By: Gaurav Bhola, MSM, Managing Editor
As the student loan scandal of 2007 fades into oblivion, students and their families are still not any closer to getting the comprehensive reforms Congress and the regulators promised. Last year, an investigation led by New York Attorney General Andrew Cuomo into the college loan practices of private loan lenders and universities finally brought into the spotlight this diabolical coalition. A New York Times expose lead to Cuomo’s inquiry which revealed that some schools were receiving bribes from lenders in return for steering students to their loan programs.
The investigation revealed financial aid officials and other college officers receiving direct kickbacks from certain lenders in the form of trips, stock options, lunches, and so on.
However, the New Year has been dominated by other headlines; the student loan “scandal” seems forgotten. Meanwhile, Cuomo has moved on to greener pastures. And Congress’s impetus has also cooled, even though some action had been taken by them for example ending the government subsidies given to private school lenders.
Still, college and university loan lenders are not out of trouble yet. The U.S. Department of Education is beginning with administrative inquiries and enforcement actions that will become prominent in 2008. In the latter half of 2007, Congress and the General Accountability Office, amplified their oversight of the schools and the private lenders, as the Federal Student Aid (FSA) office sent official letters to 921 colleges whose school loan volume was mostly, if not completely, with one private lender.
The letters were serious in tone and message, intending to remind universities that their actions had to take into account only students’ interests and mustn’t violate the Higher Education Act of 1965 and its amended regulations. Out of the original 921 colleges, 55 colleges and 23 lenders received notification requesting documents and information that may show documentation of improper allurements and inducements of financial aid officials. It is likely that there will be some enforcement action by the Education Department in 2008.
But the U.S. Congress has more power to bring about change than a federal government department. For example, last year Congress passed an amended version of the Student Loan Sunshine Act. by a vote of 414-3, the bill would force colleges and loan lenders to follow stringent codes of conduct; provide full disclosure of school-lender alliances; ban lender gifts to financial aid officers; and protect students from perpetual marketing practices.
The current state of the economy has shifted the focus in Congress from the student loan industry discrepancies. The government is concentrating instead on the credit crunch, housing and mortgage markets. The remedy of the college loan industry is an afterthought, no longer on their radar. While, Congress shows apathy towards the students and their families, certain private loan lenders and colleges rejoice in the legislature’s disinterest.
Saturday, May 17, 2008
Student Loan Scandal Dissipates in Congress
Friday, May 16, 2008
Tips on Getting Private Student Loans
By: Gaurav Bhola, MSM, Managing Editor
College students and their families have started their search for student loans. Due to the lack of liquidity in the credit markets, school students have had difficulty accessing student loans. In the last few months, many college loan lenders have announced that they are suspending or eliminating student loan programs. Recently, over 37 student loan lenders have exited or suspended their involvement in the federally guaranteed Federal Family Education Loan Program. This is the result of the collapse of auction rate securities and the residual effects of the subprime mortgage crisis. Herein, the students and their families have to learn ways to seek out loans from private school lenders.
As more and more loan companies exit the government loan program, educational lending has entered a precarious position. Now more students will turn to private lenders to finance their education. The main difference between federal student loans and private loans is that interest rates are fixed for life by the government on federal student loans.
It is always best to first exhaust subsidized and unsubsidized Stafford loans and the Parent PLUS loans before applying for private loans. While federal loans are helpful up to a point, private loans have now become necessary. In this time of economic downturn, many parents are being denied Federal PLUS loans due to their credit history. A credit history includes foreclosures, bankruptcy, or being late by more than 90 days on debt repayment.
If Stafford loans aren’t able to meet your comprehensive financial aid needs then apply for private loans to make up the difference. Additionally, for international students, private loans are the only viable option as these students are not allowed to apply for federal student loan programs. Private loans are a valuable resource for non-dependent students as well.
In addition to searching for private loans at the college and university financial aid office, now you can apply online. There are two forms of private student loans offered to university students: school-certified and non-school-certified. The interest rates and fees are usually lower for school-certified student loans. You can go to premierstudentloan.com to get competitive private loan quotes.
Most people don’t realize that every time you apply for a loan, your credit score is reduced by five points. The private loan lenders have five or six tiers of varying interest rates and fees that are offered to the borrower based on their credit score.
Applying to nine or ten loan lenders could lower your credit score, thus increase your loan interest rate. Ideally, you want to apply to three or four private loans. Also, consider using a co-signer with good credit to get more favorable loan terms. Hopefully, now you can make more informed decisions regarding your private loan.
Thursday, May 15, 2008
Saving for College
Even at today's tuition rates, saving for a child's education may seem like an impossible mountain to climb. For the sake of your child's future, though, now is the time to strap on those boots and grab that ice axe.
When saving money, time and discipline are your most powerful tools. If you set aside a little each week when your little one is young, you can build a substantial sum by the time junior becomes a college freshman. In reality, many parents aren't able to save consistently until their children are older. For these moms and dads, the availability of specialized college savings programs helps maximize savings quickly.
College Savings Plans: The Options
The following programs offer advantages over traditional savings accounts.
Section 529 Plans. There are two types of Section 529 Plans: the college savings plan and the prepaid tuition plan. The first is a tax-advantaged investment account. The latter allows for purchasing tuition credits that essentially lock-in current tuition rates.
Coverdell ESA. The Coverdell ESA, also known as the educational IRA, offers advantages including tax-free earnings and certain qualified tax-free distributions.
Rebate Programs. Some institutions offer loyalty rebates that help maximize your college savings over time. Two examples are BabyMint and Fidelity Investments' 529 Plan credit card. Both allow you to earn rebates through purchases of everyday products and services; these rebates are automatically transferred into your designated college savings account.
College student loans
There will be times when saving enough in the time available isn't realistic. Don't panic-you have contingency options. There are many college student loan programs available that can help fund that tuition shortfall. Talk to your child's counselor about federal student loans, and to your bank about private student loans and student loan refinancing. Depending on your situation, some government student loans may be almost automatic. Later, you can consolidate student loan debt as appropriate to your financial situation.
Now that you're in your boots, you're ready for the college-financing climb. It may be late in the season, but you won't regret starting up that mountain now.
By: Catherine Brock
