letter today endorsing the proposed Democratic plan to lower fixed rates on student loans by half over the next five years.

"On behalf of the National Association of Student Financial Aid Administrators (NASFAA), representing student aid administrators at approximately 3,000 postsecondary institutions, I am pleased to inform you that NASFAA supports passage of H.R. 5 and we encourage all your colleagues to vote for the bill," Martin wrote. "Reducing total loan costs for subsidized Stafford loan borrowers is one of the most beneficial actions Congress can take. Cutting in half subsidized Stafford loan interest rates is a highly targeted policy providing financial relief to the neediest of our federal student loan borrowers."