Obama To Reward Sallie Mae Spin-Off Accused Of Defrauding Veterans.
Navient Corp, a spin-off company from Sallie Mae, will receive newly overhauled student lending contracts from the Department of Education, despite accusations of ripping off tens of thousands of U.S. veterans.
Department of Education has been under criticism for its policies on student lending. Its oversight of companies that provide student loans, like Sallie Mae, has been too relaxed according to some sources. Now the department has announced that it will be making major changes to its policies and overhauling its contracts. Unfortunately, one of the biggest symbols of lending misconduct is being rewarded with a new contract according to the Huffington Post.
Sallie Mae and Navient made the headlines in May of this year when the FDIC accused them of intentionally overcharging active-duty service members, and going out of its way to get default judgments, starting in 2005. Among the specific allegations was that Sallie Mae was illegally misinforming troops they had to be deployed to get certain benefits and concocting other fake tests. Navient Corporation and Sallie Mae made a settlement with the Department of Justice for a combined $139 million dollars to resolve the accusations.
As part of the settlement, neither Navient or Sallie Mae admitted any guilt, a common practice for financial firms settling with the government. On May 1st, Navient spun-off from Sallie Mae, taking over all student lending. Sallie Mae still functions as a bank and Navient handles about 5.8 million student loan accounts.
Unnamed sources have said that Navient will receive three more months of business from the Obama Administration. Naturally a number of critics were disappointed by the leak. According to Chris Hicks, of the Washington-based non-profit Debt-Free Future campaign for Jobs With Justice,
Read more at http://www.inquisitr.com/1452263/obama-to-reward-sallie-mae-spin-off-accused-of-defrauding-veterans/#RHsu1jqfZFRQUwX3.99
Department of Education has been under criticism for its policies on student lending. Its oversight of companies that provide student loans, like Sallie Mae, has been too relaxed according to some sources. Now the department has announced that it will be making major changes to its policies and overhauling its contracts. Unfortunately, one of the biggest symbols of lending misconduct is being rewarded with a new contract according to the Huffington Post.
Sallie Mae and Navient made the headlines in May of this year when the FDIC accused them of intentionally overcharging active-duty service members, and going out of its way to get default judgments, starting in 2005. Among the specific allegations was that Sallie Mae was illegally misinforming troops they had to be deployed to get certain benefits and concocting other fake tests. Navient Corporation and Sallie Mae made a settlement with the Department of Justice for a combined $139 million dollars to resolve the accusations.
As part of the settlement, neither Navient or Sallie Mae admitted any guilt, a common practice for financial firms settling with the government. On May 1st, Navient spun-off from Sallie Mae, taking over all student lending. Sallie Mae still functions as a bank and Navient handles about 5.8 million student loan accounts.
Unnamed sources have said that Navient will receive three more months of business from the Obama Administration. Naturally a number of critics were disappointed by the leak. According to Chris Hicks, of the Washington-based non-profit Debt-Free Future campaign for Jobs With Justice,
Read more at http://www.inquisitr.com/1452263/obama-to-reward-sallie-mae-spin-off-accused-of-defrauding-veterans/#RHsu1jqfZFRQUwX3.99
Parents from a recent report from cnn.com have found a way to get some help with paying student loans.
After a CNNMoney story about the family's situation ran Tuesday, hundreds of readers reached out to offer words of encouragement -- and financial support -- to the family.
So far, people have donated more than $10,000 through the Masons' GoFundMe page.
Senator Elizabeth Warren highlighted the family's story at a Senate Banking Committee hearing on Thursday.
"We've been totally blown away," said Mason. "It's so encouraging to realize there's a lot of good people out there."
His fund raising goal is set at $200,000, the amount he now owes the private student lenders. Mason says he was so desperate to help his daughter Lisa get a nursing degree that he co-signed the $100,000 in loans she took out -- never could he imagine that his daughter would pass away before the debts were paid off.
Related: Grieving parents hit with $200,000 in student loans
When Lisa died of liver failure at the age 27 all of her student loan bills were immediately sent to the Masons. On a pastor's salary, Mason couldn't afford to care for his daughter's three children and keep up with the payments. Now, as a result of interest and late penalties, the loans have since doubled to $200,000.
While federal loans are typically forgiven in situations like this, it's up to the private lenders to decide whether to offer relief to a struggling borrower.
One of Mason's lenders, Navient Corp., reached out to Mason after being contacted by CNNMoney and lowered the interest rate to 0% on three of his four loans and reduced the total amount owed to $27,000 from nearly $35,000.
Even better, Mason said a debt collection firm that had been trying to collect on another loan called him Wednesday to say they had seen the CNNMoney story and would like to forgive the entire loan balance of $15,000.
'It's too expensive to go to school'
Earlier this year, Mason had considered filing for bankruptcy. But it is very difficult -- often impossible -- to get private student loan debt discharged in bankruptcy, and Mason's lawyer told him he had such a slim chance of being approved that the legal costs would only add to his debt load.
Mason has also started a petition on Change.org, urging President Obama to make it possible to discharge all types of student loan debt in bankruptcy. His petition has received more than 2,700 signatures so far.
Related: 1 in 3 U.S. adults have debt in collections
Other families who have lost a child and then become responsible for huge student loans have also created petitions on Change.org -- often aimed at getting their particular lender to offer some relief.
Angela Smith, a mother from Chesapeake, Va., filed a petition on Change.org several years ago asking private loan provider First Marblehead Corp. to forgive the $40,000 in student loans that her husband had co-signed for their son Donte, who was shot to death in 2008. The petition received more than 150,000 signatures from sympathizers but there was no action from the lenders.
There's been one other success story so far, however, where the brother of a deceased borrower petitioned a bank to stop going after his grieving father for payments, and the loan was forgiven.
For Mason, the rush of support he has received after getting his story out there is beginning to change his whole outlook.
"For the first time since our daughter's death, we have a little bit of hope," said Mason.
So far, people have donated more than $10,000 through the Masons' GoFundMe page.
Senator Elizabeth Warren highlighted the family's story at a Senate Banking Committee hearing on Thursday.
"We've been totally blown away," said Mason. "It's so encouraging to realize there's a lot of good people out there."
His fund raising goal is set at $200,000, the amount he now owes the private student lenders. Mason says he was so desperate to help his daughter Lisa get a nursing degree that he co-signed the $100,000 in loans she took out -- never could he imagine that his daughter would pass away before the debts were paid off.
Related: Grieving parents hit with $200,000 in student loans
When Lisa died of liver failure at the age 27 all of her student loan bills were immediately sent to the Masons. On a pastor's salary, Mason couldn't afford to care for his daughter's three children and keep up with the payments. Now, as a result of interest and late penalties, the loans have since doubled to $200,000.
While federal loans are typically forgiven in situations like this, it's up to the private lenders to decide whether to offer relief to a struggling borrower.
One of Mason's lenders, Navient Corp., reached out to Mason after being contacted by CNNMoney and lowered the interest rate to 0% on three of his four loans and reduced the total amount owed to $27,000 from nearly $35,000.
Even better, Mason said a debt collection firm that had been trying to collect on another loan called him Wednesday to say they had seen the CNNMoney story and would like to forgive the entire loan balance of $15,000.
'It's too expensive to go to school'
Earlier this year, Mason had considered filing for bankruptcy. But it is very difficult -- often impossible -- to get private student loan debt discharged in bankruptcy, and Mason's lawyer told him he had such a slim chance of being approved that the legal costs would only add to his debt load.
Mason has also started a petition on Change.org, urging President Obama to make it possible to discharge all types of student loan debt in bankruptcy. His petition has received more than 2,700 signatures so far.
Related: 1 in 3 U.S. adults have debt in collections
Other families who have lost a child and then become responsible for huge student loans have also created petitions on Change.org -- often aimed at getting their particular lender to offer some relief.
Angela Smith, a mother from Chesapeake, Va., filed a petition on Change.org several years ago asking private loan provider First Marblehead Corp. to forgive the $40,000 in student loans that her husband had co-signed for their son Donte, who was shot to death in 2008. The petition received more than 150,000 signatures from sympathizers but there was no action from the lenders.
There's been one other success story so far, however, where the brother of a deceased borrower petitioned a bank to stop going after his grieving father for payments, and the loan was forgiven.
For Mason, the rush of support he has received after getting his story out there is beginning to change his whole outlook.
"For the first time since our daughter's death, we have a little bit of hope," said Mason.
Parents Are Relying More on Their Own Money Instead of Borrowing
Family spending on college has held steady for the past three years, but parents and students are now relying less on taking out loans and more on grants, scholarships and their own income and savings, according to a new report from Sallie Mae.
"Every family has a different way of doing it – there is no one size fits all approach," says Sarah Ducich, an author of the report. "Over the last few years they’re considering cost more. Instead of writing a blank check, they’re making deliberate decisions to save on their college bills."
The large private lender, in conjunction with Ipsos Public Affairs, found in its seventh annual "How America Pays for College" report that the average family spent $20,882 on college this past academic year – a slight decrease from $21,178 in 2012-13, and a 13 percent decrease from $24,097 in 2009-10. More than half of the cost of college is covered by grants and scholarships, as well as parent income and savings. The average family also relied less on parent and student loans, which accounted for 7 percent and 15 percent of the cost, respectively.
Low-income students in particular covered about 14 percent of their cost from borrowing – the lowest level since Sallie Mae started the survey, Ducich says. In 2012-13, low-income families covered 22 percent of the cost of college with student loans.
Conversely, the typical high income family reported the lowest level of student borrowing this past year, and covered more than half of the cost with parent income and savings. Middle and low income students are also contributing more of their own income and savings to pay for college, which could contribute to the drop in student borrowing, Ducich says.
But one of the most striking findings of the report, Ducich says, is that despite soaring tuition and fees, families' belief in the value of college has remained strong. Nearly all of the 1,600 parents and students surveyed said they believed that college is an investment in the future, nearly 90 percent said it's needed for a desired occupation and about 86 percent said they would be willing to stretch financially to pay for college.
"They're really unwavering," Ducich says. "I think that sort of underscores how important families view college."
And although more than two-thirds of families said they planned on borrowing, at least as a last resort, many are increasingly looking for ways to cut costs. Nearly all families reported taking at least one step to make college more affordable, and on average families took five steps. Seven in 10 said they chose a local college to pay in-state tuition and more than half said they lived at home or with relatives.
Seeking out those cost-saving measures was particularly true for the roughly 30 percent of students who were the first in their families to attend college. Overall, first-generation families spent about 18 percent less on college ($18,118) than second-generation families ($22,107). A greater proportion also enrolled in 2-year public colleges.
"They're really aspirational," Ducich says. "These are the people who are driving to achieve more, but they are less familiar with the tools to help them be successful."
About half as many first-generation families than second-generation families reported having a plan to pay for college, according to the report. Although 44 percent of second-generation families reported having a plan, Ducich says the number is still too low, and that she would like to see more families planning, either on their own or through services banks and colleges provide. Ducich noted Sallie Mae offers a college planning calculator, and all colleges that receive federal funding are required by law to provide net price calculators on their websites.
"It’s really that very strong value commitment to college that drives families to figure out how to make it work and be able to afford the college degree," Ducich says
"Every family has a different way of doing it – there is no one size fits all approach," says Sarah Ducich, an author of the report. "Over the last few years they’re considering cost more. Instead of writing a blank check, they’re making deliberate decisions to save on their college bills."
The large private lender, in conjunction with Ipsos Public Affairs, found in its seventh annual "How America Pays for College" report that the average family spent $20,882 on college this past academic year – a slight decrease from $21,178 in 2012-13, and a 13 percent decrease from $24,097 in 2009-10. More than half of the cost of college is covered by grants and scholarships, as well as parent income and savings. The average family also relied less on parent and student loans, which accounted for 7 percent and 15 percent of the cost, respectively.
Low-income students in particular covered about 14 percent of their cost from borrowing – the lowest level since Sallie Mae started the survey, Ducich says. In 2012-13, low-income families covered 22 percent of the cost of college with student loans.
Conversely, the typical high income family reported the lowest level of student borrowing this past year, and covered more than half of the cost with parent income and savings. Middle and low income students are also contributing more of their own income and savings to pay for college, which could contribute to the drop in student borrowing, Ducich says.
But one of the most striking findings of the report, Ducich says, is that despite soaring tuition and fees, families' belief in the value of college has remained strong. Nearly all of the 1,600 parents and students surveyed said they believed that college is an investment in the future, nearly 90 percent said it's needed for a desired occupation and about 86 percent said they would be willing to stretch financially to pay for college.
"They're really unwavering," Ducich says. "I think that sort of underscores how important families view college."
And although more than two-thirds of families said they planned on borrowing, at least as a last resort, many are increasingly looking for ways to cut costs. Nearly all families reported taking at least one step to make college more affordable, and on average families took five steps. Seven in 10 said they chose a local college to pay in-state tuition and more than half said they lived at home or with relatives.
Seeking out those cost-saving measures was particularly true for the roughly 30 percent of students who were the first in their families to attend college. Overall, first-generation families spent about 18 percent less on college ($18,118) than second-generation families ($22,107). A greater proportion also enrolled in 2-year public colleges.
"They're really aspirational," Ducich says. "These are the people who are driving to achieve more, but they are less familiar with the tools to help them be successful."
About half as many first-generation families than second-generation families reported having a plan to pay for college, according to the report. Although 44 percent of second-generation families reported having a plan, Ducich says the number is still too low, and that she would like to see more families planning, either on their own or through services banks and colleges provide. Ducich noted Sallie Mae offers a college planning calculator, and all colleges that receive federal funding are required by law to provide net price calculators on their websites.
"It’s really that very strong value commitment to college that drives families to figure out how to make it work and be able to afford the college degree," Ducich says
Sallie Mae May Have Finally Got
What They Deserve. "lossing profit" YES!!!!SLM Corp. , known as Sallie Mae, said its second-quarter profit fell 4.2% as the education lender posted higher expenses in its first earnings report since being broken up into two firms.
The company also projected full-year earnings of 41 cents to 43 cents a share and private-education loan originations of $4 billion.
In addition, the firm named Jeffrey Dale as its first chief risk officer. Mr. Dale most recently worked at Citigroup, where he was North American Group Risk Director.
The earnings report comes just a few months after Sallie Mae on April 30 was split into two firms: an education-loan manager known as Navient and a consumer-banking operation that continued under the Sallie Mae brand. For the purposes of the second-quarter earnings report, the spinoff was treated as a reverse spin, with Sallie Mae's historical financial statements before April 30, including only those operations, assets, liabilities and equity of the consumer banking business.
On Wednesday, Sallie Mae reported its private-education loan originations totaled $373 million, up 3% from a year earlier. The provision for loan losses was $1 million.
Overall, Sallie Mae reported a profit of $44.1 million, down from $76.5 million a year earlier. On a per-share basis, which includes preferred dividends, earnings fell to 9 cents from 17 cents. Core earnings, which adjust for derivatives, hedging and goodwill and intangible assets, fell to 10 cents from 17 cents.
Analysts surveyed by Thomson Reuters expected core earnings of 9 cents in the latest period.
The company said its private-education loan portfolio increased 40% to $7.4 billion at June 30, from $5.3 billion a year earlier.
Total operating expenses rose to $75 million from $67 million a year earlier, while net interest income totaled $144 million, up 35% from last year.
SLM and Navient agreed to settle federal charges they overcharged military members and imposed excessive fees for student loans. SLM agreed to pay a $3.3 million fine. The companies didn't admit or deny the allegations. Earlier this month, in Navient's first postspinoff earnings report, the company said net income declined, but said its results showed continued improvement in student-loan credit quality.
The company also projected full-year earnings of 41 cents to 43 cents a share and private-education loan originations of $4 billion.
In addition, the firm named Jeffrey Dale as its first chief risk officer. Mr. Dale most recently worked at Citigroup, where he was North American Group Risk Director.
The earnings report comes just a few months after Sallie Mae on April 30 was split into two firms: an education-loan manager known as Navient and a consumer-banking operation that continued under the Sallie Mae brand. For the purposes of the second-quarter earnings report, the spinoff was treated as a reverse spin, with Sallie Mae's historical financial statements before April 30, including only those operations, assets, liabilities and equity of the consumer banking business.
On Wednesday, Sallie Mae reported its private-education loan originations totaled $373 million, up 3% from a year earlier. The provision for loan losses was $1 million.
Overall, Sallie Mae reported a profit of $44.1 million, down from $76.5 million a year earlier. On a per-share basis, which includes preferred dividends, earnings fell to 9 cents from 17 cents. Core earnings, which adjust for derivatives, hedging and goodwill and intangible assets, fell to 10 cents from 17 cents.
Analysts surveyed by Thomson Reuters expected core earnings of 9 cents in the latest period.
The company said its private-education loan portfolio increased 40% to $7.4 billion at June 30, from $5.3 billion a year earlier.
Total operating expenses rose to $75 million from $67 million a year earlier, while net interest income totaled $144 million, up 35% from last year.
SLM and Navient agreed to settle federal charges they overcharged military members and imposed excessive fees for student loans. SLM agreed to pay a $3.3 million fine. The companies didn't admit or deny the allegations. Earlier this month, in Navient's first postspinoff earnings report, the company said net income declined, but said its results showed continued improvement in student-loan credit quality.
Its time to dump Sallie Mae
For more than year, the Student Labor Action Project (SLAP)—alongside coalition partners, including the American Federation of Teachers, National Education Association and the US Student Association—has been calling for the Department of Education to cancel its $100 million annual contract with Sallie Mae. But the department has claimed that no “wholesale” violation occurred that would justify ending the contract.
Last year, only after three hundred students demanded that Secretary Arne Duncan meet with them at the US Student Association’s Legislative Conference in March 2013, SLAP students were given a meeting with senior officials at the Department of Education. In this meeting, Secretary Arne Duncan stated that the Department wouldn’t do business with corporations that broke the law.
But, it’s clear that Sallie Mae broke the law. On May 13, 2014, Sallie Mae reached settlements with the Department of Justice and Federal Deposit Insurance Corporation to pay $97 million in fines and restitution to student loan borrowers for violating multiple federal laws. With these settlements, federal agencies are fining Sallie Mae for overcharging active-duty service members on interest rates, deceiving borrowers when processing payments, and engaging in discriminatory practices.
Students are now calling for an immediate end to this contract with new outrageous evidence from federal investigators. The Department of Justice described Sallie Mae’s conduct as “intentional” and “willful”—yet the Department of Education has taken no action. Students are continuing the fight for a debt-free future by urging Secretary Duncan to stop spending hundreds of millions of taxpayers’ dollars on a company that breaks the law.
Secretary Duncan’s colleagues from other federal agencies have found that Sallie Mae has cheated borrowers. Over 50,000 people have taken action to tell the Department that they’ve had enough! It’s time for students to keep up the pressure on Secretary Duncan to cut the department’s contract with Sallie Mae. This summer, the fight continues as students and borrowers unite to make the Department of Education work for us!
Last year, only after three hundred students demanded that Secretary Arne Duncan meet with them at the US Student Association’s Legislative Conference in March 2013, SLAP students were given a meeting with senior officials at the Department of Education. In this meeting, Secretary Arne Duncan stated that the Department wouldn’t do business with corporations that broke the law.
But, it’s clear that Sallie Mae broke the law. On May 13, 2014, Sallie Mae reached settlements with the Department of Justice and Federal Deposit Insurance Corporation to pay $97 million in fines and restitution to student loan borrowers for violating multiple federal laws. With these settlements, federal agencies are fining Sallie Mae for overcharging active-duty service members on interest rates, deceiving borrowers when processing payments, and engaging in discriminatory practices.
Students are now calling for an immediate end to this contract with new outrageous evidence from federal investigators. The Department of Justice described Sallie Mae’s conduct as “intentional” and “willful”—yet the Department of Education has taken no action. Students are continuing the fight for a debt-free future by urging Secretary Duncan to stop spending hundreds of millions of taxpayers’ dollars on a company that breaks the law.
Secretary Duncan’s colleagues from other federal agencies have found that Sallie Mae has cheated borrowers. Over 50,000 people have taken action to tell the Department that they’ve had enough! It’s time for students to keep up the pressure on Secretary Duncan to cut the department’s contract with Sallie Mae. This summer, the fight continues as students and borrowers unite to make the Department of Education work for us!
Sallie Mae cheated our soldiers while the government just renewed their contract.
Federal investigators discovered evidence showing Sallie Mae cheated active-duty military service members on their federal student loans at least two months before the Department of Education told the company it planned to renew its lucrative contract to collect loan payments.
The evidence led officials to preliminarily conclude as early as August that Sallie Mae had allegedly violated the Servicemembers Civil Relief Act in servicing some federal student loans, according to people familiar with the probe. The law requires companies to reduce interest rates on student loans to no more than 6 percent upon request by service members called to active duty.
The revelation that some federal officials believed Sallie Mae violated the service members law by failing to allow active-duty soldiers to use critical protections for their federal student loans has prompted outrage among a bipartisan group of federal lawmakers. Student advocates are trying to use the findings to force the department to suspend ties with the company.
The timing of the discovery, not previously reported, raises new questions about the Education Department’s October decision to reward Sallie Mae with a potential five-year extension of its existing contract to collect payments on federal student loans.The company’s contract with the Education Department, which expires in June, requires it to comply at all times with all relevant federal laws in its pursuit of borrowers’ monthly payments on their federal student loans.
In August, the department said Sallie Mae confirmed that an ongoing government investigation into allegations the company deprived active-duty soldiers their consumer rights did not affect federal student loans. In November, the department said it was “not aware of any issues that would prevent us from exercising this extension."
People familiar with the service member probe cautioned that while federal investigators by August had a firm grasp on the extent of the alleged wrongdoing regarding Sallie Mae’s servicing of private student loans, the probe was ongoing. Investigators from the Department of Justice and the Federal Deposit Insurance Corp. were looking at Sallie Mae's practices at the time.
It’s unclear whether investigators’ findings reached the upper echelons of the Education Department before department officials decided to inform Sallie Mae of their intent to extend the company’s contract. Dorie Nolt, Education spokeswoman, refused to answer questions.
“I'm not in a position to comment on a potential investigation,” Nolt said in a statement. “The Department and Secretary [Arne] Duncan believe it is extremely important that servicers are held to high standards, and of the more than 40 million borrowers with outstanding student loan debt, the vast majority have not expressed any concerns about servicers.”
John Remondi, Sallie Mae chief executive, told investors and analysts on April 17 that the company is “100 percent committed to providing the full benefits and responsive service to those who serve our country in the armed forces.”
“However,” Remondi continued, “what on its face is a simple statute is in practice very, very complex to apply.” The company, which is trying to settle the probe, declined further comment. The Department of Justice, which is leading the investigation, also declined to comment. Sallie Mae has not been publicly accused of any wrongdoing in connection with the investigation.
Sallie Mae, the nation’s largest handler of student debt, has been criticized by federal lawmakers, student advocates, state colleges and teachers’ unions for its servicing of education loans. The Education Department has been under pressure from those same groups for its supervision of Sallie Mae.
The timing of the alleged violations of the service members law threatens to further shame an Education Department already facing harsh criticism for its lack of oversight of student loan companies it pays to interact with borrowers.
The department said in December that it had declined to levy fines on Sallie Mae, despite previously secret determinations over the past 10 years alleging the company had harmed borrowers and incorrectly billed the department. Sen. Elizabeth Warren (D-Mass.) has said that the Education Department risks becoming a “lapdog.”
“If the department knew one of its contractors was violating federal law, then knowingly renewed a five-year contract worth hundreds of millions of dollars, it shows that the Education Department is spending more time bumping elbows with industry players than protecting borrowers, helping students or helping soldiers,” said Chris Hicks, an organizer who leads the Debt-Free Future campaign for Jobs With Justice, a Washington-based nonprofit that is among organizations that have called on Duncan to suspend the department’s contract with Sallie Mae.
Sallie Mae disclosed in August that it was under investigation for how it treated service members, but didn’t specify whether the probe targeted private loans, federal student loans, or both. Chris Greene, an Education Department spokesman, said then that the probe didn’t affect federal student loans.
The Huffington Post reported April 16 that federal investigators had discovered evidence alleging federal student loans were affected.
“These accounts, if true, of Sallie Mae violating the critical protections of our men and women in uniform are very disturbing,” said Sen. Tom Harkin (D-Iowa), who as chairman of the Senate Health, Education, Labor and Pensions committee oversees the Education Department. “As we proceed with our hearings on the reauthorization of the Higher Education Act, protecting the rights of military families and holding servicers like Sallie Mae accountable will be a priority.”
A spokeswoman for Sen. Lamar Alexander (R-Tenn.), the top Republican on the committee, said he is following the investigation closely. Sen. Sherrod Brown (D-Ohio) said service members “shouldn’t have to worry about predatory banking practices,” adding that the Education Department “must take action to ensure that our active duty servicemembers are treated fairly.”
Warren, who has criticized Sallie Mae and the Education Department, said the government should reconsider its approach to the company.
“Sallie Mae makes millions of dollars on federal contracts despite its pattern of breaking the rules and hurting borrowers. This isn't right,” Warren said. “We need to protect our service members and other young people trying to get a fair shot -- the federal government should be cracking down on companies that break the rules, not rewarding them with additional contracts.”
With student debt totaling more than $1.2 trillion, federal policymakers and regulators have become increasingly alarmed by practices employed by servicers such as Sallie Mae. Making it harder for borrowers to pay their debts risks hurting future U.S. economic growth as over-indebted borrowers delay home and auto purchases, limit other forms of borrowing and reduce consumption.
Last week, the Treasury Department said that Sarah Bloom Raskin, deputy treasury secretary, will focus on student debt on Tuesday in her first policy speech as the department’s second-ranking official.
But as policymakers and regulators from the Treasury Department, Federal Reserve and Consumer Financial Protection Bureau worry over student debt and consider measures to limit its negative impact on the U.S. economy, they face an Education Department that appears reluctant to challenge the companies it pays to interact with borrowers, collect their payments and counsel them on the best repayment plans for their budgets.
James Runcie, who as chief operating officer for the Office of Federal Student Aid oversees the federal government’s student lending program, explained the department’s thinking during a Senate hearing in March.
At the hearing, Warren asked Runcie why the department had decided to extend its contract with Sallie Mae. The company, in addition to facing the service members probe, also is battling investigations by the FDIC, the consumer agency and a gaggle of state attorneys general over its allegedly faulty lending and servicing practices.
“We know that there are problems with Sallie Mae,” Warren said, “and the actions you are taking and the oversight that you are exercising has obviously not been enough to correct the problem. And I'm very concerned about re-upping a multi-million dollar contract with Sallie Mae when Sallie Mae has demonstrated time and time again that it's not following the rules.”
In his response, Runcie said that the department decided to extend Sallie Mae’s contract as part of its decision to extend the contracts of all four of its major servicers. The Education Department hadn’t found a “wholesale” violation by Sallie Mae of its contract, which could lead to a contract termination, he said.
Also factoring into the department’s decision, Runcie said, was the potential “dislocation” borrowers would face if the department had to transfer loans from its servicers to a new batch of companies.
That prompted Harkin to quickly interject. “It sounds like your answer, Mr. Runcie, was that they’re too big to fail.”
The evidence led officials to preliminarily conclude as early as August that Sallie Mae had allegedly violated the Servicemembers Civil Relief Act in servicing some federal student loans, according to people familiar with the probe. The law requires companies to reduce interest rates on student loans to no more than 6 percent upon request by service members called to active duty.
The revelation that some federal officials believed Sallie Mae violated the service members law by failing to allow active-duty soldiers to use critical protections for their federal student loans has prompted outrage among a bipartisan group of federal lawmakers. Student advocates are trying to use the findings to force the department to suspend ties with the company.
The timing of the discovery, not previously reported, raises new questions about the Education Department’s October decision to reward Sallie Mae with a potential five-year extension of its existing contract to collect payments on federal student loans.The company’s contract with the Education Department, which expires in June, requires it to comply at all times with all relevant federal laws in its pursuit of borrowers’ monthly payments on their federal student loans.
In August, the department said Sallie Mae confirmed that an ongoing government investigation into allegations the company deprived active-duty soldiers their consumer rights did not affect federal student loans. In November, the department said it was “not aware of any issues that would prevent us from exercising this extension."
People familiar with the service member probe cautioned that while federal investigators by August had a firm grasp on the extent of the alleged wrongdoing regarding Sallie Mae’s servicing of private student loans, the probe was ongoing. Investigators from the Department of Justice and the Federal Deposit Insurance Corp. were looking at Sallie Mae's practices at the time.
It’s unclear whether investigators’ findings reached the upper echelons of the Education Department before department officials decided to inform Sallie Mae of their intent to extend the company’s contract. Dorie Nolt, Education spokeswoman, refused to answer questions.
“I'm not in a position to comment on a potential investigation,” Nolt said in a statement. “The Department and Secretary [Arne] Duncan believe it is extremely important that servicers are held to high standards, and of the more than 40 million borrowers with outstanding student loan debt, the vast majority have not expressed any concerns about servicers.”
John Remondi, Sallie Mae chief executive, told investors and analysts on April 17 that the company is “100 percent committed to providing the full benefits and responsive service to those who serve our country in the armed forces.”
“However,” Remondi continued, “what on its face is a simple statute is in practice very, very complex to apply.” The company, which is trying to settle the probe, declined further comment. The Department of Justice, which is leading the investigation, also declined to comment. Sallie Mae has not been publicly accused of any wrongdoing in connection with the investigation.
Sallie Mae, the nation’s largest handler of student debt, has been criticized by federal lawmakers, student advocates, state colleges and teachers’ unions for its servicing of education loans. The Education Department has been under pressure from those same groups for its supervision of Sallie Mae.
The timing of the alleged violations of the service members law threatens to further shame an Education Department already facing harsh criticism for its lack of oversight of student loan companies it pays to interact with borrowers.
The department said in December that it had declined to levy fines on Sallie Mae, despite previously secret determinations over the past 10 years alleging the company had harmed borrowers and incorrectly billed the department. Sen. Elizabeth Warren (D-Mass.) has said that the Education Department risks becoming a “lapdog.”
“If the department knew one of its contractors was violating federal law, then knowingly renewed a five-year contract worth hundreds of millions of dollars, it shows that the Education Department is spending more time bumping elbows with industry players than protecting borrowers, helping students or helping soldiers,” said Chris Hicks, an organizer who leads the Debt-Free Future campaign for Jobs With Justice, a Washington-based nonprofit that is among organizations that have called on Duncan to suspend the department’s contract with Sallie Mae.
Sallie Mae disclosed in August that it was under investigation for how it treated service members, but didn’t specify whether the probe targeted private loans, federal student loans, or both. Chris Greene, an Education Department spokesman, said then that the probe didn’t affect federal student loans.
The Huffington Post reported April 16 that federal investigators had discovered evidence alleging federal student loans were affected.
“These accounts, if true, of Sallie Mae violating the critical protections of our men and women in uniform are very disturbing,” said Sen. Tom Harkin (D-Iowa), who as chairman of the Senate Health, Education, Labor and Pensions committee oversees the Education Department. “As we proceed with our hearings on the reauthorization of the Higher Education Act, protecting the rights of military families and holding servicers like Sallie Mae accountable will be a priority.”
A spokeswoman for Sen. Lamar Alexander (R-Tenn.), the top Republican on the committee, said he is following the investigation closely. Sen. Sherrod Brown (D-Ohio) said service members “shouldn’t have to worry about predatory banking practices,” adding that the Education Department “must take action to ensure that our active duty servicemembers are treated fairly.”
Warren, who has criticized Sallie Mae and the Education Department, said the government should reconsider its approach to the company.
“Sallie Mae makes millions of dollars on federal contracts despite its pattern of breaking the rules and hurting borrowers. This isn't right,” Warren said. “We need to protect our service members and other young people trying to get a fair shot -- the federal government should be cracking down on companies that break the rules, not rewarding them with additional contracts.”
With student debt totaling more than $1.2 trillion, federal policymakers and regulators have become increasingly alarmed by practices employed by servicers such as Sallie Mae. Making it harder for borrowers to pay their debts risks hurting future U.S. economic growth as over-indebted borrowers delay home and auto purchases, limit other forms of borrowing and reduce consumption.
Last week, the Treasury Department said that Sarah Bloom Raskin, deputy treasury secretary, will focus on student debt on Tuesday in her first policy speech as the department’s second-ranking official.
But as policymakers and regulators from the Treasury Department, Federal Reserve and Consumer Financial Protection Bureau worry over student debt and consider measures to limit its negative impact on the U.S. economy, they face an Education Department that appears reluctant to challenge the companies it pays to interact with borrowers, collect their payments and counsel them on the best repayment plans for their budgets.
James Runcie, who as chief operating officer for the Office of Federal Student Aid oversees the federal government’s student lending program, explained the department’s thinking during a Senate hearing in March.
At the hearing, Warren asked Runcie why the department had decided to extend its contract with Sallie Mae. The company, in addition to facing the service members probe, also is battling investigations by the FDIC, the consumer agency and a gaggle of state attorneys general over its allegedly faulty lending and servicing practices.
“We know that there are problems with Sallie Mae,” Warren said, “and the actions you are taking and the oversight that you are exercising has obviously not been enough to correct the problem. And I'm very concerned about re-upping a multi-million dollar contract with Sallie Mae when Sallie Mae has demonstrated time and time again that it's not following the rules.”
In his response, Runcie said that the department decided to extend Sallie Mae’s contract as part of its decision to extend the contracts of all four of its major servicers. The Education Department hadn’t found a “wholesale” violation by Sallie Mae of its contract, which could lead to a contract termination, he said.
Also factoring into the department’s decision, Runcie said, was the potential “dislocation” borrowers would face if the department had to transfer loans from its servicers to a new batch of companies.
That prompted Harkin to quickly interject. “It sounds like your answer, Mr. Runcie, was that they’re too big to fail.”
Navient & Sallie Mae recently proposed for a grant for a joint 5.6 million to create 600 "Jobs"
The two companies that were Sallie Mae have gone back to the state Council on Development Finance to seek two new Strategic Fund grants totaling up to $5.6 million that they say will support the creation of 600 jobs in Delaware.
The student loan provider, based in Ogletown, split into two companies this year. Navient is a loan management, servicing and asset recovery firm headquartered in Wilmington. Sallie Mae remains a consumer banking business, issuing private education loans and products like CDs and savings accounts.
In 2011, the council approved a $5.1 million grant for Sallie Mae to relocate its corporate headquarters from Reston, Va. The money was used to renovate its building, at 300 Continental Drive in Newark, as well as furniture and fixtures.
Of the $5.1 million, $3.2 million was disbursed to Sallie Mae, including $700,000 for capital expenditures like renovation. The balance of the grant is being canceled, as both companies are seeking new performance grants – Navient, as much as $1.9 million, and Sallie Mae, up to $3.7 million.
Through the proposed grant, Navient is expected to create about 200 jobs. The Sallie Mae grant is expected to create up to 400 jobs.
Sallie Mae employees will remain at the Continental Drive building. Navient will house employees at a new headquarters at the Riverfront, and others will be located near Newark at 800 Prides Crossing.
Both proposals are on the agenda to go before the council May 19.
The City of Wilmington also has awarded Navient $750,000 performance-based grant to employ 120 people in the Star building, at 123 Justison Street. In addition, Navient is at the new headquarters, as well as a five-year exemption from the city's head tax, which is $15 per month on each employee.
Prior to the company separation, Sallie Mae employed about 1,200 people in Delaware and 7,200 nationwide.
The student loan provider, based in Ogletown, split into two companies this year. Navient is a loan management, servicing and asset recovery firm headquartered in Wilmington. Sallie Mae remains a consumer banking business, issuing private education loans and products like CDs and savings accounts.
In 2011, the council approved a $5.1 million grant for Sallie Mae to relocate its corporate headquarters from Reston, Va. The money was used to renovate its building, at 300 Continental Drive in Newark, as well as furniture and fixtures.
Of the $5.1 million, $3.2 million was disbursed to Sallie Mae, including $700,000 for capital expenditures like renovation. The balance of the grant is being canceled, as both companies are seeking new performance grants – Navient, as much as $1.9 million, and Sallie Mae, up to $3.7 million.
Through the proposed grant, Navient is expected to create about 200 jobs. The Sallie Mae grant is expected to create up to 400 jobs.
Sallie Mae employees will remain at the Continental Drive building. Navient will house employees at a new headquarters at the Riverfront, and others will be located near Newark at 800 Prides Crossing.
Both proposals are on the agenda to go before the council May 19.
The City of Wilmington also has awarded Navient $750,000 performance-based grant to employ 120 people in the Star building, at 123 Justison Street. In addition, Navient is at the new headquarters, as well as a five-year exemption from the city's head tax, which is $15 per month on each employee.
Prior to the company separation, Sallie Mae employed about 1,200 people in Delaware and 7,200 nationwide.
Sallie Mae lost 65% of its value after Navient split. Navient is predicted to under perform.
Lawmakers press Obama administration on Sallie Mae contract renewal
(Reuters) - U.S. lawmakers on Thursday grilled an Obama administration official on the government's decision to renew a contract with student loan servicing company SLM Corp, the subject of numerous government investigations.
Massachusetts Democratic Senator Elizabeth Warren said during the hearing, before the Senate Committee on Health, Education, Labor and Pensions, that the company had violated consumer protection laws but not held accountable.
"Sallie Mae has repeatedly broken the rules and violated its contracts with the government, and yet Sallie Mae continues to make millions on its federal contracts with the Department of Education," Warren said of SLM, popularly known as Sallie Mae.
A spokeswoman for Sallie Mae, Patricia Christel, commented in an email to Reuters: "Americans with federal loans serviced by Sallie Mae are 30 percent less likely to default than others. Sallie Mae-serviced customers enjoy a higher rate of repayment success due to the company's top default prevention performance in the direct loan contract."
The company did not have any representatives at the hearing. Committee Chairman Tom Harkin, an Iowa Democrat, said the company and other servicers had turned down invitations to testify.
Sallie Mae, the largest U.S. student loan provider, serviced
5.7 million student loan accounts on behalf of the U.S. Department of Education as of December 2013, according to a company spokeswoman.
The Education Department said it paid the company $87.1 million in the fiscal year that ended September 30.
Sallie Mae is facing probes by the Department of Justice, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, and a number of states, including Utah and Illinois.
The company 6, which services federal and private student loans, has been accused of violations that include improper marketing, unfair targeting of military veterans, high fees and improper account handling.
James Runcie, chief operating officer of the Education Department's federal student aid program, said the department decided to renew Sallie Mae's and other servicers' contracts to avoid displacing more than 24 million student accounts.
"In terms of extending the contract for Sallie Mae, it was part of extending the contracts for all of the TIVAs (student loan servicers)," Runcie told lawmakers.
The Department of Education in October notified its four primary student loan servicers,Nelnet Inc, Great Lakes, Pennsylvania Higher Education Assistance Agency (PHEAA) and Sallie Mae, that it planned to renew their contracts for five years when current agreements expire in June.
The department strictly monitors its servicers and would act if it saw evidence of malfeasance, Runcie said.
In regulatory filings, Sallie Mae said it had set aside $70 million to cover costs arising from any enforcement actions.
Last year, the CFPB said that Sallie Mae was the subject of nearly half of the 3,800 student lending complaints made to the agency for the 12-month period starting October 2012. The CFPB ranked the company worst in borrower, school, and federal personnel satisfaction in a report rating student loan servicers.
Warren, who has taken an aggressive stance against big educational lenders, said the Education Department was not doing enough to hold Sallie Mae accountable and to prevent it from repeating the violations it has been accused of.
"I'm very concerned about reupping a contract with Sallie Mae, when Sallie Mae has demonstrated time and time again that it hasn't followed the rules," she said.
Massachusetts Democratic Senator Elizabeth Warren said during the hearing, before the Senate Committee on Health, Education, Labor and Pensions, that the company had violated consumer protection laws but not held accountable.
"Sallie Mae has repeatedly broken the rules and violated its contracts with the government, and yet Sallie Mae continues to make millions on its federal contracts with the Department of Education," Warren said of SLM, popularly known as Sallie Mae.
A spokeswoman for Sallie Mae, Patricia Christel, commented in an email to Reuters: "Americans with federal loans serviced by Sallie Mae are 30 percent less likely to default than others. Sallie Mae-serviced customers enjoy a higher rate of repayment success due to the company's top default prevention performance in the direct loan contract."
The company did not have any representatives at the hearing. Committee Chairman Tom Harkin, an Iowa Democrat, said the company and other servicers had turned down invitations to testify.
Sallie Mae, the largest U.S. student loan provider, serviced
5.7 million student loan accounts on behalf of the U.S. Department of Education as of December 2013, according to a company spokeswoman.
The Education Department said it paid the company $87.1 million in the fiscal year that ended September 30.
Sallie Mae is facing probes by the Department of Justice, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, and a number of states, including Utah and Illinois.
The company 6, which services federal and private student loans, has been accused of violations that include improper marketing, unfair targeting of military veterans, high fees and improper account handling.
James Runcie, chief operating officer of the Education Department's federal student aid program, said the department decided to renew Sallie Mae's and other servicers' contracts to avoid displacing more than 24 million student accounts.
"In terms of extending the contract for Sallie Mae, it was part of extending the contracts for all of the TIVAs (student loan servicers)," Runcie told lawmakers.
The Department of Education in October notified its four primary student loan servicers,Nelnet Inc, Great Lakes, Pennsylvania Higher Education Assistance Agency (PHEAA) and Sallie Mae, that it planned to renew their contracts for five years when current agreements expire in June.
The department strictly monitors its servicers and would act if it saw evidence of malfeasance, Runcie said.
In regulatory filings, Sallie Mae said it had set aside $70 million to cover costs arising from any enforcement actions.
Last year, the CFPB said that Sallie Mae was the subject of nearly half of the 3,800 student lending complaints made to the agency for the 12-month period starting October 2012. The CFPB ranked the company worst in borrower, school, and federal personnel satisfaction in a report rating student loan servicers.
Warren, who has taken an aggressive stance against big educational lenders, said the Education Department was not doing enough to hold Sallie Mae accountable and to prevent it from repeating the violations it has been accused of.
"I'm very concerned about reupping a contract with Sallie Mae, when Sallie Mae has demonstrated time and time again that it hasn't followed the rules," she said.
Upstart.com Is Crowd Funding For Dreamers and Entrepreneurs. (It can help you pay student loans off)
Somewhere between Kickstarter, micro-loan non-profit Kiva, traditional bank loans, and venture capital sits Upstart, a lending service for college graduates started by ex-Googler Dave Girouard. Think of it as the money you might get from an indulgent relative, but you have to pay it back. The service, which was unveiled today, rolls out this fall at Arizona State University, Dartmouth College, Rhode Island School of Design, University of Michigan, and University of Washington.
Girouard, who served as president of enterprise at Google and developed Google Docs and Google Apps before leaving the search engine company earlier this year, had the idea for the financial startup after listening to the complaints of college grads facing the possibility of soul-crushing jobs to service wallet-crushing college debt. “I’d see that someone would have an idea for a startup or a research project that they were really excited about, but they were going to accept a job with a large company instead,” Girouard says. Upstart was his answer keep the dream alive.
In order to keep Upstart alive, it raised its own investments from Kleiner Perkins, Crunchfund, NEA Ventures, and Mark Cuban, to name a few, though the company won’t reveal how much.
The premise of Upstart is simple: Help people get the money they need to pursue their dream. It could be anything from launching a software startup to becoming a sculptor. In return for a loan that might range from $1,000 to $100,000 or more, recipients commit up to 7% of their future income to pay back investors over as many as 15 years. For backers, it’s a chance to invest in the next generation of entrepreneurs, get the warm, fuzzy feeling of helping someone’s dream come true – and this being a loan, not a gift – up to 15% return on their money in the form of interest.
Here’s how it works. Ambitious college grads with a stable credit history and a clean criminal background create a campaign on Upstart with details on why they need or want money. While there is no “good” or “bad” reason for asking for money, the Upstart team envisions people who want to start abusiness or pay down student loan debt to pursue low-paying careers like acting or take on an internship at a museum.
Graduates set a funding goal by deciding how much of their future income they are willing to pay back. “We have built a model that is predictive of future income of people from different schools with different majors and GPAs,” says Girouard, “We then tell students that for every one percent of their income over ten years they’re willing to commit back to the network, they can raise X dollars.” For example, Upstart could tell one borrower they can raise $7500 for every 1% of income they are willing to repay. If they wanted to raise $30,000, they would have to commit 4% of their annual income for 10 years to pay that money back. Upstart expects that most people will be allowed to raise between $6,000 and $8,000 for every 1% of future income.
The cash-strapped grad doesn’t get the money until the campaign reaches its goal. Once they get the money, repayment begins the January following the end of the campaign. To help ease the burden, if a borrower makes less than $30,000 in any given year, they don’t have to repay their investors. For each year they put off payment, Upstart adds a year to their repayment cycle, up to 15 years total.
Backers must invest in $1,000 increments. There’s no guaranteed return on investment (this is risk capital after all), but investors can earn up to 14.99% in interest on top of the principal they invest. “There’s no 100% iron-clad commitment that the principle will be repaid,” Girouard says.
Still, Girouard is banking on the idea that investing in people, rather than companies or products, is the safest bet. It’s a message venture firms have been pushing for decades. But in Upstart’s case, as with that rich uncle or aunt that writes you a check without questions, it might just be true.
Girouard, who served as president of enterprise at Google and developed Google Docs and Google Apps before leaving the search engine company earlier this year, had the idea for the financial startup after listening to the complaints of college grads facing the possibility of soul-crushing jobs to service wallet-crushing college debt. “I’d see that someone would have an idea for a startup or a research project that they were really excited about, but they were going to accept a job with a large company instead,” Girouard says. Upstart was his answer keep the dream alive.
In order to keep Upstart alive, it raised its own investments from Kleiner Perkins, Crunchfund, NEA Ventures, and Mark Cuban, to name a few, though the company won’t reveal how much.
The premise of Upstart is simple: Help people get the money they need to pursue their dream. It could be anything from launching a software startup to becoming a sculptor. In return for a loan that might range from $1,000 to $100,000 or more, recipients commit up to 7% of their future income to pay back investors over as many as 15 years. For backers, it’s a chance to invest in the next generation of entrepreneurs, get the warm, fuzzy feeling of helping someone’s dream come true – and this being a loan, not a gift – up to 15% return on their money in the form of interest.
Here’s how it works. Ambitious college grads with a stable credit history and a clean criminal background create a campaign on Upstart with details on why they need or want money. While there is no “good” or “bad” reason for asking for money, the Upstart team envisions people who want to start abusiness or pay down student loan debt to pursue low-paying careers like acting or take on an internship at a museum.
Graduates set a funding goal by deciding how much of their future income they are willing to pay back. “We have built a model that is predictive of future income of people from different schools with different majors and GPAs,” says Girouard, “We then tell students that for every one percent of their income over ten years they’re willing to commit back to the network, they can raise X dollars.” For example, Upstart could tell one borrower they can raise $7500 for every 1% of income they are willing to repay. If they wanted to raise $30,000, they would have to commit 4% of their annual income for 10 years to pay that money back. Upstart expects that most people will be allowed to raise between $6,000 and $8,000 for every 1% of future income.
The cash-strapped grad doesn’t get the money until the campaign reaches its goal. Once they get the money, repayment begins the January following the end of the campaign. To help ease the burden, if a borrower makes less than $30,000 in any given year, they don’t have to repay their investors. For each year they put off payment, Upstart adds a year to their repayment cycle, up to 15 years total.
Backers must invest in $1,000 increments. There’s no guaranteed return on investment (this is risk capital after all), but investors can earn up to 14.99% in interest on top of the principal they invest. “There’s no 100% iron-clad commitment that the principle will be repaid,” Girouard says.
Still, Girouard is banking on the idea that investing in people, rather than companies or products, is the safest bet. It’s a message venture firms have been pushing for decades. But in Upstart’s case, as with that rich uncle or aunt that writes you a check without questions, it might just be true.
Sallie Mae Braces For A $70 Million Hit In CFPB Investigations.
Sallie Mae, the nation’s largest student loan company, announced that it’s prepared to spend $70 million to deal with investigations from the Consumer Financial Protection Bureau, the U.S. Department of Justice and the Federal Deposit Insurance Corp. Federal regulators allege that the company violated federal consumer protection laws by engaging in discriminatory lending, overcharging active-duty members of the military and wrongfully processing borrowers’ monthly payments on their student loan debt.
This is the first time the student loan giant has put a number to the expected costs of this ongoing investigation. Yet despite the investigations, the Department of Education recently told Sallie Mae that it intends to renew the company’s lucrative contract to collect payments on federal student loans.
Sallie Mae”s ongoing legal trouble with the CFPB is just one example of how the Bureau is orchestrating a top-down approach to investigating the debt collection industry. First, the CFPB went after big banks, many of which do business with debt collection agencies. Then, the CFPB went after large debt buyers. Now, the CFPB has amped up its audits of debt collection agencies. Now is the time for large market participants to pay attention to CFPB action, and for small market participants to prepare for eventual scrutiny from the Bureau.
This is the first time the student loan giant has put a number to the expected costs of this ongoing investigation. Yet despite the investigations, the Department of Education recently told Sallie Mae that it intends to renew the company’s lucrative contract to collect payments on federal student loans.
Sallie Mae”s ongoing legal trouble with the CFPB is just one example of how the Bureau is orchestrating a top-down approach to investigating the debt collection industry. First, the CFPB went after big banks, many of which do business with debt collection agencies. Then, the CFPB went after large debt buyers. Now, the CFPB has amped up its audits of debt collection agencies. Now is the time for large market participants to pay attention to CFPB action, and for small market participants to prepare for eventual scrutiny from the Bureau.
Sallie Mae Credit Was Down Graded To Be Considered As Junk Investment (BBB-)
he rating agency stated that the downgrade was driven by the company’s sale of interest in bonds supported by government-backed student loans, which resulted in reservations regarding the probability of future reduction in cash flows from the FFELP portfolio.
Earlier last week, Sallie Mae declared that it has sold its remaining interest in SLM Student Loan Trust 2007-4 securitization to a third party. This was partially due to the legislation passed by the House and the U.S. Senate in Mar 2012, terminating the Federal Family Education Loan Program (FFELP) that provided federal subsidies to private lenders.
However, under the existing contract, Sallie Mae will continue servicing the student loans in the trust. The sale will result in the removal of student loans of $3.8 billion and associated liabilities of $3.7 billion from the company’s balance sheet in 2013.
Even though the sale constituted a modest fraction of Sallie Mae’s assets, the rating agency believes that it symbolized an alteration in the company's approach associated with the FFELP portfolio. Previously, S&P anticipated that the lender would allow the FFELP portfolio to steadily run off instead of selling it.
According to management, the company has planned further selling of its asset-backed securities holdings supported by loans originated under the Federal Family Education Loan Program (FFELP). This step reflects the company’s shift of focus from FFELP loans to its private student loan business.
S&P further commented that the residual interests offered Sallie Mae with opportunities to diversify and expand its various segments. These include its private education lending segment as well as the servicing business, which are key growth drivers to mitigate the negative effect of the waning FFELP portfolio.
Our Viewpoint
The rating revisions play a major role in preserving investors’ confidence in the stock and help boost its creditworthiness in the market. Though Sallie Mae is working on addressing such issues, further rating downgrades could take place due to pressure on future cash flows.
Additionally, suspension of the new federal student loan origination will continue to impact revenue generation capabilities of Sallie Mae. However, we believe that the company’s efforts to expand its private education loan business and reduce its loan loss provision expenses would bolster its earnings.
Further, the company’s leading position in the student lending market and diversifying efforts would help it navigate the current regulations and sluggish macro environment.
Sallie Mae retains a Zacks Rank #3 (Hold). Financial firms that are performing well include BankUnited, Inc. (BKU - Analyst Report), Fifth Third Bancorp (FITB - Analyst Report) and Regions Financial Corp. (RF - Analyst Report). BankUnited carries a Zacks Rank #1 (Strong Buy) and the other two hold a Zacks Rank #2 (Buy).
Earlier last week, Sallie Mae declared that it has sold its remaining interest in SLM Student Loan Trust 2007-4 securitization to a third party. This was partially due to the legislation passed by the House and the U.S. Senate in Mar 2012, terminating the Federal Family Education Loan Program (FFELP) that provided federal subsidies to private lenders.
However, under the existing contract, Sallie Mae will continue servicing the student loans in the trust. The sale will result in the removal of student loans of $3.8 billion and associated liabilities of $3.7 billion from the company’s balance sheet in 2013.
Even though the sale constituted a modest fraction of Sallie Mae’s assets, the rating agency believes that it symbolized an alteration in the company's approach associated with the FFELP portfolio. Previously, S&P anticipated that the lender would allow the FFELP portfolio to steadily run off instead of selling it.
According to management, the company has planned further selling of its asset-backed securities holdings supported by loans originated under the Federal Family Education Loan Program (FFELP). This step reflects the company’s shift of focus from FFELP loans to its private student loan business.
S&P further commented that the residual interests offered Sallie Mae with opportunities to diversify and expand its various segments. These include its private education lending segment as well as the servicing business, which are key growth drivers to mitigate the negative effect of the waning FFELP portfolio.
Our Viewpoint
The rating revisions play a major role in preserving investors’ confidence in the stock and help boost its creditworthiness in the market. Though Sallie Mae is working on addressing such issues, further rating downgrades could take place due to pressure on future cash flows.
Additionally, suspension of the new federal student loan origination will continue to impact revenue generation capabilities of Sallie Mae. However, we believe that the company’s efforts to expand its private education loan business and reduce its loan loss provision expenses would bolster its earnings.
Further, the company’s leading position in the student lending market and diversifying efforts would help it navigate the current regulations and sluggish macro environment.
Sallie Mae retains a Zacks Rank #3 (Hold). Financial firms that are performing well include BankUnited, Inc. (BKU - Analyst Report), Fifth Third Bancorp (FITB - Analyst Report) and Regions Financial Corp. (RF - Analyst Report). BankUnited carries a Zacks Rank #1 (Strong Buy) and the other two hold a Zacks Rank #2 (Buy).
Details Emerge on Sallie Mae Split
Sallie Mae’s plans to split into two companies has taken a major step forward when the Delaware-based student lender recently released a document with more details on the structure of the divided entities and revealed that one of the companies will relocate to a new headquarters building somewhere in New Castle County.
The smaller of the two companies, with just under $10 billion in assets, will be a consumer bank issuing private education loans and other products like CDs and savings accounts. It will retain the Sallie Mae name and its current headquarters, visible from I-95 in Christiana.
Until recently the company had not said whether the new Sallie Mae would share that space with its larger sister company, which has not yet been renamed. But spokeswoman Patricia Nash Christel said in an email Friday that the unnamed company “will have headquarters in another New Castle County location yet to be determined.”
The pre-split company employs about 1,200 people in Delaware. The two companies will continue to share an operations center at Prides Crossing in Ogletown after the separation in the second half of 2014.
The larger company – an entity Sallie Mae officials have called “NewCo” until it gets a permanent name – will focus on providing customer service for education loans, debt collection and the management of about a $138 billion portfolio of mostly federally guaranteed student loans.
While that business is much larger, NewCo is expected to get smaller over time as its borrowers repay a type of federal loan that’s no longer issued. The new Sallie Mae Bank will be a growth company that has set a goal of increasing loan originations at a 20 percent annual rate.
Late last week, Sallie Mae released its Form 10, an official document filed with the U.S. Securities and Exchange Commission that gives investors a detailed look at how the two companies will operate after the split.
The company gave a more complete picture of the financial performance of each part of the company. As a stand-alone company, Sallie Mae Bank would have earned $198 million in net income during the first nine months of 2013, while the larger NewCo would have generated $1.1 billion in net earnings.
The smaller of the two companies, with just under $10 billion in assets, will be a consumer bank issuing private education loans and other products like CDs and savings accounts. It will retain the Sallie Mae name and its current headquarters, visible from I-95 in Christiana.
Until recently the company had not said whether the new Sallie Mae would share that space with its larger sister company, which has not yet been renamed. But spokeswoman Patricia Nash Christel said in an email Friday that the unnamed company “will have headquarters in another New Castle County location yet to be determined.”
The pre-split company employs about 1,200 people in Delaware. The two companies will continue to share an operations center at Prides Crossing in Ogletown after the separation in the second half of 2014.
The larger company – an entity Sallie Mae officials have called “NewCo” until it gets a permanent name – will focus on providing customer service for education loans, debt collection and the management of about a $138 billion portfolio of mostly federally guaranteed student loans.
While that business is much larger, NewCo is expected to get smaller over time as its borrowers repay a type of federal loan that’s no longer issued. The new Sallie Mae Bank will be a growth company that has set a goal of increasing loan originations at a 20 percent annual rate.
Late last week, Sallie Mae released its Form 10, an official document filed with the U.S. Securities and Exchange Commission that gives investors a detailed look at how the two companies will operate after the split.
The company gave a more complete picture of the financial performance of each part of the company. As a stand-alone company, Sallie Mae Bank would have earned $198 million in net income during the first nine months of 2013, while the larger NewCo would have generated $1.1 billion in net earnings.
Major Education Groups Pressure Arne Duncan To Crack Down On Sallie Mae
Student borrowers can't expect the basic consumer protections provided to millions of Americans who take out loans because the Department of Education fails to enforce the law, a prominent group of colleges, students and teachers has alleged.
In a stinging Dec. 20 letter to U.S. Secretary of Education Arne Duncan obtained by The Huffington Post, the group, led by the workers' rights organization Jobs With Justice, accused the federal department of effectively allowing loan servicers to violate the rights of student borrowers.
"For many borrowers, economic hardship is just one of the hurdles standing in the way of paying back their federal student loans,” the group of students, educators and colleges said. “Borrowers also have to contend with inept, subpar and potentially illegal conduct on behalf of the loan servicing and debt collection contractors that are selected and supervised by the department.”
The Education Department pays private-sector companies hundreds of millions of dollars each year to collect payments on student loans and work with borrowers when they fall behind on their debts. But it has made "little-to-no effort" to address longstanding complaints by borrowers and consumer advocates or to hold companies accountable when they mistreat borrowers and violate their federal contracts, the group said.
“We believe that these detrimental and misleading practices will not only continue to harm borrowers, but that continued inaction by your department will damage its credibility in overseeing these contracts,” reads the letter, signed by the American Association of State Colleges and Universities, the American Federation of Teachers, the National Education Association, and the United States Student Association, among others. “It is simply unacceptable that the Department of Education continues to allow loan servicers to routinely break the rules of these servicing and debt collection contracts and go completely unpunished by your office.”
The group called on Duncan to prohibit Sallie Mae, the nation’s largest handler of student debt, from servicing federal student loans until the company complies with government rules. The group also recommended the Education Department immediately launch a probe of Sallie Mae’s servicing and debt collection practices and then publish the results.
Sallie Mae recorded $84 million in revenue last year from its Education Department contracts, according to securities filings. The company was servicing 5.7 million federal loans under its Education Department contract as of Sept. 30, a 39 percent increase from the previous year.
The letter follows news reports and congressional correspondence detailing the Education Department’s lackluster oversight of its corporate partners, most notably Sallie Mae; poor loan servicing; rising defaults in its loan portfolio; disappointing debt-relief measures; and the department’s intentions to renew Sallie Mae’s contract despite pending investigations by at least three federal agencies over allegations that the company has violated borrowers’ rights.
"The department strives to ensure that college remains affordable and student loan debt remains manageable for the millions of Americans pursuing a college education," said Education Department press secretary Dorie Nolt. "The department continuously works with and monitors all of its student loan servicers to provide outstanding service to borrowers, serve as good stewards of taxpayer dollars, and ensure the integrity of its financial aid programs."
But Barmak Nassirian, director of federal relations and policy analysis for the AASCU, said his group has become "increasingly alarmed about the quality of loan servicing offered by the department's contractors." The letter notes that borrowers disputing their account balances, interest accrual or fees constitute the fastest-growing complaints. Those complaints more than doubled from 2009 to 2012, according to Education Department data.
“It seems to us there are certain basic rights that Americans take for granted when it comes to consumer credit transactions -- we are entitled to have our balances correctly tracked -- and it goes without saying that if you have a dispute, question or there is an issue with your account, you are entitled to a basic resolution process,” Nassirian said. "But sadly, none of these fundamental assumptions seem to be operational when it comes to loan servicing by the Education Department’s contractors."
Sallie Mae representatives did not respond to a request for comment. Rohit Chopra, the assistant director and student loan ombudsman for the Consumer Financial Protection Bureau who was copied on the group’s letter, declined to comment on its contents. But Chopra said his agency had recently finalized a rule enabling it to supervise student loan servicers, bringing oversight to the market.
The criticisms levied against Duncan’s department by the group, which includes the country's two largest teachers’ unions and a trade association acting on behalf of more than 400 state schools, represent an escalation of an ongoing campaign by consumer advocates to significantly improve the treatment of student loan borrowers and crack down on companies that have allegedly violated borrowers’ basic consumer rights for years. Their letter comes amid mounting complaints from borrowers and increasing concerns from federal regulators that poor servicing of federal student loans risks driving up defaults and sapping economic growth.
Already, lawmakers have warned the Education Department to expect heightened scrutiny of its loan servicing operations. Congress is gearing up to reauthorize the nearly 50-year-old Higher Education Act, the federal law governing how tens of billions of taxpayer dollars are allocated towards higher education each year, and lawmakers have said they want to make changes to how federal student loans are serviced, and to the Education Department’s oversight of its corporate partners.
A Dec. 9 letter from James Runcie, the chief operating officer of the Education Department’s Office of Federal Student Aid, to Sen. Elizabeth Warren (D-Mass.) set off the latest round of outrage.
In that letter, Runcie said the department had declined to levy any fines on student loan giant Sallie Mae, despite confidential determinations over the past 10 years that allege the company had harmed borrowers and incorrectly billed the department, among other servicing failures.
Nassirian said the AASCU was moved to join the coalition demanding Education Department action in part after reading Runcie’s letter, which he said showed how deficient the department’s oversight has been.
The NEA, which represents some 3 million educators, also hopes to get more active in the coming months on student loan servicing issues because it “wants to see the rules enforced,” said Mark Smith, senior policy analyst for higher education for the union.
"Our members are concerned about their children and the students they teach," Smith said. "This is a consequence of the debt level getting so large in terms of aggregate and individual burdens on students. Student debt has gotten so big it’s playing havoc with other sectors of the economy."
Nearly 40 million Americans collectively owe more than $1 trillion in student debt that is ultimately guaranteed by taxpayers. Outstanding federal student debt has more than doubled since 2007, according to the Education Department. Borrowers who graduated with bachelor’s degrees in 2012 on average had $29,400 in student debt, according to The Institute for College Access & Success. More than seven in 10 graduates from the Class of 2012 had student loan debt.
Chris Hicks, an organizer at Jobs With Justice’s Debt-Free Future Campaign, said his group hopes to increase pressure on the Education Department to spur servicing reforms that would avoid needless student loan defaults.
"The Department of Education can either do the right thing by borrowers, or they can maintain the status quo," Hicks said. "We'd like to see Secretary Duncan be a champion for higher education."
One in 10 recent borrowers defaulted on their federal student loans within the first two years, the highest default rate since 1995, according to the Education Department. About 100,000 borrowers with loans from the government’s Direct Loan program entered default during the three-month period ending in September, about the same number as enrolled in the Education Department’s three income-linked repayment plans, department data show.
Last December, Cooper Howes, an economist at Barclays, the U.K. bank, estimated in a note to clients that more than half of borrowers with federal student loans in 2012 qualified for lower payments under Income-Based Repayment, a plan that caps monthly payments relative to borrowers’ incomes.
Nassirian, of the AASCU, said he anticipates colleges and universities will begin ratcheting up pressure as well, as schools begin to feel the effects of how student loans are serviced by companies such as Sallie Mae.
"Frankly, for too long, institutions have been focused too much on the front end -- getting loans out -- and have not been sufficiently engaged with what happens to former students when they leave," Nassirian said. "But we have just reached a point where student loans are too ubiquitous in the lives of our students for us to be indifferent and let these kinds of sloppy practices go on."
Duncan and his top aides need to prioritize student loan servicing, Nassirian added.
“So many young people start out life with the equivalent of mortgages wrapped around their necks like anchors,” he said. “It is getting serious enough that we need some really high-level attention paid to it.”
In a stinging Dec. 20 letter to U.S. Secretary of Education Arne Duncan obtained by The Huffington Post, the group, led by the workers' rights organization Jobs With Justice, accused the federal department of effectively allowing loan servicers to violate the rights of student borrowers.
"For many borrowers, economic hardship is just one of the hurdles standing in the way of paying back their federal student loans,” the group of students, educators and colleges said. “Borrowers also have to contend with inept, subpar and potentially illegal conduct on behalf of the loan servicing and debt collection contractors that are selected and supervised by the department.”
The Education Department pays private-sector companies hundreds of millions of dollars each year to collect payments on student loans and work with borrowers when they fall behind on their debts. But it has made "little-to-no effort" to address longstanding complaints by borrowers and consumer advocates or to hold companies accountable when they mistreat borrowers and violate their federal contracts, the group said.
“We believe that these detrimental and misleading practices will not only continue to harm borrowers, but that continued inaction by your department will damage its credibility in overseeing these contracts,” reads the letter, signed by the American Association of State Colleges and Universities, the American Federation of Teachers, the National Education Association, and the United States Student Association, among others. “It is simply unacceptable that the Department of Education continues to allow loan servicers to routinely break the rules of these servicing and debt collection contracts and go completely unpunished by your office.”
The group called on Duncan to prohibit Sallie Mae, the nation’s largest handler of student debt, from servicing federal student loans until the company complies with government rules. The group also recommended the Education Department immediately launch a probe of Sallie Mae’s servicing and debt collection practices and then publish the results.
Sallie Mae recorded $84 million in revenue last year from its Education Department contracts, according to securities filings. The company was servicing 5.7 million federal loans under its Education Department contract as of Sept. 30, a 39 percent increase from the previous year.
The letter follows news reports and congressional correspondence detailing the Education Department’s lackluster oversight of its corporate partners, most notably Sallie Mae; poor loan servicing; rising defaults in its loan portfolio; disappointing debt-relief measures; and the department’s intentions to renew Sallie Mae’s contract despite pending investigations by at least three federal agencies over allegations that the company has violated borrowers’ rights.
"The department strives to ensure that college remains affordable and student loan debt remains manageable for the millions of Americans pursuing a college education," said Education Department press secretary Dorie Nolt. "The department continuously works with and monitors all of its student loan servicers to provide outstanding service to borrowers, serve as good stewards of taxpayer dollars, and ensure the integrity of its financial aid programs."
But Barmak Nassirian, director of federal relations and policy analysis for the AASCU, said his group has become "increasingly alarmed about the quality of loan servicing offered by the department's contractors." The letter notes that borrowers disputing their account balances, interest accrual or fees constitute the fastest-growing complaints. Those complaints more than doubled from 2009 to 2012, according to Education Department data.
“It seems to us there are certain basic rights that Americans take for granted when it comes to consumer credit transactions -- we are entitled to have our balances correctly tracked -- and it goes without saying that if you have a dispute, question or there is an issue with your account, you are entitled to a basic resolution process,” Nassirian said. "But sadly, none of these fundamental assumptions seem to be operational when it comes to loan servicing by the Education Department’s contractors."
Sallie Mae representatives did not respond to a request for comment. Rohit Chopra, the assistant director and student loan ombudsman for the Consumer Financial Protection Bureau who was copied on the group’s letter, declined to comment on its contents. But Chopra said his agency had recently finalized a rule enabling it to supervise student loan servicers, bringing oversight to the market.
The criticisms levied against Duncan’s department by the group, which includes the country's two largest teachers’ unions and a trade association acting on behalf of more than 400 state schools, represent an escalation of an ongoing campaign by consumer advocates to significantly improve the treatment of student loan borrowers and crack down on companies that have allegedly violated borrowers’ basic consumer rights for years. Their letter comes amid mounting complaints from borrowers and increasing concerns from federal regulators that poor servicing of federal student loans risks driving up defaults and sapping economic growth.
Already, lawmakers have warned the Education Department to expect heightened scrutiny of its loan servicing operations. Congress is gearing up to reauthorize the nearly 50-year-old Higher Education Act, the federal law governing how tens of billions of taxpayer dollars are allocated towards higher education each year, and lawmakers have said they want to make changes to how federal student loans are serviced, and to the Education Department’s oversight of its corporate partners.
A Dec. 9 letter from James Runcie, the chief operating officer of the Education Department’s Office of Federal Student Aid, to Sen. Elizabeth Warren (D-Mass.) set off the latest round of outrage.
In that letter, Runcie said the department had declined to levy any fines on student loan giant Sallie Mae, despite confidential determinations over the past 10 years that allege the company had harmed borrowers and incorrectly billed the department, among other servicing failures.
Nassirian said the AASCU was moved to join the coalition demanding Education Department action in part after reading Runcie’s letter, which he said showed how deficient the department’s oversight has been.
The NEA, which represents some 3 million educators, also hopes to get more active in the coming months on student loan servicing issues because it “wants to see the rules enforced,” said Mark Smith, senior policy analyst for higher education for the union.
"Our members are concerned about their children and the students they teach," Smith said. "This is a consequence of the debt level getting so large in terms of aggregate and individual burdens on students. Student debt has gotten so big it’s playing havoc with other sectors of the economy."
Nearly 40 million Americans collectively owe more than $1 trillion in student debt that is ultimately guaranteed by taxpayers. Outstanding federal student debt has more than doubled since 2007, according to the Education Department. Borrowers who graduated with bachelor’s degrees in 2012 on average had $29,400 in student debt, according to The Institute for College Access & Success. More than seven in 10 graduates from the Class of 2012 had student loan debt.
Chris Hicks, an organizer at Jobs With Justice’s Debt-Free Future Campaign, said his group hopes to increase pressure on the Education Department to spur servicing reforms that would avoid needless student loan defaults.
"The Department of Education can either do the right thing by borrowers, or they can maintain the status quo," Hicks said. "We'd like to see Secretary Duncan be a champion for higher education."
One in 10 recent borrowers defaulted on their federal student loans within the first two years, the highest default rate since 1995, according to the Education Department. About 100,000 borrowers with loans from the government’s Direct Loan program entered default during the three-month period ending in September, about the same number as enrolled in the Education Department’s three income-linked repayment plans, department data show.
Last December, Cooper Howes, an economist at Barclays, the U.K. bank, estimated in a note to clients that more than half of borrowers with federal student loans in 2012 qualified for lower payments under Income-Based Repayment, a plan that caps monthly payments relative to borrowers’ incomes.
Nassirian, of the AASCU, said he anticipates colleges and universities will begin ratcheting up pressure as well, as schools begin to feel the effects of how student loans are serviced by companies such as Sallie Mae.
"Frankly, for too long, institutions have been focused too much on the front end -- getting loans out -- and have not been sufficiently engaged with what happens to former students when they leave," Nassirian said. "But we have just reached a point where student loans are too ubiquitous in the lives of our students for us to be indifferent and let these kinds of sloppy practices go on."
Duncan and his top aides need to prioritize student loan servicing, Nassirian added.
“So many young people start out life with the equivalent of mortgages wrapped around their necks like anchors,” he said. “It is getting serious enough that we need some really high-level attention paid to it.”
Your Money: With Sallie Mae split, shareholders will break even
When a big public company spins off a division, that is sometimes very good for shareholders. In the case of SLM Corp. (SLM) - better known as Sallie Mae, the student loan giant - it might not get a high grade.
U.S. borrowers owe $1.2 trillion in student-loan debt, including government loans and those from private lenders such as SLM. That surpasses all other kinds of consumer borrowing except for mortgages.
The Newark, Del.-based outfit won't be adding a lot of shareholder value in this transaction, according to a Monday research report issued by the often-bullish brokerage firm Janney Montgomery Scott. Sallie Mae announced late Friday details of its planned split next year, in which it will spin off an entity known as NewCo. It houses Sallie Mae's portfolio of federal and private student loans and its collections and servicing business.
The remaining entity, SLM BankCo, will consist of Sallie Mae Bank and will originate private student loans. The spin is expected to be complete by the end of the first half of 2014, according to Janney analyst Sameer Gokhale.
Sallie Mae shareholders will receive one share each of NewCo and SLM BankCo for each share of Sallie Mae they own. Janney doesn't think the new entities are worth that much more than the current stock price (SLM closed Monday at $26.66), with the analyst raising the estimate for the value of SLM BankCo, but offsetting that by a lower valuation for NewCo.
Basically, Janney raised its estimate for the stock price to $28 from $27 a share. For a full copy of the report, go Documents page.
A Roth in 2013Dave Littell, retirement income program director at the American College in Bryn Mawr, reminds investors that if you want to convert your traditional IRA to a Roth IRA, do it before the end of the year.
New contributions can be made to IRAs and Roth IRAs by April 15, 2014, and still be counted as a 2013 contribution. But what many investors are not aware of is that a Roth conversion from a traditional IRA must occur by Dec. 31, 2013, to count as 2013 Roth contributions.
U.S. borrowers owe $1.2 trillion in student-loan debt, including government loans and those from private lenders such as SLM. That surpasses all other kinds of consumer borrowing except for mortgages.
The Newark, Del.-based outfit won't be adding a lot of shareholder value in this transaction, according to a Monday research report issued by the often-bullish brokerage firm Janney Montgomery Scott. Sallie Mae announced late Friday details of its planned split next year, in which it will spin off an entity known as NewCo. It houses Sallie Mae's portfolio of federal and private student loans and its collections and servicing business.
The remaining entity, SLM BankCo, will consist of Sallie Mae Bank and will originate private student loans. The spin is expected to be complete by the end of the first half of 2014, according to Janney analyst Sameer Gokhale.
Sallie Mae shareholders will receive one share each of NewCo and SLM BankCo for each share of Sallie Mae they own. Janney doesn't think the new entities are worth that much more than the current stock price (SLM closed Monday at $26.66), with the analyst raising the estimate for the value of SLM BankCo, but offsetting that by a lower valuation for NewCo.
Basically, Janney raised its estimate for the stock price to $28 from $27 a share. For a full copy of the report, go Documents page.
A Roth in 2013Dave Littell, retirement income program director at the American College in Bryn Mawr, reminds investors that if you want to convert your traditional IRA to a Roth IRA, do it before the end of the year.
New contributions can be made to IRAs and Roth IRAs by April 15, 2014, and still be counted as a 2013 contribution. But what many investors are not aware of is that a Roth conversion from a traditional IRA must occur by Dec. 31, 2013, to count as 2013 Roth contributions.
Education Department Slow To Recover Millions From Sallie Mae
The U.S. Department of Education has not yet recouped some $22 million in allegedly improper payments to Sallie Mae, despite a four-year-old recommendation from the department’s internal watchdog that it recover the money.
The Education Department’s inspector general had determined in 2009 that the agency overpaid Sallie Mae by about $22.4 million under a government program that guaranteed lenders a minimum return on federal loans. The program, originally intended to help smaller lenders stay in business, was subsequently abused by some companies to extract extra profits after Congress restricted which loans were eligible.
The Education Department told the inspector general that it would resolve the issue by June 30 this year, according to the internal watchdog’s most recent semiannual report to Congress. Sallie Mae has disputed the inspector general’s findings.
“We are engaged with the Department of Education on this matter and hope to resolve it by early next year,” Martha Holler, spokeswoman for Sallie Mae, said in an emailed statement.
Stephen Spector, an Education Department spokesman, said the department reached a determination on Sept. 25, but granted Sallie Mae additional time to review it. Spector said he didn’t know what the department had concluded nor the basis on which Sallie Mae was granted an extension.
The delay in recovering the funds is “ridiculous,” said Stephen Burd, a senior policy analyst focusing on education at the New America Foundation. “It’s an abrogation of duty,” he added.
Education Secretary Arne Duncan meanwhile faces criticism for not using his department’s vast authority to hold financial companies accountable for allegedly harming borrowers with student debt.
The department’s stance contrasts with the Consumer Financial Protection Bureau’s approach to cleaning up abuses in the student loan market. The CFPB has issued multiple warnings about troubling loan servicing conduct, prompting Wall Street analysts to scrutinize companies for potential changes in business practices and the accompanying decline in revenue or share price that might result from CFPB probes.
While the CFPB has focused on private student loans, which make up about 15 percent of the $1.2 trillion student debt market, officials have suggested that similar practices may be infecting federal student loans.
Sallie Mae, the nation’s largest education finance company, has said it is under investigation by at least three federal agencies and faces an enforcement action by one of them for allegedly violating borrowers’ rights. But the Education Departmentrecently told the company that it intends to renew the company's contract to collect borrowers' payments on federal student debt.
At a time when other federal agencies are attempting to appear tough on financial wrongdoers -- particularly the biggest banks -- after criticism that they were soft in the wake of the financial crisis, Duncan’s department stands out for its lax approach.
In September, Sen. Elizabeth Warren (D-Mass.) wrote Duncan to chastise his department for being “quite tolerant of Sallie Mae's failings,” which she described as a “pattern of breaking the rules and ignoring its contractual obligations.” The Education and Treasury departments “appear to have given little more than a slap on the wrist” to the company, Warren said in her letter.
Sallie Mae’s latest regulatory woes follow both a 2007 settlement with New York's attorney general, in which it agreed to make changes to address conflicts of interest after the attorney general alleged that the company improperly marketed federal student loans, and accusations in 2008 and earlier this year by the Treasury and Education departments’ inspectors general that the company violated its federal contracts by failing to document certain decisions, inform borrowers of their rights and report verbal complaints.
Warren questioned why the Education Department had yet to take any public steps to punish Sallie Mae by imposing fines or revoking federal contracts.
The department has not responded to Warren’s Sept. 19 letter.
The Education Department’s inspector general had determined in 2009 that the agency overpaid Sallie Mae by about $22.4 million under a government program that guaranteed lenders a minimum return on federal loans. The program, originally intended to help smaller lenders stay in business, was subsequently abused by some companies to extract extra profits after Congress restricted which loans were eligible.
The Education Department told the inspector general that it would resolve the issue by June 30 this year, according to the internal watchdog’s most recent semiannual report to Congress. Sallie Mae has disputed the inspector general’s findings.
“We are engaged with the Department of Education on this matter and hope to resolve it by early next year,” Martha Holler, spokeswoman for Sallie Mae, said in an emailed statement.
Stephen Spector, an Education Department spokesman, said the department reached a determination on Sept. 25, but granted Sallie Mae additional time to review it. Spector said he didn’t know what the department had concluded nor the basis on which Sallie Mae was granted an extension.
The delay in recovering the funds is “ridiculous,” said Stephen Burd, a senior policy analyst focusing on education at the New America Foundation. “It’s an abrogation of duty,” he added.
Education Secretary Arne Duncan meanwhile faces criticism for not using his department’s vast authority to hold financial companies accountable for allegedly harming borrowers with student debt.
The department’s stance contrasts with the Consumer Financial Protection Bureau’s approach to cleaning up abuses in the student loan market. The CFPB has issued multiple warnings about troubling loan servicing conduct, prompting Wall Street analysts to scrutinize companies for potential changes in business practices and the accompanying decline in revenue or share price that might result from CFPB probes.
While the CFPB has focused on private student loans, which make up about 15 percent of the $1.2 trillion student debt market, officials have suggested that similar practices may be infecting federal student loans.
Sallie Mae, the nation’s largest education finance company, has said it is under investigation by at least three federal agencies and faces an enforcement action by one of them for allegedly violating borrowers’ rights. But the Education Departmentrecently told the company that it intends to renew the company's contract to collect borrowers' payments on federal student debt.
At a time when other federal agencies are attempting to appear tough on financial wrongdoers -- particularly the biggest banks -- after criticism that they were soft in the wake of the financial crisis, Duncan’s department stands out for its lax approach.
In September, Sen. Elizabeth Warren (D-Mass.) wrote Duncan to chastise his department for being “quite tolerant of Sallie Mae's failings,” which she described as a “pattern of breaking the rules and ignoring its contractual obligations.” The Education and Treasury departments “appear to have given little more than a slap on the wrist” to the company, Warren said in her letter.
Sallie Mae’s latest regulatory woes follow both a 2007 settlement with New York's attorney general, in which it agreed to make changes to address conflicts of interest after the attorney general alleged that the company improperly marketed federal student loans, and accusations in 2008 and earlier this year by the Treasury and Education departments’ inspectors general that the company violated its federal contracts by failing to document certain decisions, inform borrowers of their rights and report verbal complaints.
Warren questioned why the Education Department had yet to take any public steps to punish Sallie Mae by imposing fines or revoking federal contracts.
The department has not responded to Warren’s Sept. 19 letter.
Sallie Mae Reduces Disclosure Of Controversial Funding Source
(I can't believe I missed this little detail in the financial reports)
Sallie Mae, the nation’s largest student loan company, quietly removed from its latest quarterly report any reference to a cheap government-backed credit line it’s been enjoying since 2010, following withering criticism from a top Democratic lawmaker.
The company’s use of the credit facility from the Federal Home Loan Bank of Des Moines sparked attacks over the summer from lawmakers such as Sen. Elizabeth Warren (D-Mass.), who denounced Sallie Mae's use of a taxpayer-subsidized line of credit that enabled it to borrow at below-market rates without passing on those benefits to student borrowers.
Sallie Mae did not disclose in its quarterly report, released Oct. 28, the fact that it was still using the facility -- something it has done in all of its previous quarterly and annual filings dating back to early 2010, when it first secured use of the credit line. But according to a separate Oct. 29 slide presentation meant for investors, Sallie Mae was borrowing some $2 billion from the taxpayer-backed facility as of Sept. 30.
Patricia Nash Christel, a spokeswoman for Sallie Mae, declined to comment.
Some analysts who cover the company on behalf of investors said they didn’t view the lack of disclosure as “material,” a term used to describe news or events that could influence investors’ decisions or the value of the company’s securities.
The line of credit has helped the education-focused lender buck broader banking industry trends by keeping its borrowing costs low while reaping increasing returns on its securities and loans to customers. Sallie Mae’s net interest margin, a closely-watched gauge of bank profitability that measures the difference between what a company pays to borrow and what it earns on loans and securities, is at its highest level since 2003. The banking industry as a whole has experienced a drop in net interest margin over the same period.
But the criticism from lawmakers has affected Sallie Mae’s standing in Washington, where the company faces investigations by the Department of Justice, Consumer Financial Protection Bureau and Federal Deposit Insurance Corp. for its handling of student loans. Members of Congress also have been probing the company over how it attempts to aid struggling borrowers hoping to avoid default.
Richard Swanson, the president and chief executive of the Federal Home Loan Bank of Des Moines, is set to testify Tuesday before the Senate Banking Committee. Warren is likely to question him on Sallie Mae’s arrangement.
Still, Sallie Mae remains an Education Department favorite thanks to its ability to collect on defaulted taxpayer-backed student debt and the relatively low delinquency rates on government-backed loans it services for the agency.
As the federal government's role in financing higher education grows -- it currently backs more than 80 percent of the $1.2 trillion in outstanding student debt -- Sallie Mae executives are counting on the company’s ability to continue to win Education Department contracts as it seeks to expand and increase its revenues. The company is also looking to split itself in two, with one unit focusing on private student loans and the other on federal student loans.
Congressional scrutiny from high-profile lawmakers such as Warren could threaten those ambitions. Though the company’s share price has risen more than 42 percent over the past year through Monday, some analysts are worried about negative attention by officials and legislators casting a pall over Sallie Mae’s strategy and future share price.
Warren has noted the “enormous benefits the government has provided Sallie Mae,” such as the Federal Home Loan Bank facility, that have enabled the company to borrow at “astonishingly low interest rates.” The federal government, Warren said recently, has “helped Sallie Mae maintain its profitability.”
The spotlight on the company’s reliance on the Federal Home Loan Bank for cheap financing began in early May, when the CFPB said in a report on student loan affordability that Sallie Mae’s use of cash from the government-sponsored enterprise was "worth noting."
The next month, Warren sent letters to John Remondi, Sallie Mae's chief executive, and Edward DeMarco, the acting director of the Federal Housing Finance Agency, demanding to know why Sallie Mae was able to access cheap taxpayer-subsidized credit. DeMarco’s agency regulates the Federal Home Loan Bank system.
To Warren, the arrangement seemed unjust. Congress created the Federal Home Loan Bank system during the Great Depression to support home mortgage lending, but Sallie Mae was using the taxpayer-subsidized facility to support its holdings of education loans.
Worse, according to Warren, the Federal Home Loan Bank may have been undermining its mission by subsidizing Sallie Mae’s origination of high-interest private student loans, which according to research cited by Warren can act as a barrier for Americans trying to buy their first home.
“It is deeply worrisome that the Federal Home Loan Banks may be undermining their mission by extending billions of dollars in cheap credit to private student lenders,” Warren said.
In a June 25 letter to Warren, Sallie Mae claimed that the FHFA allowed for the arrangement after Congress became concerned in 2008 that education lenders faced difficulties originating new student loans. Martha Holler, a company representative, has previously said there was “no connection” between the Federal Home Loan Bank facility and the company’s funding of private student loans.
Since gaining access to the Federal Home Loan Bank facility, Sallie Mae’s borrowings have steadily risen. At the end of 2010, the company had tapped the credit line for $900 million for what it described as “short term” borrowing. By the end of last year, the amount of short-term borrowings from the facility had more than doubled to $2.1 billion.
The company was able to borrow as much as $8.5 billion from the Federal Home Loan Bank as of Dec. 31, according to Sallie Mae’s annual report.
The company’s borrowings have increased this year, too, but in a shift Sallie Mae was tapping the credit line for longer periods of time. Long-term borrowing tends to be more expensive than short-term borrowing.
Of the $2.3 billion Sallie Mae was borrowing from the Federal Home Loan Bank as of June 30, slightly more than half was defined as “long term” borrowing.
Through the first six months of this year, Sallie Mae was paying 0.28 percent interest on average to borrow from the Federal Home Loan Bank, making it the company’s cheapest source of funds outside of debt tied to derivatives.
Cited from: http://www.huffingtonpost.com/2013/11/05/sallie-mae-elizabeth-warren_n_4218834.html
The company’s use of the credit facility from the Federal Home Loan Bank of Des Moines sparked attacks over the summer from lawmakers such as Sen. Elizabeth Warren (D-Mass.), who denounced Sallie Mae's use of a taxpayer-subsidized line of credit that enabled it to borrow at below-market rates without passing on those benefits to student borrowers.
Sallie Mae did not disclose in its quarterly report, released Oct. 28, the fact that it was still using the facility -- something it has done in all of its previous quarterly and annual filings dating back to early 2010, when it first secured use of the credit line. But according to a separate Oct. 29 slide presentation meant for investors, Sallie Mae was borrowing some $2 billion from the taxpayer-backed facility as of Sept. 30.
Patricia Nash Christel, a spokeswoman for Sallie Mae, declined to comment.
Some analysts who cover the company on behalf of investors said they didn’t view the lack of disclosure as “material,” a term used to describe news or events that could influence investors’ decisions or the value of the company’s securities.
The line of credit has helped the education-focused lender buck broader banking industry trends by keeping its borrowing costs low while reaping increasing returns on its securities and loans to customers. Sallie Mae’s net interest margin, a closely-watched gauge of bank profitability that measures the difference between what a company pays to borrow and what it earns on loans and securities, is at its highest level since 2003. The banking industry as a whole has experienced a drop in net interest margin over the same period.
But the criticism from lawmakers has affected Sallie Mae’s standing in Washington, where the company faces investigations by the Department of Justice, Consumer Financial Protection Bureau and Federal Deposit Insurance Corp. for its handling of student loans. Members of Congress also have been probing the company over how it attempts to aid struggling borrowers hoping to avoid default.
Richard Swanson, the president and chief executive of the Federal Home Loan Bank of Des Moines, is set to testify Tuesday before the Senate Banking Committee. Warren is likely to question him on Sallie Mae’s arrangement.
Still, Sallie Mae remains an Education Department favorite thanks to its ability to collect on defaulted taxpayer-backed student debt and the relatively low delinquency rates on government-backed loans it services for the agency.
As the federal government's role in financing higher education grows -- it currently backs more than 80 percent of the $1.2 trillion in outstanding student debt -- Sallie Mae executives are counting on the company’s ability to continue to win Education Department contracts as it seeks to expand and increase its revenues. The company is also looking to split itself in two, with one unit focusing on private student loans and the other on federal student loans.
Congressional scrutiny from high-profile lawmakers such as Warren could threaten those ambitions. Though the company’s share price has risen more than 42 percent over the past year through Monday, some analysts are worried about negative attention by officials and legislators casting a pall over Sallie Mae’s strategy and future share price.
Warren has noted the “enormous benefits the government has provided Sallie Mae,” such as the Federal Home Loan Bank facility, that have enabled the company to borrow at “astonishingly low interest rates.” The federal government, Warren said recently, has “helped Sallie Mae maintain its profitability.”
The spotlight on the company’s reliance on the Federal Home Loan Bank for cheap financing began in early May, when the CFPB said in a report on student loan affordability that Sallie Mae’s use of cash from the government-sponsored enterprise was "worth noting."
The next month, Warren sent letters to John Remondi, Sallie Mae's chief executive, and Edward DeMarco, the acting director of the Federal Housing Finance Agency, demanding to know why Sallie Mae was able to access cheap taxpayer-subsidized credit. DeMarco’s agency regulates the Federal Home Loan Bank system.
To Warren, the arrangement seemed unjust. Congress created the Federal Home Loan Bank system during the Great Depression to support home mortgage lending, but Sallie Mae was using the taxpayer-subsidized facility to support its holdings of education loans.
Worse, according to Warren, the Federal Home Loan Bank may have been undermining its mission by subsidizing Sallie Mae’s origination of high-interest private student loans, which according to research cited by Warren can act as a barrier for Americans trying to buy their first home.
“It is deeply worrisome that the Federal Home Loan Banks may be undermining their mission by extending billions of dollars in cheap credit to private student lenders,” Warren said.
In a June 25 letter to Warren, Sallie Mae claimed that the FHFA allowed for the arrangement after Congress became concerned in 2008 that education lenders faced difficulties originating new student loans. Martha Holler, a company representative, has previously said there was “no connection” between the Federal Home Loan Bank facility and the company’s funding of private student loans.
Since gaining access to the Federal Home Loan Bank facility, Sallie Mae’s borrowings have steadily risen. At the end of 2010, the company had tapped the credit line for $900 million for what it described as “short term” borrowing. By the end of last year, the amount of short-term borrowings from the facility had more than doubled to $2.1 billion.
The company was able to borrow as much as $8.5 billion from the Federal Home Loan Bank as of Dec. 31, according to Sallie Mae’s annual report.
The company’s borrowings have increased this year, too, but in a shift Sallie Mae was tapping the credit line for longer periods of time. Long-term borrowing tends to be more expensive than short-term borrowing.
Of the $2.3 billion Sallie Mae was borrowing from the Federal Home Loan Bank as of June 30, slightly more than half was defined as “long term” borrowing.
Through the first six months of this year, Sallie Mae was paying 0.28 percent interest on average to borrow from the Federal Home Loan Bank, making it the company’s cheapest source of funds outside of debt tied to derivatives.
Cited from: http://www.huffingtonpost.com/2013/11/05/sallie-mae-elizabeth-warren_n_4218834.html
This is a news report that I have found from a local Delaware news site. I'm surprised it took this long to get other news talk about the Sallie Mae split.
Sallie Mae announced its new management structure in an internal memo to employees Wednesday, a sign the Delaware-based student lender is advancing toward its goal of a split into two separate companies in 2014.
One of the companies – which has not yet received a new name – will retain more than 90 percent of the current company’s assets prior to the split. It will focus on education loan management, servicing and debt collection. Current president and CEO John F. “Jack” Remondi will continue as its chief executive.
The other company – which retains the Sallie Mae name – will be the largest issuer of private student loans and provide other consumer banking services. It will be led by current executive vice president of banking and finance Joseph DePaulo.
The memo also revealed that the loan management company will “soon be named” and is still in the process of hiring three high-level executives – general counsel, chief business development officer, and chief information officer.
The new Sallie Mae will announce a new chief financial officer, chief risk officer and chief auditor “in the coming weeks,” according to the memo.
The company declined to comment on the memo.
Sallie Mae’s Christiana-based headquarters is in a building on Continental Drive visible from I-95. The company has not said whether one of the new entities will look for a new location, but Remondi has said both companies plan to remain in Delaware.
Sallie Mae employs about 1,200 people in Delaware at its headquarters and another facility in Ogletown.
Cited from: http://www.delawareonline.com/article/20131114/BUSINESS05/311140039/Sallie-Mae-memo-names-managers-post-split-companies
One of the companies – which has not yet received a new name – will retain more than 90 percent of the current company’s assets prior to the split. It will focus on education loan management, servicing and debt collection. Current president and CEO John F. “Jack” Remondi will continue as its chief executive.
The other company – which retains the Sallie Mae name – will be the largest issuer of private student loans and provide other consumer banking services. It will be led by current executive vice president of banking and finance Joseph DePaulo.
The memo also revealed that the loan management company will “soon be named” and is still in the process of hiring three high-level executives – general counsel, chief business development officer, and chief information officer.
The new Sallie Mae will announce a new chief financial officer, chief risk officer and chief auditor “in the coming weeks,” according to the memo.
The company declined to comment on the memo.
Sallie Mae’s Christiana-based headquarters is in a building on Continental Drive visible from I-95. The company has not said whether one of the new entities will look for a new location, but Remondi has said both companies plan to remain in Delaware.
Sallie Mae employs about 1,200 people in Delaware at its headquarters and another facility in Ogletown.
Cited from: http://www.delawareonline.com/article/20131114/BUSINESS05/311140039/Sallie-Mae-memo-names-managers-post-split-companies
Sallie Mae Faces Additional Government Probes As Scrutiny Increases
Sallie Mae on Monday disclosed new federal probes targeting possible violations of consumer protection laws -- a sign that Washington is ramping up scrutiny of the nation’s largest student loan company.
Sallie Mae, the top recipient of Department of Education contracts, told investors in its latest quarterly report that the Consumer Financial Protection Bureau last month launched an investigation into how the company processes borrowers’ payments on student loans.
The CFPB joins the Federal Deposit Insurance Corp. and Department of Justice in probing the company for alleged misdeeds that include payment-processing issues, “unfair or deceptive” practices, discriminatory lending and violating the Service members Civil Relief Act, a federal law intended to ease financial pressures on active-duty members of the military.
Sallie Mae said it expects to pay penalties to the government and restitution to affected customers, though it didn't specify possible amounts. The FDIC has already told the company it plans to publicly accuse it of violating numerous federal laws. The company said in its quarterly filing that it is “cooperating fully” with the government probes. Patricia Nash Christel, Sallie Mae spokeswoman, declined to elaborate.
Public disclosure of the probes comes as the CFPB ramps up its oversight of student loan services, the Education Department faces criticism for its lack of supervision, and Sallie Mae attempts to convince federal regulators to allow the publicly-traded company to split into two. The company bills the split as a way to allow one division to expand its federal business and continue acting as the largest servicer of federal student loans, while the other would focus on extending non-government backed loans to student borrowers.
The CFPB’s top student loan official, Rohit Chopra, said in an Oct. 16 report the agency had found widespread problems in how student loan servicers process borrowers’ monthly payments. The report stated that services commonly misallocate payments, maximizing late fees and penalties and preventing borrowers from paying off loans quickly. Chopra called the practices “troubling.”
Though Chopra's report focused on the roughly $165 billion private student loan market -- a small subset of the overall $1.2 trillion in outstanding student loans -- he suggested many of the same problems may jeopardize borrowers with some $1 trillion in federal student loans from the Education Department’s Federal Family Education Loan and Direct Loan programs, where enforcement of federal consumer protection laws is effectively nonexistent.
“The department is aware of Sallie Mae's discussions with federal agencies and will await the outcome of those conversations,” said Stephen Spector, Education Department spokesman. The Education Department previously said it was investigating Sallie Mae’s servicing of federal student loans in response to allegations from other government agencies.
The Education Department has been under intense fire in recent monthsafter Sen. Elizabeth Warren (D-Mass.) questioned the agency’s supervision of companies it pays to collect payments on federal student loans -- most notably Sallie Mae -- and its record as an enforcer of federal law when those companies are alleged to have committed wrongdoing.
In a letter last month, Warren wrote Education Secretary Arne Duncan and Treasury Secretary Jack Lew that “despite Sallie Mae's track record,” of “breaking the rules and ignoring its contractual obligations,” the Education and Treasury departments “appear to have given little more than a slap on the wrist” to the company.
Education Department officials previously have said they could not recall any instance of the agency taking a public enforcement action against Sallie Mae, or any other major company, despite what Warren described as clear legal authority to fine companies for wrongdoing.
Analysts who follow Sallie Mae on behalf of investors have grown worried about the company's burgeoning troubles with the government. Over the past several months, Sallie Mae executives have told investors and analysts that it hopes to expand its government business and increase its revenue from federal contracts.
Those aspirations now are under threat due to numerous government investigations and pressure on the Education Department from consumer advocates.
On Oct. 17, during the company’s call with investors and analysts to brief them on quarterly earnings, Sanjay Sakhrani, the Keefe, Bruyette & Woods analyst who Institutional Investor ranks as the nation’s best in covering consumer finance companies, asked John Remondi, Sallie Mae chief executive, whether the company felt “comfortable” with its practices in light of the CFPB’s report that had been made public the previous day.
“So, yeah. We do, absolutely,” Remondi replied. “I think it’s fair to say that our customers are not experiencing the problems that are hinted at or implied in that report.”
The CFPB’s investigation into the company’s processing of payments included a September demand for documents, at least two weeks before Remondi made those remarks. The agency’s order, made through what’s known as a civil investigative demand, requested information regarding allegations similar to those probed by the FDIC.
The Sallie Mae spokeswoman declined further comment on Remondi’s remarks.
Despite the concerns, the company's shares are thriving. Since the start of the year, Sallie Mae shares are up almost 50 percent, outpacing the 24 percent gain in the Standard & Poor's 500 Index. The company and some of its supporters have pointed to Sallie Mae's low delinquency rates among its student borrowers as cause for optimism.
Sallie Mae, the top recipient of Department of Education contracts, told investors in its latest quarterly report that the Consumer Financial Protection Bureau last month launched an investigation into how the company processes borrowers’ payments on student loans.
The CFPB joins the Federal Deposit Insurance Corp. and Department of Justice in probing the company for alleged misdeeds that include payment-processing issues, “unfair or deceptive” practices, discriminatory lending and violating the Service members Civil Relief Act, a federal law intended to ease financial pressures on active-duty members of the military.
Sallie Mae said it expects to pay penalties to the government and restitution to affected customers, though it didn't specify possible amounts. The FDIC has already told the company it plans to publicly accuse it of violating numerous federal laws. The company said in its quarterly filing that it is “cooperating fully” with the government probes. Patricia Nash Christel, Sallie Mae spokeswoman, declined to elaborate.
Public disclosure of the probes comes as the CFPB ramps up its oversight of student loan services, the Education Department faces criticism for its lack of supervision, and Sallie Mae attempts to convince federal regulators to allow the publicly-traded company to split into two. The company bills the split as a way to allow one division to expand its federal business and continue acting as the largest servicer of federal student loans, while the other would focus on extending non-government backed loans to student borrowers.
The CFPB’s top student loan official, Rohit Chopra, said in an Oct. 16 report the agency had found widespread problems in how student loan servicers process borrowers’ monthly payments. The report stated that services commonly misallocate payments, maximizing late fees and penalties and preventing borrowers from paying off loans quickly. Chopra called the practices “troubling.”
Though Chopra's report focused on the roughly $165 billion private student loan market -- a small subset of the overall $1.2 trillion in outstanding student loans -- he suggested many of the same problems may jeopardize borrowers with some $1 trillion in federal student loans from the Education Department’s Federal Family Education Loan and Direct Loan programs, where enforcement of federal consumer protection laws is effectively nonexistent.
“The department is aware of Sallie Mae's discussions with federal agencies and will await the outcome of those conversations,” said Stephen Spector, Education Department spokesman. The Education Department previously said it was investigating Sallie Mae’s servicing of federal student loans in response to allegations from other government agencies.
The Education Department has been under intense fire in recent monthsafter Sen. Elizabeth Warren (D-Mass.) questioned the agency’s supervision of companies it pays to collect payments on federal student loans -- most notably Sallie Mae -- and its record as an enforcer of federal law when those companies are alleged to have committed wrongdoing.
In a letter last month, Warren wrote Education Secretary Arne Duncan and Treasury Secretary Jack Lew that “despite Sallie Mae's track record,” of “breaking the rules and ignoring its contractual obligations,” the Education and Treasury departments “appear to have given little more than a slap on the wrist” to the company.
Education Department officials previously have said they could not recall any instance of the agency taking a public enforcement action against Sallie Mae, or any other major company, despite what Warren described as clear legal authority to fine companies for wrongdoing.
Analysts who follow Sallie Mae on behalf of investors have grown worried about the company's burgeoning troubles with the government. Over the past several months, Sallie Mae executives have told investors and analysts that it hopes to expand its government business and increase its revenue from federal contracts.
Those aspirations now are under threat due to numerous government investigations and pressure on the Education Department from consumer advocates.
On Oct. 17, during the company’s call with investors and analysts to brief them on quarterly earnings, Sanjay Sakhrani, the Keefe, Bruyette & Woods analyst who Institutional Investor ranks as the nation’s best in covering consumer finance companies, asked John Remondi, Sallie Mae chief executive, whether the company felt “comfortable” with its practices in light of the CFPB’s report that had been made public the previous day.
“So, yeah. We do, absolutely,” Remondi replied. “I think it’s fair to say that our customers are not experiencing the problems that are hinted at or implied in that report.”
The CFPB’s investigation into the company’s processing of payments included a September demand for documents, at least two weeks before Remondi made those remarks. The agency’s order, made through what’s known as a civil investigative demand, requested information regarding allegations similar to those probed by the FDIC.
The Sallie Mae spokeswoman declined further comment on Remondi’s remarks.
Despite the concerns, the company's shares are thriving. Since the start of the year, Sallie Mae shares are up almost 50 percent, outpacing the 24 percent gain in the Standard & Poor's 500 Index. The company and some of its supporters have pointed to Sallie Mae's low delinquency rates among its student borrowers as cause for optimism.
In California 20,000 registered illegal aliens went to college on your dollar. Why does our government treat them better then its own citizens?
For decades, American parents have struggled to find money to help fund their children’s education. They scrimp, save, and, if everything else fails, try to get some of their own tax money back by seeking financial aid. For many California citizens, things are about to get even order. Thanks to new state and federal laws, 20,000 illegal aliens in California also applied for financial aid this year. The state is therefore going to have fewer spaces at California colleges for legal citizens and less money to help them pay for education.
California’s DREAM act meant that it was one of the first states to open its institutions of higher education to illegal immigrants. Add to that the fact that the federal government gives some of them temporary legality under its Deferred Action for Childhood Arrivals program and you suddenly have a huge number of new students competing with legal California residents for college admission and financial aid.
Needless to say, California’s Progressive education institutions are pleased. UC Berkeley even has an “Undocumented Student Program” to ensure that young people who are in this country illegally get exactly the same benefits as those students who are United States citizens or legal immigrants.
Giving illegal aliens full rights to attend California’s already cash-strapped, overpriced colleges and universities doesn’t come cheap. A study from California’s nonpartisan Legislative Analyst’s office predicts that the state will have to pony up an extra $65 million a year by 2016-2017 in order to full higher education benefits to illegal aliens. This is a significant burden on a state that’s constantly running in the red. California taxpayers can reasonably expect that their state tax rate, which is already the highest in the nation, will soon increase.
California’s DREAM act meant that it was one of the first states to open its institutions of higher education to illegal immigrants. Add to that the fact that the federal government gives some of them temporary legality under its Deferred Action for Childhood Arrivals program and you suddenly have a huge number of new students competing with legal California residents for college admission and financial aid.
Needless to say, California’s Progressive education institutions are pleased. UC Berkeley even has an “Undocumented Student Program” to ensure that young people who are in this country illegally get exactly the same benefits as those students who are United States citizens or legal immigrants.
Giving illegal aliens full rights to attend California’s already cash-strapped, overpriced colleges and universities doesn’t come cheap. A study from California’s nonpartisan Legislative Analyst’s office predicts that the state will have to pony up an extra $65 million a year by 2016-2017 in order to full higher education benefits to illegal aliens. This is a significant burden on a state that’s constantly running in the red. California taxpayers can reasonably expect that their state tax rate, which is already the highest in the nation, will soon increase.
Lowering the cost of tuition for illeagal immigrants but not for U.S. citizens
DENVER – The cheers of immigrant students echoed through the Colorado Capitol on Friday after the House passed a bill allowing students who entered the U.S. illegally to pay lower college tuition, a measure that will soon become law.
Students hugged and wiped away tears outside the House chamber after the vote, sending the proposal to Democratic Gov. John Hickenlooper, who is expected to sign it sometime this month.
The historic vote comes a decade after the bill was first introduced. Along the way, Colorado lawmakers grappled with immigration and passed strict enforcement laws, including one to deny non-emergency benefits to illegal immigrants.
Colorado Republicans have traditionally taken a tough stand on illegal immigration, but this year a few joined Democrats in the House and Senate who unanimously supported the bill. Three House Republicans voted yes, including Rep. Kevin Priola.
"Thank you, Rep. Priola!" the students yelled outside after the vote.
"For all intents and purposes Colorado is their home state, and there is no country to go back to. They're bright, energetic hardworking kids," Priola said.
The bill would allow students who graduate from Colorado high schools to attend college at the in-state rate, regardless of their immigration status. Currently, students in the country illegally must pay the nonresident tuition rate, which can be more than three times higher than the in-state rate.
According to the National Conference of State Legislatures, 12 other states have passed laws to allow illegal immigrants to attend college at in-state rates, including conservative strongholds such as Texas and Utah.
Similar bills have been debated in Colorado for a decade, with both parties voting to defeat the proposals.
"This is history, you know?" said Victor Galvan, 22, a student at Metropolitan State University of Denver who was hugging other students outside the House chamber in celebration. "For 10 long years we fought."
Later, downstairs from the House, students gathered in a circle with Democratic Sen. Mike Johnston, who has been pushing for the bill for three years. Some students took turns trading stories about being unable to afford college. Galvan recalled how his mother told him it would be OK if he didn't go to college.
"Never again will another person have to say that to their son or daughter. I told her that I would graduate from high school and I would give her one day my college diploma," he said, choking up.
Jennifer Romero, 21, said she finished high school in 2009 but was short $200 to attend her first semester at a community college.
"And ever since then, I've been waiting, just waiting, just saving up," she said. "And now we know that that's not going to happen again, that I can go out there and give them money, pay in-state tuition and be able to graduate."
In previous years, Johnston had gathered the students in a circle to console them about the bill's failure.
"It's the best day I've ever spent in this building," he said.
Johnston said "there's a changing sentiment" about immigration in Colorado, and he credited the tuition bill.
"I think this debate has changed how the state sees this issue, and I think it will have reverberations beyond this issue," he said.
Most in the GOP still opposed the tuition measure. But during debates they took pains to argue they aren't anti-Latino, but critical of an overall immigration system that is flawed. They argued that a federal immigration overhaul needs to happen first, and said the bill would give students false hope because they would be saddled with college debt, but unable to get a job because of their immigration status.
"And I just don't see how that provides a brighter future," said Republican Rep. Polly Lawrence.
But Democrats disagreed. The immigrant students who get in-state tuition will have to sign an affidavit saying they're pursuing citizenship.
"Please be on the right side of history because this is not about false hope," Rep. Angela Williams, a Democrat from Denver, told her colleagues before the vote.
Citied from: http://www.foxnews.com/politics/2013/03/09/colorado-immigrant-tuition-rate-gets-final-house-ok/
Students hugged and wiped away tears outside the House chamber after the vote, sending the proposal to Democratic Gov. John Hickenlooper, who is expected to sign it sometime this month.
The historic vote comes a decade after the bill was first introduced. Along the way, Colorado lawmakers grappled with immigration and passed strict enforcement laws, including one to deny non-emergency benefits to illegal immigrants.
Colorado Republicans have traditionally taken a tough stand on illegal immigration, but this year a few joined Democrats in the House and Senate who unanimously supported the bill. Three House Republicans voted yes, including Rep. Kevin Priola.
"Thank you, Rep. Priola!" the students yelled outside after the vote.
"For all intents and purposes Colorado is their home state, and there is no country to go back to. They're bright, energetic hardworking kids," Priola said.
The bill would allow students who graduate from Colorado high schools to attend college at the in-state rate, regardless of their immigration status. Currently, students in the country illegally must pay the nonresident tuition rate, which can be more than three times higher than the in-state rate.
According to the National Conference of State Legislatures, 12 other states have passed laws to allow illegal immigrants to attend college at in-state rates, including conservative strongholds such as Texas and Utah.
Similar bills have been debated in Colorado for a decade, with both parties voting to defeat the proposals.
"This is history, you know?" said Victor Galvan, 22, a student at Metropolitan State University of Denver who was hugging other students outside the House chamber in celebration. "For 10 long years we fought."
Later, downstairs from the House, students gathered in a circle with Democratic Sen. Mike Johnston, who has been pushing for the bill for three years. Some students took turns trading stories about being unable to afford college. Galvan recalled how his mother told him it would be OK if he didn't go to college.
"Never again will another person have to say that to their son or daughter. I told her that I would graduate from high school and I would give her one day my college diploma," he said, choking up.
Jennifer Romero, 21, said she finished high school in 2009 but was short $200 to attend her first semester at a community college.
"And ever since then, I've been waiting, just waiting, just saving up," she said. "And now we know that that's not going to happen again, that I can go out there and give them money, pay in-state tuition and be able to graduate."
In previous years, Johnston had gathered the students in a circle to console them about the bill's failure.
"It's the best day I've ever spent in this building," he said.
Johnston said "there's a changing sentiment" about immigration in Colorado, and he credited the tuition bill.
"I think this debate has changed how the state sees this issue, and I think it will have reverberations beyond this issue," he said.
Most in the GOP still opposed the tuition measure. But during debates they took pains to argue they aren't anti-Latino, but critical of an overall immigration system that is flawed. They argued that a federal immigration overhaul needs to happen first, and said the bill would give students false hope because they would be saddled with college debt, but unable to get a job because of their immigration status.
"And I just don't see how that provides a brighter future," said Republican Rep. Polly Lawrence.
But Democrats disagreed. The immigrant students who get in-state tuition will have to sign an affidavit saying they're pursuing citizenship.
"Please be on the right side of history because this is not about false hope," Rep. Angela Williams, a Democrat from Denver, told her colleagues before the vote.
Citied from: http://www.foxnews.com/politics/2013/03/09/colorado-immigrant-tuition-rate-gets-final-house-ok/
Suze Orman talks about Sallie Mae
Little Off Topic: Low Wages by Fast-Food Industry Costing Taxpayers
WASHINGTON – U.S Rep. George Miller (D-Calif.), the senior Democratic member of the House Education and the Workforce Committee, issued the following statement today after the release of two reports from the National Employment Law Center, and researchers from the University of California-Berkeley and University of Illinois at Urbana-Champaign, examining the high public costs to low wages paid by the nation’s fast-food corporations.
“These reports highlight the significant costs to our families and our economy of low wages paid by the multi-billion dollar fast-food industry. Low pay by these highly profitable corporations means higher public costs borne by taxpayers. While these public assistance programs provide an important and needed safety net for our citizens, these costs are subsidizing fast-food companies’ low wages.
“Low pay not only harms families, but it also holds back our recovery from the Great Recession. If fast-food companies paid their workers higher wages, those families could live better and our nation could instead invest those billions of dollars to repair our crumbling roads, fix our failing schools and create more good-paying jobs. That’s why a fair wage is not about asking for a handout. Rather, it’s about valuing work. And it’s about growing the economy from the bottom up by increasing working families’ purchasing power.”
Rep. Miller is the author of H.R. 1010, legislation that would increase the federal minimum wage to $10.10 per hour in three steps. The Education and the Workforce Committee Democratic staff also released a report in May detailing the costs to taxpayers of low wages paid by Wal-Mart.
Artical from: http://democrats.edworkforce.house.gov/press-release/new-reports-low-wages-fast-food-industry-costing-taxpayers
“These reports highlight the significant costs to our families and our economy of low wages paid by the multi-billion dollar fast-food industry. Low pay by these highly profitable corporations means higher public costs borne by taxpayers. While these public assistance programs provide an important and needed safety net for our citizens, these costs are subsidizing fast-food companies’ low wages.
“Low pay not only harms families, but it also holds back our recovery from the Great Recession. If fast-food companies paid their workers higher wages, those families could live better and our nation could instead invest those billions of dollars to repair our crumbling roads, fix our failing schools and create more good-paying jobs. That’s why a fair wage is not about asking for a handout. Rather, it’s about valuing work. And it’s about growing the economy from the bottom up by increasing working families’ purchasing power.”
Rep. Miller is the author of H.R. 1010, legislation that would increase the federal minimum wage to $10.10 per hour in three steps. The Education and the Workforce Committee Democratic staff also released a report in May detailing the costs to taxpayers of low wages paid by Wal-Mart.
Artical from: http://democrats.edworkforce.house.gov/press-release/new-reports-low-wages-fast-food-industry-costing-taxpayers
Short Govt. Shutdown Will Be Ok, But If It Lasts Longer Than a Week, The DOE Will Start Worrying
Many Americans are concerned how the partial government shutdown will affect student loans and public education.
For now, 14 million students will continue to receive financial aid in the form of federal loans and Pell Grants. But the longer the political impasse over President Obama's health care law continues, the worse the consequences will be.
If there's no resolution within a week, nearly 4,000 employees (who process U.S. Fed. student aid) will be furloughed, which means the money could be delayed.
According to the Department of Education's contingency plan, the cash flow to local school districts could also decrease. Parents are concerned that this will affect the quality of education at their children's schools.
"The cutbacks are felt even now just from the fact that we have to cut back on funding for the arts and for sports. We don't have money for sports. Our kids are really suffering," says Luz Viviana de Jesus of Holyoke, Mass.
Meanwhile, for those who are worried about education for their youngest children, the Head Start program remains up and running in the Springfield area.
For now, 14 million students will continue to receive financial aid in the form of federal loans and Pell Grants. But the longer the political impasse over President Obama's health care law continues, the worse the consequences will be.
If there's no resolution within a week, nearly 4,000 employees (who process U.S. Fed. student aid) will be furloughed, which means the money could be delayed.
According to the Department of Education's contingency plan, the cash flow to local school districts could also decrease. Parents are concerned that this will affect the quality of education at their children's schools.
"The cutbacks are felt even now just from the fact that we have to cut back on funding for the arts and for sports. We don't have money for sports. Our kids are really suffering," says Luz Viviana de Jesus of Holyoke, Mass.
Meanwhile, for those who are worried about education for their youngest children, the Head Start program remains up and running in the Springfield area.
CFPB Aiming Their Sights At Sallie
A federal consumer regulator has taken aim at the Department of Education’s preferred companies for servicing the agency’s $1 trillion in student loans, highlighting potentially poor customer service and raising the specter of increased government scrutiny.
The move, in the form of a Monday blog post by the Consumer Financial Protection Bureau’s top student loan official, relied on Education Department surveys, which grade the four preferred companies -- SLM Corp., or Sallie Mae; Nelnet; FedLoan Servicing, or the Pennsylvania Higher Education Assistance Agency; and Great Lakes Higher Education Corporation & Affiliates -- and determine how many new loans each will receive in the coming year to service as a new crop of students enter college and graduate.
“Sallie Mae ranks the worst in borrower, school, and federal personnel satisfaction,” Rohit Chopra, the CFPB official, noted, citing the surveys. Chopra, referring to Education Department documents, said Sallie Mae will receive the fewest new loans to service in the upcoming school year.
Borrowers stuck with Sallie Mae or any other servicer who wish to switch to another have little ability to do so, Chopra noted. A senior CFPB official has previously warned Congress that borrowers who effectively are trapped with their loan servicers are “especially prone to the risk of consumer harm” because of the lack of consumer choice.
The apparent public shaming comes as Sallie Mae contends with numerous probes, including investigations by federal banking regulators and the Department of Justice over its handling of student loans and treatment of borrowers. Sen. Sherrod Brown (D-Ohio) is reviewing the company’s relative lack of assistance provided to troubled borrowers, and Sen. Elizabeth Warren (D-Mass.) is investigating the lack of past Education Department enforcement actions against the company despite several instances of alleged wrongdoing.
Sallie Mae has warned investors it expects the Federal Deposit Insurance Corp. to publicly accuse it of violating several federal laws regarding its private student loans. The Department of Education has said that it, too, was probing the company to ensure borrowers with taxpayer-backed loans were not harmed.
Patricia Nash Christel, a Sallie Mae representative, declined to comment directly on Chopra’s blog post. Instead, she pointed to a past Sallie Mae statement that claimed the company had assisted 2.1 million delinquent customers return their accounts to good standing in the past academic year, preventing $41 billion in student loan defaults.
Chopra’s statements also bring further attention to the Education Department’s relationship with Sallie Mae. In a letter last week to Education Secretary Arne Duncan, Warren demanded to know why the Education Department has yet to take public steps to rebuke the company, by imposing fines or revoking its federal contracts. Sallie Mae is the Education Department’s largest corporate contractor.
Education Department officials have said they cannot recall any instance of the agency taking a public enforcement action against Sallie Mae. Warren said in her letter that the department had clear legal authority to fine companies for wrongdoing.
“Despite Sallie Mae's track record,” which Warren described as a “pattern of breaking the rules and ignoring its contractual obligations,” the Education and Treasury departments “appear to have given little more than a slap on the wrist” to the company, the senator said.
“I am particularly concerned about this approach because of the enormous benefits the government has provided Sallie Mae,” Warren said in her letter, describing several sources of taxpayer-provided revenues or reduced costs. Those breaks include hundreds of millions of dollars in federal contracts; $600 million in profits off selling loans to the Education Department in 2009 and 2010 under the Ensuring Continued Access to Student Loans program, known as ECASLA; and special taxpayer-backed credit facilities that enabled the company to borrow billions of dollars at “astonishingly low interest rates,” Warren said.
The Education Department has said it would respond to Warren, though it declined to comment on the contents of her letter.
Borrower advocates praised the CFPB for spotlighting the Education Department’s surveys, the last of which was made public last month. The White House has touted the CFPB, an agency created by the 2010 overhaul of U.S. financial regulation known as Dodd-Frank, as committed to decoding complex financial products for households and informing borrowers.
The Education Department’s results, though made public on a quarterly basis, are often difficult to find and the agency does not issue news releases or post the results to its main website in an effort to inform student borrowers or their families.
Instead, they are posted on an obscure agency website meant for what the department calls “financial aid professionals.”
The Plain Writing Act of 2010 requires federal agencies to write "clear government communication that the public can understand and use,” according to a summary on the Education Department’s website.
“We’re thrilled the CFPB is looking at it and making it available to the public,” said Rory O’Sullivan, policy director at Young Invincibles, an advocacy group representing people ages 18 to 34.
Others, such as Deanne Loonin of the National Consumer Law Center, Christine Lindstrom of the U.S. Public Interest Research Group, and Maura Dundon of the Center for Responsible Lending, said that while the Education Department could do a lot more to make the information available to borrowers, there is probably little effect it could have on the servicing of federal student loans.
All three pointed to the lack of consumer choice as a major problem. Dundon criticized the Education Department’s surveys for not properly measuring borrower complaints. Lindstrom said the fact that the four companies are guaranteed a share of new loans every year provides little incentive for them to improve their performance, as they feel “no real accountability if they score low.”
“The only way to ensure that borrowers in repayment get what they are looking for is to enable the borrower to shop around for a servicer,” Lindstrom said.
But the Education Department took issue with such criticisms, defending the servicers and pointing out that their customer service rankings had improved in recent years.
“As part of the Department of Education’s efforts to promote transparency and accountability in the federal student loan programs, servicer performance results are shared online and among servicers,” said Stephen Spector, Education Department spokesman.
For example, the department said, borrowers could find the survey results by searching for them on Google.
“These efforts help encourage competition and improve service, and figures show that overall borrower satisfaction with servicers has improved over the past few years,” Spector said.
While the scores have improved in recent years, they are still far below where the Education Department’s vendor, CFI Group, says they should be, an Education Department document shows.
Customer satisfaction scores should be in the “low 80s”, according to the CFI Group. The national average across all sectors is 76.
But of the three customer surveys for each of the Education Department’s four preferred student loan servicers, 75 percent of the scores were below the national average. Just one of the 12 total scores was in the low 80s.
In response, the Education Department compared the scores of their preferred servicers with the customer satisfaction scores of the nation’s four largest banks by assets -- JPMorgan Chase, Bank of America, Citigroup and Wells Fargo. The four banks also score below the national average, the agency said.
JPMorgan in recent months has agreed to pay nearly $2 billion to settle claims and refund aggrieved customers for a range of alleged wrongdoing, from manipulation of energy markets to harming consumers with wrongful debt collection methods and selling them services they never received to lacking proper controls and misleading investors and regulators regarding the wrong-way London Whale bet on financial instruments.
In recent years, all four banks have either settled federal allegations or have been accused by authorities of improper foreclosures, misleading investors, and defrauding taxpayers. Collectively, they’ve paid state and federal agencies billions of dollars in fines and settlements.
The federal government, Warren said in her letter, “has been quite tolerant of Sallie Mae's failings.”
The move, in the form of a Monday blog post by the Consumer Financial Protection Bureau’s top student loan official, relied on Education Department surveys, which grade the four preferred companies -- SLM Corp., or Sallie Mae; Nelnet; FedLoan Servicing, or the Pennsylvania Higher Education Assistance Agency; and Great Lakes Higher Education Corporation & Affiliates -- and determine how many new loans each will receive in the coming year to service as a new crop of students enter college and graduate.
“Sallie Mae ranks the worst in borrower, school, and federal personnel satisfaction,” Rohit Chopra, the CFPB official, noted, citing the surveys. Chopra, referring to Education Department documents, said Sallie Mae will receive the fewest new loans to service in the upcoming school year.
Borrowers stuck with Sallie Mae or any other servicer who wish to switch to another have little ability to do so, Chopra noted. A senior CFPB official has previously warned Congress that borrowers who effectively are trapped with their loan servicers are “especially prone to the risk of consumer harm” because of the lack of consumer choice.
The apparent public shaming comes as Sallie Mae contends with numerous probes, including investigations by federal banking regulators and the Department of Justice over its handling of student loans and treatment of borrowers. Sen. Sherrod Brown (D-Ohio) is reviewing the company’s relative lack of assistance provided to troubled borrowers, and Sen. Elizabeth Warren (D-Mass.) is investigating the lack of past Education Department enforcement actions against the company despite several instances of alleged wrongdoing.
Sallie Mae has warned investors it expects the Federal Deposit Insurance Corp. to publicly accuse it of violating several federal laws regarding its private student loans. The Department of Education has said that it, too, was probing the company to ensure borrowers with taxpayer-backed loans were not harmed.
Patricia Nash Christel, a Sallie Mae representative, declined to comment directly on Chopra’s blog post. Instead, she pointed to a past Sallie Mae statement that claimed the company had assisted 2.1 million delinquent customers return their accounts to good standing in the past academic year, preventing $41 billion in student loan defaults.
Chopra’s statements also bring further attention to the Education Department’s relationship with Sallie Mae. In a letter last week to Education Secretary Arne Duncan, Warren demanded to know why the Education Department has yet to take public steps to rebuke the company, by imposing fines or revoking its federal contracts. Sallie Mae is the Education Department’s largest corporate contractor.
Education Department officials have said they cannot recall any instance of the agency taking a public enforcement action against Sallie Mae. Warren said in her letter that the department had clear legal authority to fine companies for wrongdoing.
“Despite Sallie Mae's track record,” which Warren described as a “pattern of breaking the rules and ignoring its contractual obligations,” the Education and Treasury departments “appear to have given little more than a slap on the wrist” to the company, the senator said.
“I am particularly concerned about this approach because of the enormous benefits the government has provided Sallie Mae,” Warren said in her letter, describing several sources of taxpayer-provided revenues or reduced costs. Those breaks include hundreds of millions of dollars in federal contracts; $600 million in profits off selling loans to the Education Department in 2009 and 2010 under the Ensuring Continued Access to Student Loans program, known as ECASLA; and special taxpayer-backed credit facilities that enabled the company to borrow billions of dollars at “astonishingly low interest rates,” Warren said.
The Education Department has said it would respond to Warren, though it declined to comment on the contents of her letter.
Borrower advocates praised the CFPB for spotlighting the Education Department’s surveys, the last of which was made public last month. The White House has touted the CFPB, an agency created by the 2010 overhaul of U.S. financial regulation known as Dodd-Frank, as committed to decoding complex financial products for households and informing borrowers.
The Education Department’s results, though made public on a quarterly basis, are often difficult to find and the agency does not issue news releases or post the results to its main website in an effort to inform student borrowers or their families.
Instead, they are posted on an obscure agency website meant for what the department calls “financial aid professionals.”
The Plain Writing Act of 2010 requires federal agencies to write "clear government communication that the public can understand and use,” according to a summary on the Education Department’s website.
“We’re thrilled the CFPB is looking at it and making it available to the public,” said Rory O’Sullivan, policy director at Young Invincibles, an advocacy group representing people ages 18 to 34.
Others, such as Deanne Loonin of the National Consumer Law Center, Christine Lindstrom of the U.S. Public Interest Research Group, and Maura Dundon of the Center for Responsible Lending, said that while the Education Department could do a lot more to make the information available to borrowers, there is probably little effect it could have on the servicing of federal student loans.
All three pointed to the lack of consumer choice as a major problem. Dundon criticized the Education Department’s surveys for not properly measuring borrower complaints. Lindstrom said the fact that the four companies are guaranteed a share of new loans every year provides little incentive for them to improve their performance, as they feel “no real accountability if they score low.”
“The only way to ensure that borrowers in repayment get what they are looking for is to enable the borrower to shop around for a servicer,” Lindstrom said.
But the Education Department took issue with such criticisms, defending the servicers and pointing out that their customer service rankings had improved in recent years.
“As part of the Department of Education’s efforts to promote transparency and accountability in the federal student loan programs, servicer performance results are shared online and among servicers,” said Stephen Spector, Education Department spokesman.
For example, the department said, borrowers could find the survey results by searching for them on Google.
“These efforts help encourage competition and improve service, and figures show that overall borrower satisfaction with servicers has improved over the past few years,” Spector said.
While the scores have improved in recent years, they are still far below where the Education Department’s vendor, CFI Group, says they should be, an Education Department document shows.
Customer satisfaction scores should be in the “low 80s”, according to the CFI Group. The national average across all sectors is 76.
But of the three customer surveys for each of the Education Department’s four preferred student loan servicers, 75 percent of the scores were below the national average. Just one of the 12 total scores was in the low 80s.
In response, the Education Department compared the scores of their preferred servicers with the customer satisfaction scores of the nation’s four largest banks by assets -- JPMorgan Chase, Bank of America, Citigroup and Wells Fargo. The four banks also score below the national average, the agency said.
JPMorgan in recent months has agreed to pay nearly $2 billion to settle claims and refund aggrieved customers for a range of alleged wrongdoing, from manipulation of energy markets to harming consumers with wrongful debt collection methods and selling them services they never received to lacking proper controls and misleading investors and regulators regarding the wrong-way London Whale bet on financial instruments.
In recent years, all four banks have either settled federal allegations or have been accused by authorities of improper foreclosures, misleading investors, and defrauding taxpayers. Collectively, they’ve paid state and federal agencies billions of dollars in fines and settlements.
The federal government, Warren said in her letter, “has been quite tolerant of Sallie Mae's failings.”
Sallie Mae Selling Her Savings Plan, the "529 plan", To Another Company
Delaware-based Sallie Mae has sold its college savings business to a company in Montgomery County, Pa., for an undisclosed sum.
Ascensus, in Dreshner, will take over Sallie Mae’s Upromise Investments, the largest administrator of 529 college savings plans in the country.
Sallie Mae has offered the plans through 17 states since acquiring the business in 2006. Delaware’s plan is administered through Fidelity Investments. The deal will not affect the 1,200 employees at the nation’s largest student lender, headquartered in Christiana, a company spokeswoman said.
Sallie Mae’s 529 plans include 2.8 million accounts and $49 billion in assets, according to the company. The plans are handled by 250 employees, mostly at offices in Newton, Mass., and Kansas City, Mo., the spokeswoman said.
Ascensus, the nation’s largest independentretirement plan provider, will retain all of those employees.
The transaction will add about 14 cents per share to Sallie Mae’s earnings, according to a regulatory filing.
Sallie Mae did not sell and will continue to own the Upromise Rewards program, a system that allows users to earn cash for everyday purchases.
Sallie Mae is working on a plan to split into two separate companies later this year. One will offer private education loans and additional banking services, while the other will provide customer service and collections for student loans and other forms of debt.
“This transaction allows us to focus our operational and technological resources on growing our core businesses and platforms,” said Joseph DePaulo, the company’s executive vice president.
Ascensus, in Dreshner, will take over Sallie Mae’s Upromise Investments, the largest administrator of 529 college savings plans in the country.
Sallie Mae has offered the plans through 17 states since acquiring the business in 2006. Delaware’s plan is administered through Fidelity Investments. The deal will not affect the 1,200 employees at the nation’s largest student lender, headquartered in Christiana, a company spokeswoman said.
Sallie Mae’s 529 plans include 2.8 million accounts and $49 billion in assets, according to the company. The plans are handled by 250 employees, mostly at offices in Newton, Mass., and Kansas City, Mo., the spokeswoman said.
Ascensus, the nation’s largest independentretirement plan provider, will retain all of those employees.
The transaction will add about 14 cents per share to Sallie Mae’s earnings, according to a regulatory filing.
Sallie Mae did not sell and will continue to own the Upromise Rewards program, a system that allows users to earn cash for everyday purchases.
Sallie Mae is working on a plan to split into two separate companies later this year. One will offer private education loans and additional banking services, while the other will provide customer service and collections for student loans and other forms of debt.
“This transaction allows us to focus our operational and technological resources on growing our core businesses and platforms,” said Joseph DePaulo, the company’s executive vice president.
Sallie Mae splits into two businesses. One for Federal Loans then the second one to handle private loans.
The largest U.S. education-finance company, is making a bet on the future of private student debt, a business under fire in Washington for marketing high-interest-rate loans before the financial crisis.
Officially known as SLM Corp., Sallie Mae said this week it will separate into two publicly traded companies. One will focus on servicing federal student loans; the other will concentrate on the fast-growing business of making private loans.
Officially known as SLM Corp., Sallie Mae said this week it will separate into two publicly traded companies. One will focus on servicing federal student loans; the other will concentrate on the fast-growing business of making private loans. Photographer: Carol T. Powers/Bloomber
Students are turning to private loans because government programs, which typically have more favorable terms, don’t always provide enough money to pay for the skyrocketing cost of college. Just as subprime mortgages led to the real-estate collapse, pre-2008 private student loans were easy to get and featured high rates that borrowers often couldn’t afford, according to a 2012 report by the federal Consumer Financial Protection Bureau.
Sallie Mae’s announcement “really confirms what was already clear -- that the private education loan market is growing again,” said Pauline Abernathy, vice president of the Institute for College Access and Success, an Oakland, California-based nonprofit research and advocacy group. “We need to make sure that protections are in place so that we don’t make the same mistakes again.”
With college costs outpacing the inflation rate for the past four decades, borrowers have about $1 trillion in student loans, the largest category of consumer debt apart from mortgages. Private loans make up about 15 percent of the total.
Tuition ‘Bet’Sallie Mae’s split comes as Congress is debating a host of proposals to reduce interest rates for federal loans and aid student borrowers -- proposals that might curb demand for private loans.
About 200 current college students and recent graduates rallied today outside Sallie Mae’s corporate offices in Newark, Delaware, during the company’s annual meeting. The students protested high student-loan interest rates, said Ori Korin, a spokeswoman for Jobs with Justice & American Rights at Work, a Washington-based nonprofit group, which calls Sallie Mae “the largest private profiteer off of student debt.”
For now, Sallie Mae should prosper because tuition continues to rise, said Scott Valentin, an analyst with FBR Capital Markets in Arlington, Virginia. The lender’s shares are up 40 percentthis year. They rose 2.4 percent to close at $24.04 yesterday in New York trading.
“It’s a bet that the cost of college will outstrip the aid available,” Valentin said of Sallie Mae’s private-loan strategy. He rates the shares “outperform.”
$118 BillionSallie Mae is turning to private loans for growth because President Barack Obama’s administration in 2010 cut private lenders out of the lucrative business of originating new federal student loans. The government now does that directly. Sallie Mae still has a dominant position in servicing and collecting on those loans, a business with slower growth prospects. It also has a $118 billion portfolio of federal loans made before the government shifted to direct lending.
Private loans are riskier for students because they don’t offer the same kinds of protections for borrowers, such as the opportunity to defer payments or tie them to income, Abernathy and other consumer advocates said. They can also carry high interest rates -- more than 10 percent annually -- at times doubling what some borrowers pay in the U.S. program. Most have variable rates, which could expose borrowers to unexpectedly high payments in the future.
Reinventing SLMIn responding to questions about the company’s private student-loan business, Sallie Mae spokesman Patricia Nash Christel referred to a conference call the company held with investors this week.
On the call, John Remondi, Sallie Mae’s chief executive officer, said the company had improved the credit quality of its private loans.
Unlike with federal loans, which are available to all students, private financial companies can make underwriting decisions, either refusing to lend to less credit-worthy borrowers or charging higher rates to compensate for the risk. Today, investors aren’t fully recognizing the growth prospects of the private student-loan business, Remondi said.
“Sallie Mae’s success over the last 40 years is in large part based on our ability to reinvent itself in the face of changing business climates,” Remondi said.
Origination DropsBefore the financial crisis, the volume of private student loans -- with rates that could be as high as credit cards -- soared. Many were marketed to families with poor credit and to students at for-profit colleges, whose default rates surpass those of traditional institutions.
Private lending to students totaled about $25 billion in the 2007-2008 school year, according to a report last year by the College Board, a New York-based nonprofit group. Last year, the figure dropped to $8.1 billion, as lending standards tightened and federal loan limits increased.
Sallie Mae is gaining ground in this shrunken market, which has started to rebound. The company told investors this week it expects to make $4 billion in private loans this year, almost twice its 2010 lending level. As originations grow at a 20 percent annual clip, Sallie Mae said it expects a 51 percent market share this year.
Confusing TermsStill, the Consumer Financial Protection Bureau continues to scrutinize private loans, and has received 4,600 complaints from borrowers as of March. In July 2012, the agency and the U.S. Education Department submitted a report to Congress that found more than $8 billion in defaulted private student-loan balances.
Often, students borrow for expensive graduate school programs and are confused about loan terms -- especially when they are offered with variable rates, according to the CFPB.
“It can often be challenging to determine what is the better deal when comparing a fixed-rate loan with a number of repayment protections against a variable rate loan with fewer options,” said Rohit Chopra, the CFPB’s student-loan ombudsman.
A number of proposals in Washington could crimp the private-loan business. Currently, student loans of all kinds can rarely be canceled through bankruptcy, making them among the most onerous of debts.
Senator Dick Durbin, an Illinois Democrat, and other senators have proposed making private student loans dischargeable in bankruptcy like almost all other forms of private debt -- making such debt less attractive to investors who might buy it in secondary markets.
July 1Sallie Mae supports letting both private and federal student loans be dischargeable through bankruptcy for those who have made a good-faith effort to pay over a five- to seven-year period and are still in financial difficulty, Christel said.
Congress and the Obama administration are also debating proposals to keep down interest rates on federal loans. Unless Congress acts, rates for some Stafford loan borrowers will rise to 6.8 percent from 3.4 percent on July 1.
“Higher education cannot be a luxury for a privileged few,” Obama said today at the White House. “It’s an economic necessity that every family should be able to afford.”
Lower rates on federal loans could make private loans less attractive. For now, Sallie Mae and other private lenders can offer fixed rates for the most creditworthy borrowers below the 6.8 percent on many government loans, said Mark Kantrowitz, publisher of Edvisors Network Inc., a Las Vegas-based operator of financial-aid and college admissions websites. For those risking variable loans, the rates can be far lower, he said.
Obama has also proposed expanding the Perkins federal loan program, a move that could hinder demand for private loans, Kantrowitz said.
At the same time, some families are becoming more sensitive to the cost of college and moving to lower-priced institutions to reduce their debt levels, he said.
Regardless of any shifts in behavior, for the time being, “I don’t see the demand for borrowing leveling off,” Kantrowitz said.
Officially known as SLM Corp., Sallie Mae said this week it will separate into two publicly traded companies. One will focus on servicing federal student loans; the other will concentrate on the fast-growing business of making private loans.
Officially known as SLM Corp., Sallie Mae said this week it will separate into two publicly traded companies. One will focus on servicing federal student loans; the other will concentrate on the fast-growing business of making private loans. Photographer: Carol T. Powers/Bloomber
Students are turning to private loans because government programs, which typically have more favorable terms, don’t always provide enough money to pay for the skyrocketing cost of college. Just as subprime mortgages led to the real-estate collapse, pre-2008 private student loans were easy to get and featured high rates that borrowers often couldn’t afford, according to a 2012 report by the federal Consumer Financial Protection Bureau.
Sallie Mae’s announcement “really confirms what was already clear -- that the private education loan market is growing again,” said Pauline Abernathy, vice president of the Institute for College Access and Success, an Oakland, California-based nonprofit research and advocacy group. “We need to make sure that protections are in place so that we don’t make the same mistakes again.”
With college costs outpacing the inflation rate for the past four decades, borrowers have about $1 trillion in student loans, the largest category of consumer debt apart from mortgages. Private loans make up about 15 percent of the total.
Tuition ‘Bet’Sallie Mae’s split comes as Congress is debating a host of proposals to reduce interest rates for federal loans and aid student borrowers -- proposals that might curb demand for private loans.
About 200 current college students and recent graduates rallied today outside Sallie Mae’s corporate offices in Newark, Delaware, during the company’s annual meeting. The students protested high student-loan interest rates, said Ori Korin, a spokeswoman for Jobs with Justice & American Rights at Work, a Washington-based nonprofit group, which calls Sallie Mae “the largest private profiteer off of student debt.”
For now, Sallie Mae should prosper because tuition continues to rise, said Scott Valentin, an analyst with FBR Capital Markets in Arlington, Virginia. The lender’s shares are up 40 percentthis year. They rose 2.4 percent to close at $24.04 yesterday in New York trading.
“It’s a bet that the cost of college will outstrip the aid available,” Valentin said of Sallie Mae’s private-loan strategy. He rates the shares “outperform.”
$118 BillionSallie Mae is turning to private loans for growth because President Barack Obama’s administration in 2010 cut private lenders out of the lucrative business of originating new federal student loans. The government now does that directly. Sallie Mae still has a dominant position in servicing and collecting on those loans, a business with slower growth prospects. It also has a $118 billion portfolio of federal loans made before the government shifted to direct lending.
Private loans are riskier for students because they don’t offer the same kinds of protections for borrowers, such as the opportunity to defer payments or tie them to income, Abernathy and other consumer advocates said. They can also carry high interest rates -- more than 10 percent annually -- at times doubling what some borrowers pay in the U.S. program. Most have variable rates, which could expose borrowers to unexpectedly high payments in the future.
Reinventing SLMIn responding to questions about the company’s private student-loan business, Sallie Mae spokesman Patricia Nash Christel referred to a conference call the company held with investors this week.
On the call, John Remondi, Sallie Mae’s chief executive officer, said the company had improved the credit quality of its private loans.
Unlike with federal loans, which are available to all students, private financial companies can make underwriting decisions, either refusing to lend to less credit-worthy borrowers or charging higher rates to compensate for the risk. Today, investors aren’t fully recognizing the growth prospects of the private student-loan business, Remondi said.
“Sallie Mae’s success over the last 40 years is in large part based on our ability to reinvent itself in the face of changing business climates,” Remondi said.
Origination DropsBefore the financial crisis, the volume of private student loans -- with rates that could be as high as credit cards -- soared. Many were marketed to families with poor credit and to students at for-profit colleges, whose default rates surpass those of traditional institutions.
Private lending to students totaled about $25 billion in the 2007-2008 school year, according to a report last year by the College Board, a New York-based nonprofit group. Last year, the figure dropped to $8.1 billion, as lending standards tightened and federal loan limits increased.
Sallie Mae is gaining ground in this shrunken market, which has started to rebound. The company told investors this week it expects to make $4 billion in private loans this year, almost twice its 2010 lending level. As originations grow at a 20 percent annual clip, Sallie Mae said it expects a 51 percent market share this year.
Confusing TermsStill, the Consumer Financial Protection Bureau continues to scrutinize private loans, and has received 4,600 complaints from borrowers as of March. In July 2012, the agency and the U.S. Education Department submitted a report to Congress that found more than $8 billion in defaulted private student-loan balances.
Often, students borrow for expensive graduate school programs and are confused about loan terms -- especially when they are offered with variable rates, according to the CFPB.
“It can often be challenging to determine what is the better deal when comparing a fixed-rate loan with a number of repayment protections against a variable rate loan with fewer options,” said Rohit Chopra, the CFPB’s student-loan ombudsman.
A number of proposals in Washington could crimp the private-loan business. Currently, student loans of all kinds can rarely be canceled through bankruptcy, making them among the most onerous of debts.
Senator Dick Durbin, an Illinois Democrat, and other senators have proposed making private student loans dischargeable in bankruptcy like almost all other forms of private debt -- making such debt less attractive to investors who might buy it in secondary markets.
July 1Sallie Mae supports letting both private and federal student loans be dischargeable through bankruptcy for those who have made a good-faith effort to pay over a five- to seven-year period and are still in financial difficulty, Christel said.
Congress and the Obama administration are also debating proposals to keep down interest rates on federal loans. Unless Congress acts, rates for some Stafford loan borrowers will rise to 6.8 percent from 3.4 percent on July 1.
“Higher education cannot be a luxury for a privileged few,” Obama said today at the White House. “It’s an economic necessity that every family should be able to afford.”
Lower rates on federal loans could make private loans less attractive. For now, Sallie Mae and other private lenders can offer fixed rates for the most creditworthy borrowers below the 6.8 percent on many government loans, said Mark Kantrowitz, publisher of Edvisors Network Inc., a Las Vegas-based operator of financial-aid and college admissions websites. For those risking variable loans, the rates can be far lower, he said.
Obama has also proposed expanding the Perkins federal loan program, a move that could hinder demand for private loans, Kantrowitz said.
At the same time, some families are becoming more sensitive to the cost of college and moving to lower-priced institutions to reduce their debt levels, he said.
Regardless of any shifts in behavior, for the time being, “I don’t see the demand for borrowing leveling off,” Kantrowitz said.
this is a presentation that was presented at a Barclay's Global Financial Services.
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Lately there has been a wave of customers accounts not getting credited.
i have been hearing a lot about lately sallie mae have been taken customers money from bank accounts automatically but then when they go to their accounts sallie mae never credit the customers account. another words sallie mae is taking money from their customers. then say they never received it. So this way here the account will be late. All the reps would just say we don't know where the money went but your 14 days past due.
so i had few min. to spare. i took a look at sallie maes fiances and see if they have been losing money. Well put it this i couldn't believe how much money they have been losing. So i checked the quartly fillings that the mangers have to put out. those papers show what the manger foresees in the future fiances, loss and gains, his notes about how to fix the issues of why they are losing money. In that same statement he mentions about cutting jobs because the operational cost is costing the company about 116 million a month in order to pay their employees and to maintain the computers and stuff like that. the following is the reports that i have found.
i almost forgot to mention about there losses of asset-backed trust funds have been losing money too. this could be one of the reasons why they have been taking customers money. Let me explain why they would do this. Every loan taken out in someones name that loan is put in a group of loans which is placed on the stock exchange. Which investors basically place bets on a group of loans to see which ones will default. i now this may sound crazy an your not going to believe me but it is being done with almost any kind of loan that you takeout. it does not just apply to student loans. i don't know too much about this kind of exchanges on the stock market. but one thing i do know is that the higher the risk is for that loan. the more money you will receive when the loan defaults.
the first document i have posted is called a SEC 10-Q Filling.
This will go over all of the financial data that the company produces. And it will cover what the managment goals.
To see the management goals and notes you have to go to page 47.
so i had few min. to spare. i took a look at sallie maes fiances and see if they have been losing money. Well put it this i couldn't believe how much money they have been losing. So i checked the quartly fillings that the mangers have to put out. those papers show what the manger foresees in the future fiances, loss and gains, his notes about how to fix the issues of why they are losing money. In that same statement he mentions about cutting jobs because the operational cost is costing the company about 116 million a month in order to pay their employees and to maintain the computers and stuff like that. the following is the reports that i have found.
i almost forgot to mention about there losses of asset-backed trust funds have been losing money too. this could be one of the reasons why they have been taking customers money. Let me explain why they would do this. Every loan taken out in someones name that loan is put in a group of loans which is placed on the stock exchange. Which investors basically place bets on a group of loans to see which ones will default. i now this may sound crazy an your not going to believe me but it is being done with almost any kind of loan that you takeout. it does not just apply to student loans. i don't know too much about this kind of exchanges on the stock market. but one thing i do know is that the higher the risk is for that loan. the more money you will receive when the loan defaults.
the first document i have posted is called a SEC 10-Q Filling.
This will go over all of the financial data that the company produces. And it will cover what the managment goals.
To see the management goals and notes you have to go to page 47.
this report i just found shows the president and ceo of the company was granted a 100,000 dollar raise. His pay was 850,000 now its 950,000 well maybe if they didnt give this guy a raise they couldve used that money for something else that will be more useful.
(i wish i could edit it so its only one page. But to see the actual report skip to pg3 )
this is the second quarter earnings report
I will be added more info the new bill hr 1911 for student loan interest. Below is a news report of what the bill is about. But later this week I will be added the actual bill to the documents section and any other info about the new bill.
New deal for student loans but its not the greatest deal.
The interest rate is capped at 8.25 percent to undergrads parents 9.5
Borrowing for tuition, housing and books would be less expensive for college students and
their parents this fall but the costs could soon start climbing under a bill the
Senate passed overwhelmingly Wednesday.
The bipartisan proposal would link interest rates on federal student loans to the
financial markets, providing lower interest rates right away but higher ones
later if the economy improves as expected. The measure was similar to one that
already had passed the Republican-led House and leaders from both chambers said
they predicted the differences to be resolved before students start signing loan
documents for the fall term.
"This compromise is a major victory for our nation's students," President Barack Obama
said in a statement.
Undergraduates this fall would borrow at a 3.9 percent interest rate. Graduate students would
have access to loans at 5.4 percent, and parents would borrow at 6.4 percent.
The rates would be locked in for that year's loan, but each year's loan could be
more expensive than the last. Rates would rise as the economy picks up and it
becomes more expensive for the government to borrow money.
Liberal members of the Democratic caucus were vocal in their opposition over the
potentially shifting rates included in the Senate measure, which passed with
support from both parties, 81-18. The bill passed with support from 45
Republicans, 35 Democrats and Sen. Angus King, the independent from Maine who
helped negotiate the deal.
Sen. Mike Lee, R-Utah, joined 16 Democrats and Sen. Bernie Sanders, the Vermont
independent who caucuses with Democrats, to oppose the legislation.
Sen. Claire McCaskill, D-Mo., did not cast a recorded vote.
"This permanent, market-based plan makes students' loans cheaper, simpler and more
certain," said Sen. Lamar Alexander, the top Republican on the Senate education
panel. "It ends the annual game of Congress playing politics with student loan
interest rates at the expense of students planning their futures."
Rates on new subsidized Stafford loans doubled to 6.8 percent July 1 because Congress
could not agree on a way to keep them at 3.4 percent. Without congressional
action, rates would stay at 6.8 percent – a reality most lawmakers called
unacceptable, although deep differences emerged even among allies as to how to
remedy it.
The compromise that came together during the last few weeks would be a good deal for
all students through the 2015 academic year. After that, interest rates are
expected to climb above where they were when students left campus in the spring,
if congressional estimates prove correct.
"That's the same thing credit card companies said when they sold zero-interest rate
credit cards. ... The bill comes due," said Sen. Elizabeth Warren, D-Mass. "All
students will end up paying far higher interest rates on their loans than they
do now."
Warren was among the liberal Democrats who labeled the White House-backed proposal a
bait-and-switch measure that would lure in new borrowers with low rates now but
would cost future students. Throughout the morning and afternoon, they stood to
oppose the compromise.
They failed to stop the measure, which seemed to face a clear pathway in the House,
which has already passed similar legislation that links interest rates to the
financial markets.
Republican Speaker John Boehner promised to "act expeditiously" and the Republican chairman
of the House education panel, Rep. John Kline of Minnesota, predicted "the
bill's swift passage."
The top Democrat on the House Committee on Education and the Workforce, Rep. George
Miller of California, similarly asked Boehner to bring the bill "directly to the
House floor for a vote and to pass it without delay."
And the president also encouraged quick action. "I urge the House to pass this bill
so that I can sign it into law right away," Obama said in a statement.
The measure's supporters suggested the compromise is better than the status quo for
students returning to campus for fall classes.
"Don't let anyone tell you that this is bad deal for students. This is not a bad deal
for students. If we don't pass this, students will pay 6.8 percent on their
loans. With this bill, they'll pay 3.86 percent. You tell me which is the better
deal," said Sen. Tom Harkin, the Iowa Democrat who chairs the Senate Health,
Education, Labor and Pensions Committee.
Harkin said the legislation is not what he would have written if he had the final say.
But he also said that he recognized the need to restore the lower rates on
students before they return to campus for classes.
"It's the best that we can do," Harkin said on the Senate floor.
He suggested a rewrite of the Higher Education Act this fall could include a
comprehensive review of college costs and could revisit the loan rates for
future classes.
The White House and its allies said the new loan structure would offer lower rates
to 11 million borrowers right away and save the average undergraduate $1,500 in
interest charges. Democratic leaders had anticipated defections from within
their ranks but counted on Republican support to help them win passage.
Senate Republicans pushed the interest rates to be linked to the financial markets and
backed the measure. The deal was negotiated by Democratic Sen. Joe Manchin of
West Virginia and GOP Sens. Richard Burr of North Carolina, as well as
Alexander, King and Sen. Dick Durbin, D-Ill.
The compromise's similarity to what House Republicans passed this year was a
sticking point for some liberals. There was no denying the new structure could
cost future students if interest rates climb.
"I suspect they will. They're pretty low right now," said Sen. Tom Carper, D-Del.
"Who knows? We don't know."
As part of the compromise, Democrats won a protection for students by capping rates
at a maximum 8.25 percent for undergraduates. Graduate students would not pay
rates higher than 9.5 percent, and parents' rates would top out at 10.5
percent.
Using Congressional Budget Office estimates, rates would not reach those limits in the
next 10 years.
The Congressional Budget Office also estimated the bill as written would reduce the
deficit by $715 million over the next decade. During that same time, federal
loans would be a $1.4 trillion program.
their parents this fall but the costs could soon start climbing under a bill the
Senate passed overwhelmingly Wednesday.
The bipartisan proposal would link interest rates on federal student loans to the
financial markets, providing lower interest rates right away but higher ones
later if the economy improves as expected. The measure was similar to one that
already had passed the Republican-led House and leaders from both chambers said
they predicted the differences to be resolved before students start signing loan
documents for the fall term.
"This compromise is a major victory for our nation's students," President Barack Obama
said in a statement.
Undergraduates this fall would borrow at a 3.9 percent interest rate. Graduate students would
have access to loans at 5.4 percent, and parents would borrow at 6.4 percent.
The rates would be locked in for that year's loan, but each year's loan could be
more expensive than the last. Rates would rise as the economy picks up and it
becomes more expensive for the government to borrow money.
Liberal members of the Democratic caucus were vocal in their opposition over the
potentially shifting rates included in the Senate measure, which passed with
support from both parties, 81-18. The bill passed with support from 45
Republicans, 35 Democrats and Sen. Angus King, the independent from Maine who
helped negotiate the deal.
Sen. Mike Lee, R-Utah, joined 16 Democrats and Sen. Bernie Sanders, the Vermont
independent who caucuses with Democrats, to oppose the legislation.
Sen. Claire McCaskill, D-Mo., did not cast a recorded vote.
"This permanent, market-based plan makes students' loans cheaper, simpler and more
certain," said Sen. Lamar Alexander, the top Republican on the Senate education
panel. "It ends the annual game of Congress playing politics with student loan
interest rates at the expense of students planning their futures."
Rates on new subsidized Stafford loans doubled to 6.8 percent July 1 because Congress
could not agree on a way to keep them at 3.4 percent. Without congressional
action, rates would stay at 6.8 percent – a reality most lawmakers called
unacceptable, although deep differences emerged even among allies as to how to
remedy it.
The compromise that came together during the last few weeks would be a good deal for
all students through the 2015 academic year. After that, interest rates are
expected to climb above where they were when students left campus in the spring,
if congressional estimates prove correct.
"That's the same thing credit card companies said when they sold zero-interest rate
credit cards. ... The bill comes due," said Sen. Elizabeth Warren, D-Mass. "All
students will end up paying far higher interest rates on their loans than they
do now."
Warren was among the liberal Democrats who labeled the White House-backed proposal a
bait-and-switch measure that would lure in new borrowers with low rates now but
would cost future students. Throughout the morning and afternoon, they stood to
oppose the compromise.
They failed to stop the measure, which seemed to face a clear pathway in the House,
which has already passed similar legislation that links interest rates to the
financial markets.
Republican Speaker John Boehner promised to "act expeditiously" and the Republican chairman
of the House education panel, Rep. John Kline of Minnesota, predicted "the
bill's swift passage."
The top Democrat on the House Committee on Education and the Workforce, Rep. George
Miller of California, similarly asked Boehner to bring the bill "directly to the
House floor for a vote and to pass it without delay."
And the president also encouraged quick action. "I urge the House to pass this bill
so that I can sign it into law right away," Obama said in a statement.
The measure's supporters suggested the compromise is better than the status quo for
students returning to campus for fall classes.
"Don't let anyone tell you that this is bad deal for students. This is not a bad deal
for students. If we don't pass this, students will pay 6.8 percent on their
loans. With this bill, they'll pay 3.86 percent. You tell me which is the better
deal," said Sen. Tom Harkin, the Iowa Democrat who chairs the Senate Health,
Education, Labor and Pensions Committee.
Harkin said the legislation is not what he would have written if he had the final say.
But he also said that he recognized the need to restore the lower rates on
students before they return to campus for classes.
"It's the best that we can do," Harkin said on the Senate floor.
He suggested a rewrite of the Higher Education Act this fall could include a
comprehensive review of college costs and could revisit the loan rates for
future classes.
The White House and its allies said the new loan structure would offer lower rates
to 11 million borrowers right away and save the average undergraduate $1,500 in
interest charges. Democratic leaders had anticipated defections from within
their ranks but counted on Republican support to help them win passage.
Senate Republicans pushed the interest rates to be linked to the financial markets and
backed the measure. The deal was negotiated by Democratic Sen. Joe Manchin of
West Virginia and GOP Sens. Richard Burr of North Carolina, as well as
Alexander, King and Sen. Dick Durbin, D-Ill.
The compromise's similarity to what House Republicans passed this year was a
sticking point for some liberals. There was no denying the new structure could
cost future students if interest rates climb.
"I suspect they will. They're pretty low right now," said Sen. Tom Carper, D-Del.
"Who knows? We don't know."
As part of the compromise, Democrats won a protection for students by capping rates
at a maximum 8.25 percent for undergraduates. Graduate students would not pay
rates higher than 9.5 percent, and parents' rates would top out at 10.5
percent.
Using Congressional Budget Office estimates, rates would not reach those limits in the
next 10 years.
The Congressional Budget Office also estimated the bill as written would reduce the
deficit by $715 million over the next decade. During that same time, federal
loans would be a $1.4 trillion program.
Please watch video below from an attorney.
This is a great video made by a debt attorney. He says to stop paying your student loans because the money you owe doesn't reflect the value of that student loan. What you do is sue the student loan company or bank if they made a change on the loan. The company or bank may not have the original loan agreement which may reflect changes you may not have known about. This will only work with a select few. This is not a fix for everyone. But its a great deed that this guy is providing students with his help of representing the student if need be. He will work in any state. He will mention his contact info at end of video.
Student Loan Interest Rates Increase :-\
College students taking out new loans for the fall term will see interest rates twice what they were in the spring – unless Congress fulfills its pledge to restore lower rates when it returns after the July 4 holiday. Subsidized Stafford loans, which account for roughly a quarter of all direct federal borrowing, went from 3.4 percent interest to 6.8 percent interest on Monday. Congress' Joint Economic Committee estimated the cost passed to students would be about $2,600."In the grand scheme of all the loans that I already have, I suppose it's not out of control," said Angie Platt, a 20-year-old University of Iowa student who expects to graduate with at least $60,000 in debt. "Its just another thing to add on. It doesn't help me; that's for sure," the Lakeville, Minn., native added. Efforts to keep interest rates from doubling on new Stafford loans fell apart last week amid partisan wrangling in the Senate. Democratic senators and the White House both predicted that a deal would be reached in Congress to bring the rates down again before students return to campus. But if an agreement remains elusive, students could find themselves saddled with higher interest rates this year than last. "It's kind of surprising; that's a big jump," said Rebecca Ehlers, an Iowa State University senior majoring in math. A $1,000 subsidized Stafford loan is part of her financial aid package and she said she's reconsidering how she pays for school. "I may work more or ask my parents for money rather than going through all that," said Ehlers, 21.
Congess is at it again the ticking time bomb is getting closer an closer. But there is a new bill has been proposed which is H.R. 1595. This news artical ewxplains a little bit of whats going .
A bipartisan group of lawmakers Thursday will introduce a compromise student loan proposal aimed at preventing a massive increase in student loan interest rates on July 1.
The proposal, which was hammered out over the past week by Sens. Joe Manchin, D-W.Va., Angus King, I-Maine, Tom Coburn, R-Okla., Richard Burr, R-N.C., and Lamar Alexander, R-Tenn., draws from formulas for setting future interest rates that have been proposed by President Obama and House Republicans in a bill they approved last month.
Interest rates for subsidized undergraduate loans, which are currently fixed at 3.4 percent, will rise to 6.8 percent on July 1 unless Congress acts.
The Bipartisan Student Loan Certainty Act ties interest rates on new student loans to the 10-year Treasury note and adds an additional 1.85 percent to subsidized and unsubsidized undergraduate Stafford loans. The proposal adds 3.4 percent to the Treasury rate for graduate Stafford loans and 4.4 percent for PLUS loans, which are issued to parents of students.
“This bipartisan agreement not only makes sure student rates will not double on July 1, but this is a long-term fix that will lower rates for all students and will save students $30 billion over the next three years, making sure anyone who wants an education can afford one,” Manchin said in a statement. “This deal shows the American people that bipartisanship and commonsense are alive in Washington.”
The plan would fix the interest rate for the life of the loan, and it also maintains a cap on interest rates for consolidated loans at 8.25 percent. It reduces the deficit by $1 billion over 10 years, according to the Congressional Budget Office.
For weeks, Republican leaders in the House had hounded Democrats for their failure to approve an alternative proposal that would address the impending rate hike. The Republican proposal, which was modeled after a plan Obama included in his 2013 budget, also set interest rates to the 10-year Treasury note but tacked on a higher 2.5 percent “add on” to those rates. The proposal also allowed rates to fluctuate according to the market throughout the life of the loan, which Democrats and Obama strongly opposed.
But the new bipartisan proposal still faces opposition from Democrats in the Senate.
A spokesman for Sen. Harry Reid said Wednesday that the bill could not pass the Senate.
“There is no deal on student loans that can pass the Senate because Republicans continue to insist that we reduce the deficit on the backs of students and middle-class families, instead of closing tax loopholes for the wealthiest Americans and big corporations,” said Reid spokesman Adam Jentleson. “Democrats continue to work in good faith to reach a compromise, but Republicans refuse to give on this critical point.”
Save for calling on Congress to prevent interest rates from doubling on July 1, the Obama administration has not publicly said how it would like the issue resolved.
Some Democrats, including Chairman of the Health Education, Labor and Pensions Committee Sen. Tom Harkin of Iowa, has expressed an unwillingness to hammer out a long-term compromise now, preferring to temporarily extend the current rates for another two years, buying Congress more time to deal with the issue.
Harkin has also said that he opposed tying interest rates to the 10-year Treasury note.
Allison Preiss, a spokesman for Harkin said that the proposal is a nonstarter.
“Sen. Harkin is not interested in proposals that ask low- and middle-income college students and their families to pay even more in interest to reduce the deficit, and tie student loans to unrestricted interest rates,” Preiss said. “Any proposal that lacks a cap is a nonstarter and indicates that its proponents are putting their ideology above students and their families.”
The new bipartisan proposal is expected to be officially offered in the Senate on Thursday, although it is unclear whether it could be approved in time to avoid a rate increase on Monday.
Burr said he did not think the Senate would act before adjourning for a weeklong recess on Friday. But he said if an agreement was reached next month, it would be retroactive so the increases wouldn’t take effect.
“This agreement lowers rates for America’s students and families,” Burr said. “Let’s put the politics aside and pass this bill.”
The proposal, which was hammered out over the past week by Sens. Joe Manchin, D-W.Va., Angus King, I-Maine, Tom Coburn, R-Okla., Richard Burr, R-N.C., and Lamar Alexander, R-Tenn., draws from formulas for setting future interest rates that have been proposed by President Obama and House Republicans in a bill they approved last month.
Interest rates for subsidized undergraduate loans, which are currently fixed at 3.4 percent, will rise to 6.8 percent on July 1 unless Congress acts.
The Bipartisan Student Loan Certainty Act ties interest rates on new student loans to the 10-year Treasury note and adds an additional 1.85 percent to subsidized and unsubsidized undergraduate Stafford loans. The proposal adds 3.4 percent to the Treasury rate for graduate Stafford loans and 4.4 percent for PLUS loans, which are issued to parents of students.
“This bipartisan agreement not only makes sure student rates will not double on July 1, but this is a long-term fix that will lower rates for all students and will save students $30 billion over the next three years, making sure anyone who wants an education can afford one,” Manchin said in a statement. “This deal shows the American people that bipartisanship and commonsense are alive in Washington.”
The plan would fix the interest rate for the life of the loan, and it also maintains a cap on interest rates for consolidated loans at 8.25 percent. It reduces the deficit by $1 billion over 10 years, according to the Congressional Budget Office.
For weeks, Republican leaders in the House had hounded Democrats for their failure to approve an alternative proposal that would address the impending rate hike. The Republican proposal, which was modeled after a plan Obama included in his 2013 budget, also set interest rates to the 10-year Treasury note but tacked on a higher 2.5 percent “add on” to those rates. The proposal also allowed rates to fluctuate according to the market throughout the life of the loan, which Democrats and Obama strongly opposed.
But the new bipartisan proposal still faces opposition from Democrats in the Senate.
A spokesman for Sen. Harry Reid said Wednesday that the bill could not pass the Senate.
“There is no deal on student loans that can pass the Senate because Republicans continue to insist that we reduce the deficit on the backs of students and middle-class families, instead of closing tax loopholes for the wealthiest Americans and big corporations,” said Reid spokesman Adam Jentleson. “Democrats continue to work in good faith to reach a compromise, but Republicans refuse to give on this critical point.”
Save for calling on Congress to prevent interest rates from doubling on July 1, the Obama administration has not publicly said how it would like the issue resolved.
Some Democrats, including Chairman of the Health Education, Labor and Pensions Committee Sen. Tom Harkin of Iowa, has expressed an unwillingness to hammer out a long-term compromise now, preferring to temporarily extend the current rates for another two years, buying Congress more time to deal with the issue.
Harkin has also said that he opposed tying interest rates to the 10-year Treasury note.
Allison Preiss, a spokesman for Harkin said that the proposal is a nonstarter.
“Sen. Harkin is not interested in proposals that ask low- and middle-income college students and their families to pay even more in interest to reduce the deficit, and tie student loans to unrestricted interest rates,” Preiss said. “Any proposal that lacks a cap is a nonstarter and indicates that its proponents are putting their ideology above students and their families.”
The new bipartisan proposal is expected to be officially offered in the Senate on Thursday, although it is unclear whether it could be approved in time to avoid a rate increase on Monday.
Burr said he did not think the Senate would act before adjourning for a weeklong recess on Friday. But he said if an agreement was reached next month, it would be retroactive so the increases wouldn’t take effect.
“This agreement lowers rates for America’s students and families,” Burr said. “Let’s put the politics aside and pass this bill.”
Senator Elizabeth Warren - wants to cut interest rates to bankers disscount rate. (less then 1%)
Student debt delays spending, saving - and marriage
About three-quarters of student loan borrowers surveyed said they -- or their children -- have been forced to make sacrifices in order to keep up with student loan payments, according to a survey from the American Institute of CPAs.
Forty-one percent of the more than 200 people surveyed said they have delayed saving for retirement, 40% have put off buying cars, while 29% have postponed home purchases.
Even marriage has been put on hold, with 15% of respondents saying they delayed tying the knot because of student loan debt.
The majority of borrowers said they didn't anticipate having such a difficult time repaying their loans, and 60% feel some amount of regret about the decision to fund their education this way.
"[Graduates in debt] start out with an anchor that slows their progression toward future goals," Ernie Almonte, chair of the AICPA's National CPA Financial Literacy Commission, said in a statement.
And debt only continues to grow -- exceeding $1 trillion nationwide, with about one in five households carrying student loans. Meanwhile, the average debt load jumped 5% to a new high of $26,600 last year.
Small businesses are even being hurt as a result, according to a new report on private student loans from the Consumer Financial Protection Bureau, the government's consumer watchdog agency.
"Student debt may limit consumers' ability to access small business credit and to save capital," the CFPB said. "If consumers are able to save enough to start a small business, student debt burdens may require them to divert cash away from their businesses so they can keep up with their student loans."
To help student loan borrowers better manage their debt, the CFPB said a number of different of options are being considered -- including the ability for private loan borrowers to refinance at a lower rate, set up payment plans when they default or enroll in an income-based repayment program.
"College can open up many opportunities, and we do not want that college degree to become more of a burden than a blessing for those saddled with unmanageable debt in a tough employment market," CFPB director Richard Cordray said in a statement.
Forty-one percent of the more than 200 people surveyed said they have delayed saving for retirement, 40% have put off buying cars, while 29% have postponed home purchases.
Even marriage has been put on hold, with 15% of respondents saying they delayed tying the knot because of student loan debt.
The majority of borrowers said they didn't anticipate having such a difficult time repaying their loans, and 60% feel some amount of regret about the decision to fund their education this way.
"[Graduates in debt] start out with an anchor that slows their progression toward future goals," Ernie Almonte, chair of the AICPA's National CPA Financial Literacy Commission, said in a statement.
And debt only continues to grow -- exceeding $1 trillion nationwide, with about one in five households carrying student loans. Meanwhile, the average debt load jumped 5% to a new high of $26,600 last year.
Small businesses are even being hurt as a result, according to a new report on private student loans from the Consumer Financial Protection Bureau, the government's consumer watchdog agency.
"Student debt may limit consumers' ability to access small business credit and to save capital," the CFPB said. "If consumers are able to save enough to start a small business, student debt burdens may require them to divert cash away from their businesses so they can keep up with their student loans."
To help student loan borrowers better manage their debt, the CFPB said a number of different of options are being considered -- including the ability for private loan borrowers to refinance at a lower rate, set up payment plans when they default or enroll in an income-based repayment program.
"College can open up many opportunities, and we do not want that college degree to become more of a burden than a blessing for those saddled with unmanageable debt in a tough employment market," CFPB director Richard Cordray said in a statement.
new bills that was proposed
Private Student Loan Bankruptcy Fairness Act (HR 532)
To modify the dischargeability of debts for certain educational payments and loans to treat privately-issued student loans the same as other types of consumer debt in bankruptcy.
Fairness for Struggling Students Act (S 114)
Treats privately issued student loans in bankruptcy the same as other types of private debt.
Student Loan Fairness Act (HR 1330)
To increase purchasing power, strengthen economic recovery, and restore fairness in financing higher education in the United States through student loan forgiveness, caps on interest rates on Federal student loans, and refinancing opportunities for private borrowers.
Private Service Members Student Loan Relief Act (S 634)
To allow members of the Armed Forces and National Guard to defer principal on Federal student loans for a certain period in connection with receipt of orders for mobilization for war or national emergency.
Student Loan Default Prevention Act (HR 618)
To authorize the Secretary of Education to enter into voluntary, flexible agreements with certain guaranty agencies to provide delinquency prevention and default aversion services for borrowers and potential borrowers of Federal Direct Loans under the Higher Education Act of 1965.
To modify the dischargeability of debts for certain educational payments and loans to treat privately-issued student loans the same as other types of consumer debt in bankruptcy.
Fairness for Struggling Students Act (S 114)
Treats privately issued student loans in bankruptcy the same as other types of private debt.
Student Loan Fairness Act (HR 1330)
To increase purchasing power, strengthen economic recovery, and restore fairness in financing higher education in the United States through student loan forgiveness, caps on interest rates on Federal student loans, and refinancing opportunities for private borrowers.
Private Service Members Student Loan Relief Act (S 634)
To allow members of the Armed Forces and National Guard to defer principal on Federal student loans for a certain period in connection with receipt of orders for mobilization for war or national emergency.
Student Loan Default Prevention Act (HR 618)
To authorize the Secretary of Education to enter into voluntary, flexible agreements with certain guaranty agencies to provide delinquency prevention and default aversion services for borrowers and potential borrowers of Federal Direct Loans under the Higher Education Act of 1965.
student loan rates may double
Congressional inaction could end up costing college students an extra $5,000 on their new loans.
The rate for subsidized Stafford loans is set to increase from 3.4 percent to 6.8 percent on July 1, just as millions of new college students start signing up for fall courses. The difference between the two rates adds up to nearly $6 billion for taxpayers.
Just a year ago, lawmakers faced a similar deadline and dodged the rate increase amid the heated presidential campaign between President Barack Obama and Republican challenger Mitt Romney. But that was with the White House up for grabs and before Washington was consumed by budget standoffs that now seem routine.
"What is definitely clear, this time around, there doesn't seem to be as much outcry," said Justin Draeger, president of the National Association of Student Financial Aid Administrators. "We're advising our members to tell students that the interest rates are going to double on new student loans, to 6.8 percent."
The new rates apply only to those who take new subsidized loans. Students with outstanding subsidized loans are not expected to see their loan rates increase unless they take out a new subsidized Stafford loan. Students' unsubsidized loans are not expected to change, nor are loans from commercial lenders.
But it translates to real money for incoming college freshmen who could end up paying back $5,000 more for the same maxed-out student loans their older siblings have.
House Education Committee chairman John Kline (R-Minn.), and the committee's senior Democrat,George Miller of California, prefer to keep rates at their current levels but have not outlined how they might accomplish that goal. Rep. Karen Bass (D-Calif.) last week introduced a proposal that would permanently cap the interest rate at 3.4 percent.
Adding another perspective to the debate, President Obama will release his budget proposal on April 10.
Neither party's budget proposal in Congress has money specifically set aside to keep student loans at their current rate. The House Republicans' budget would double the interest rates on newly issued subsidized loans to help balance the federal budget in a decade.
Senate Democrats say they want to keep the interest rates at their current levels, but the budget they passed last week does not set aside money to keep the rates low.
In any event, neither side is likely to get what it wants. And that could lead to confusion for students as they receive their college admission letters and financial aid packages.
"Two ideas . . . have been introduced so far -- neither of which is likely to go very far," said Terry Hartle, the top lobbyist for colleges at the American Council on Education.
Some two-thirds of students are graduating with loans exceeding $25,000; 1 in 10 borrowers owes more than $54,000 in loans. And student-loan debt now tops $1 trillion.
The Congressional Budget Office estimates that of the almost $113 billion in new student loans the government made this year, more than $38 billion will be lost to defaults, even after Washington collects what it can through wage garnishments.
The net cost to taxpayers after most students pay back their loans with interest is $5.7 billion. If the rate increases, Washington will be collecting more interest from new students' loans.
The rate for subsidized Stafford loans is set to increase from 3.4 percent to 6.8 percent on July 1, just as millions of new college students start signing up for fall courses. The difference between the two rates adds up to nearly $6 billion for taxpayers.
Just a year ago, lawmakers faced a similar deadline and dodged the rate increase amid the heated presidential campaign between President Barack Obama and Republican challenger Mitt Romney. But that was with the White House up for grabs and before Washington was consumed by budget standoffs that now seem routine.
"What is definitely clear, this time around, there doesn't seem to be as much outcry," said Justin Draeger, president of the National Association of Student Financial Aid Administrators. "We're advising our members to tell students that the interest rates are going to double on new student loans, to 6.8 percent."
The new rates apply only to those who take new subsidized loans. Students with outstanding subsidized loans are not expected to see their loan rates increase unless they take out a new subsidized Stafford loan. Students' unsubsidized loans are not expected to change, nor are loans from commercial lenders.
But it translates to real money for incoming college freshmen who could end up paying back $5,000 more for the same maxed-out student loans their older siblings have.
House Education Committee chairman John Kline (R-Minn.), and the committee's senior Democrat,George Miller of California, prefer to keep rates at their current levels but have not outlined how they might accomplish that goal. Rep. Karen Bass (D-Calif.) last week introduced a proposal that would permanently cap the interest rate at 3.4 percent.
Adding another perspective to the debate, President Obama will release his budget proposal on April 10.
Neither party's budget proposal in Congress has money specifically set aside to keep student loans at their current rate. The House Republicans' budget would double the interest rates on newly issued subsidized loans to help balance the federal budget in a decade.
Senate Democrats say they want to keep the interest rates at their current levels, but the budget they passed last week does not set aside money to keep the rates low.
In any event, neither side is likely to get what it wants. And that could lead to confusion for students as they receive their college admission letters and financial aid packages.
"Two ideas . . . have been introduced so far -- neither of which is likely to go very far," said Terry Hartle, the top lobbyist for colleges at the American Council on Education.
Some two-thirds of students are graduating with loans exceeding $25,000; 1 in 10 borrowers owes more than $54,000 in loans. And student-loan debt now tops $1 trillion.
The Congressional Budget Office estimates that of the almost $113 billion in new student loans the government made this year, more than $38 billion will be lost to defaults, even after Washington collects what it can through wage garnishments.
The net cost to taxpayers after most students pay back their loans with interest is $5.7 billion. If the rate increases, Washington will be collecting more interest from new students' loans.
Obama's Budget Plan for 2013- covers whats getting cut and by how much. There is a lot of info in this doc. you will find surprising.
This is a list of who/what will be hit the hardest by the budget cuts
if they happen, these seven cuts will be really felt by many Americans.
1. Shrinking unemployment benefits. Some 3.8 million Americans estimated to collect unemployment checks between March and September will feel the pain the most. That's because unemployment benefit checks are being pared by 9.4%. On average, it would mean a cut of $400 over that period.
2. Beef and chicken to cost more and even face a shortage. A $51 million dollar cut to food safety programs means food inspectors will be furloughed and lead to closures of meat and poultry plants for up to 15 days. Americans will have to pay more and deal with shortages of chicken, eggs, pork and beef, according to U.S. Department of Agriculture Secretary Tom Vilsack. "Food safety could be compromised," he said in a letter. There will have less food available -- by as much as 2 billion pounds of meat, 3 billion pounds of chicken, 200 million pounds of eggs.
3. Granny won't get her lunch. More than 4 million home-bound and disabled seniors may have to go without supper this year because of cuts to Meals on Wheels programs. Just in Erie County, New York, it could mean 36,000 fewer meals will be delivered, according to the Meals On Wheels Association of America.
4. Your preschooler could be stuck at home. Some 70,000 children from lower income families will not be able to enroll for pre-schools and daycare centers run by Head Start programs this fall, thanks to at least $400 million in cuts.
5. National parks will close campgrounds or open late. The National Park Service will lose $110 million from its annual budget. The Great Smoky Mountains National Park in North Carolina and Tennessee plans to close five campgrounds and picnic areas affecting over 54,000 visitors. Two of the main thoroughfares into the Grand Canyon will remain closed until later this year, including the popular West Rim Drive, known for its breathtaking beauty. The delays will affect about 250,000 visitors.
6. Longer lines at the airport. Domestic travelers can add an extra hour to airport security lines, while international travelers may have to wait four hours to clear customs. That's because federal agencies that handle airport security and customs are warning that worker furloughs will increase the time it takes to check passengers.
7. Roofs blown off by Hurricane Sandy won't get repaired. About $3 billion has been cut from a supplemental bill for Hurricane Sandy victims. The cut includes "crucial funding" for repair and recovery of some 10,000 homes and small businesses, said HUD Secretary Shaun Donavan last week.
1. Shrinking unemployment benefits. Some 3.8 million Americans estimated to collect unemployment checks between March and September will feel the pain the most. That's because unemployment benefit checks are being pared by 9.4%. On average, it would mean a cut of $400 over that period.
2. Beef and chicken to cost more and even face a shortage. A $51 million dollar cut to food safety programs means food inspectors will be furloughed and lead to closures of meat and poultry plants for up to 15 days. Americans will have to pay more and deal with shortages of chicken, eggs, pork and beef, according to U.S. Department of Agriculture Secretary Tom Vilsack. "Food safety could be compromised," he said in a letter. There will have less food available -- by as much as 2 billion pounds of meat, 3 billion pounds of chicken, 200 million pounds of eggs.
3. Granny won't get her lunch. More than 4 million home-bound and disabled seniors may have to go without supper this year because of cuts to Meals on Wheels programs. Just in Erie County, New York, it could mean 36,000 fewer meals will be delivered, according to the Meals On Wheels Association of America.
4. Your preschooler could be stuck at home. Some 70,000 children from lower income families will not be able to enroll for pre-schools and daycare centers run by Head Start programs this fall, thanks to at least $400 million in cuts.
5. National parks will close campgrounds or open late. The National Park Service will lose $110 million from its annual budget. The Great Smoky Mountains National Park in North Carolina and Tennessee plans to close five campgrounds and picnic areas affecting over 54,000 visitors. Two of the main thoroughfares into the Grand Canyon will remain closed until later this year, including the popular West Rim Drive, known for its breathtaking beauty. The delays will affect about 250,000 visitors.
6. Longer lines at the airport. Domestic travelers can add an extra hour to airport security lines, while international travelers may have to wait four hours to clear customs. That's because federal agencies that handle airport security and customs are warning that worker furloughs will increase the time it takes to check passengers.
7. Roofs blown off by Hurricane Sandy won't get repaired. About $3 billion has been cut from a supplemental bill for Hurricane Sandy victims. The cut includes "crucial funding" for repair and recovery of some 10,000 homes and small businesses, said HUD Secretary Shaun Donavan last week.
So boehner wants to adjourn the house for a week? what the most important desion they would have to make. well i dont think they even really care about it. This is an e-mail i got from my congress man joe courtney
Dear Joe C.,
Last Friday, with sequestration’s across-the-board, indiscriminate cuts looming and a host of outstanding issues still unaddressed, Speaker Boehner called a vote on whether the House should adjourn and return home for the week. I voted against adjourning, and said: "As precious seconds tick away, the House should be in Washington doing its job and finding a compromise to protect our economy. Speaker Boehner should reverse course, and keep the House in session."
Sequestration was designed to spur bipartisan action in Congress to address our long-term fiscal outlook. When used in the past, that is precisely what happened. In fact, former-Sen. Phil Gramm (R-TX) said: "It was never the objective of Gramm-Rudman [legislation that used sequestration in 1985] to trigger the sequester; the objective of Gramm-Rudman was to have the threat of the sequester force compromise and action."
That is why it is appalling that with sequestration’s sweeping cuts looming, Speaker Boehner sent the House home from Washington over my objections.
Rep. Courtney spent over an hour with leaders of Groton shipyard workers to review the impact of sequestration on the Navy's budget for submarines. They expressed strong support for a balanced plan to turn off the sequester--one that closes tax loopholes as a way to cut the deficit, not mindless cuts that hurt kids on Head Start and military readiness.
Answering questions across eastern Connecticut
While I wait for the House to return to session, I am crisscrossing eastern Connecticut, meeting with groups that may be impacted by sequestration. I have explained to them not just what sequestration means, but reiterated that we need bipartisan cooperation to prevent it from happening.
Although much of the news reports about sequestration have focused on defense cuts, the non-defense cuts from sequestration are also troubling. Of particular interest to municipal leaders, under sequestration there would be immediate cuts in programs like Title I aid to local schools systems, special education programs, Head Start resources, grants to first responders and law enforcement, small business assistance and reductions in the recently enacted disaster aid package for Hurricane Sandy. While there is still a degree of uncertainty as to exactly how these reductions would be carried out, the simple fact is that the cuts from sequester will be felt broadly both in defense and non-defense priorities.
Already this week, I have met with the Metal Trades Council in Groton to discuss the impact of sequestration on the Navy’s budget for submarines. I also visited St. Joseph’s Living Center in Windham and Generations Family Health Center in Willimantic, where there is very real concern that sequestration’s two-percent cuts to Medicare will impact their ability to care for the elderly and frail.
.
Rep. Courtney spoke with staffers and board members at St. Joseph’s Living Center in Windham, where there is concern that sequestration’s two-percent cuts to Medicare could harm their ability to serve frail and elderly patients.
At Manchester Community College, President Gina Glickman said she is worried that cuts will affect the college’s mission. And at EastCONN in Hampton—where they serve children with mental health issues—there is palpable concern that in northeast Connecticut alone, 40 children are slated to lose their slots in the Head Start program if these cuts go through.
Additionally, in response to my questions last week at a House Armed Services Committee hearing on sequestration, Chief of Naval Operations Adm. Jonathan Greenert emphasized that in addition to averting the sequester, the Republican House still must act to pass an FY14 appropriations bill for the Pentagon to ensure that critical defense programs are adequately funded.
This inaction is simply unacceptable
The House has a job to do, and it must act to defuse sequestration. As Phil Gramm said, these cuts were designed to be so damaging, so indiscriminate, so dangerous, that Congress—no matter how polarized—would cooperate to find a solution that prevented the cuts.
The Congress still has time to act. After hearing from men and women across eastern Connecticut who have very real and very justified concerns with sequestration’s cuts, we have no other choice. As always, if you have questions about this email, or if my office can be of assistance in any way, please do not hesitate to contact me.
Sincerely,
Joe Courtney
Member of Congress
Last Friday, with sequestration’s across-the-board, indiscriminate cuts looming and a host of outstanding issues still unaddressed, Speaker Boehner called a vote on whether the House should adjourn and return home for the week. I voted against adjourning, and said: "As precious seconds tick away, the House should be in Washington doing its job and finding a compromise to protect our economy. Speaker Boehner should reverse course, and keep the House in session."
Sequestration was designed to spur bipartisan action in Congress to address our long-term fiscal outlook. When used in the past, that is precisely what happened. In fact, former-Sen. Phil Gramm (R-TX) said: "It was never the objective of Gramm-Rudman [legislation that used sequestration in 1985] to trigger the sequester; the objective of Gramm-Rudman was to have the threat of the sequester force compromise and action."
That is why it is appalling that with sequestration’s sweeping cuts looming, Speaker Boehner sent the House home from Washington over my objections.
Rep. Courtney spent over an hour with leaders of Groton shipyard workers to review the impact of sequestration on the Navy's budget for submarines. They expressed strong support for a balanced plan to turn off the sequester--one that closes tax loopholes as a way to cut the deficit, not mindless cuts that hurt kids on Head Start and military readiness.
Answering questions across eastern Connecticut
While I wait for the House to return to session, I am crisscrossing eastern Connecticut, meeting with groups that may be impacted by sequestration. I have explained to them not just what sequestration means, but reiterated that we need bipartisan cooperation to prevent it from happening.
Although much of the news reports about sequestration have focused on defense cuts, the non-defense cuts from sequestration are also troubling. Of particular interest to municipal leaders, under sequestration there would be immediate cuts in programs like Title I aid to local schools systems, special education programs, Head Start resources, grants to first responders and law enforcement, small business assistance and reductions in the recently enacted disaster aid package for Hurricane Sandy. While there is still a degree of uncertainty as to exactly how these reductions would be carried out, the simple fact is that the cuts from sequester will be felt broadly both in defense and non-defense priorities.
Already this week, I have met with the Metal Trades Council in Groton to discuss the impact of sequestration on the Navy’s budget for submarines. I also visited St. Joseph’s Living Center in Windham and Generations Family Health Center in Willimantic, where there is very real concern that sequestration’s two-percent cuts to Medicare will impact their ability to care for the elderly and frail.
.
Rep. Courtney spoke with staffers and board members at St. Joseph’s Living Center in Windham, where there is concern that sequestration’s two-percent cuts to Medicare could harm their ability to serve frail and elderly patients.
At Manchester Community College, President Gina Glickman said she is worried that cuts will affect the college’s mission. And at EastCONN in Hampton—where they serve children with mental health issues—there is palpable concern that in northeast Connecticut alone, 40 children are slated to lose their slots in the Head Start program if these cuts go through.
Additionally, in response to my questions last week at a House Armed Services Committee hearing on sequestration, Chief of Naval Operations Adm. Jonathan Greenert emphasized that in addition to averting the sequester, the Republican House still must act to pass an FY14 appropriations bill for the Pentagon to ensure that critical defense programs are adequately funded.
This inaction is simply unacceptable
The House has a job to do, and it must act to defuse sequestration. As Phil Gramm said, these cuts were designed to be so damaging, so indiscriminate, so dangerous, that Congress—no matter how polarized—would cooperate to find a solution that prevented the cuts.
The Congress still has time to act. After hearing from men and women across eastern Connecticut who have very real and very justified concerns with sequestration’s cuts, we have no other choice. As always, if you have questions about this email, or if my office can be of assistance in any way, please do not hesitate to contact me.
Sincerely,
Joe Courtney
Member of Congress
There maybe some kind of hope for engineers with student loans
Don’t despair! We are getting close to a loan program that will help all engineers. Hold on to your hats kids.
I went online to pay my student loan bill and observed that my loan service provider recently added the Public Service Loan Forgiveness program to its loan forgiveness list. What does this mean? This means slowly but surely, Congress, whom has enacted bills to help reduce loan repayments, have turned these bills into laws. These laws are now coming down the pipeline to our student loan providers.
ACEC Position has been staying abreast with the STEP Act. ACEC said, “Engineers are in demand now more than ever, but our nation’s universities are not keeping up with the need for new engineering graduates. Bachelor’s degrees in engineering have declined by nearly 20% since 1985. The engineering workforce is also getting older — nearly 30 percent of all engineering and science degree holders in the labor force are 50 or over and are expected to retire in the next 15 years. A growing economy depends on engineering talent, and therefore reversing the declining trend in engineering graduates is critical to the nation’s future economic security.”
“On July 31, 2008, Congress approved the Higher Education Opportunity Act of 2008 (HEOA) to reauthorize and expand federal student aid programs. Signed into law by President Bush on August 14, 2008, the Act includes a new program that seeks to address labor shortages in engineering and other “high need” professions. Under the law, an individual will be eligible for up to $2,000 in student loan forgiveness for each of five years of work in engineering or other designated fields. The maximum amount of loan forgiveness available to an individual will be $10,000. Only years of work completed after August 14, 2008 will count toward the student loan forgiveness requirements.”
“The new program is modeled after legislation introduced in 2007 by Congressman Emanuel Cleaver (D-MO), the Strategic Technology/Engineering Program Act of 2007 (STEP Act). The STEP Act sought to create new student loan forgiveness and scholarship programs with the goal of encouraging more young people to pursue engineering careers. The Department of Education (DOE) has begun the process of writing regulations to implement the new law, which will include the establishment of a negotiated rulemaking committee that will review input from ACEC and other stakeholders. ACEC has submitted initial comments to DOE, and will work with the agency and Congress to ensure that the new program is properly funded.”
Mapping Your Future’s website gives detailed explanations for loan cancellation/forgiveness conditions. If you look under the “Loan Forgiveness for Service in Areas of National Need” section, you will notice that STEM Employees are eligible for $2000/yr forgiveness for up to five years of service or $10,000.
If you need forms to apply for loan forgiveness with your employer, this link will provide you with the documents that you need or check with your loan provider.
http://studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service
I went online to pay my student loan bill and observed that my loan service provider recently added the Public Service Loan Forgiveness program to its loan forgiveness list. What does this mean? This means slowly but surely, Congress, whom has enacted bills to help reduce loan repayments, have turned these bills into laws. These laws are now coming down the pipeline to our student loan providers.
ACEC Position has been staying abreast with the STEP Act. ACEC said, “Engineers are in demand now more than ever, but our nation’s universities are not keeping up with the need for new engineering graduates. Bachelor’s degrees in engineering have declined by nearly 20% since 1985. The engineering workforce is also getting older — nearly 30 percent of all engineering and science degree holders in the labor force are 50 or over and are expected to retire in the next 15 years. A growing economy depends on engineering talent, and therefore reversing the declining trend in engineering graduates is critical to the nation’s future economic security.”
“On July 31, 2008, Congress approved the Higher Education Opportunity Act of 2008 (HEOA) to reauthorize and expand federal student aid programs. Signed into law by President Bush on August 14, 2008, the Act includes a new program that seeks to address labor shortages in engineering and other “high need” professions. Under the law, an individual will be eligible for up to $2,000 in student loan forgiveness for each of five years of work in engineering or other designated fields. The maximum amount of loan forgiveness available to an individual will be $10,000. Only years of work completed after August 14, 2008 will count toward the student loan forgiveness requirements.”
“The new program is modeled after legislation introduced in 2007 by Congressman Emanuel Cleaver (D-MO), the Strategic Technology/Engineering Program Act of 2007 (STEP Act). The STEP Act sought to create new student loan forgiveness and scholarship programs with the goal of encouraging more young people to pursue engineering careers. The Department of Education (DOE) has begun the process of writing regulations to implement the new law, which will include the establishment of a negotiated rulemaking committee that will review input from ACEC and other stakeholders. ACEC has submitted initial comments to DOE, and will work with the agency and Congress to ensure that the new program is properly funded.”
Mapping Your Future’s website gives detailed explanations for loan cancellation/forgiveness conditions. If you look under the “Loan Forgiveness for Service in Areas of National Need” section, you will notice that STEM Employees are eligible for $2000/yr forgiveness for up to five years of service or $10,000.
If you need forms to apply for loan forgiveness with your employer, this link will provide you with the documents that you need or check with your loan provider.
http://studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service
Bad Student Debt Stubbornly High While as Collection Efforts Surge
The amount of student loans that are delinquent has remained constant or increased at a time when delinquencies on mortgages and other types of consumer credit have declined.
The share loan value that is delinquent from 2002-2012
student loans delinquent in 2002 was at 6.3% now in 2012 its up too 9.4%. The student loan delinquencies continue to rise
Credit cards, Mortgages, Auto-loans, increased at different rates from 2002-2012
Credit cards in 2002 was 8.8% and in 2010 it went up to 14% but then in 2012 it went BACK DOWN to 11%
Mortgages in 2002 on the other hand started out at 1% then dropped down to 1.6% in 2006. But from 2006 too 2010 it sky rocketed to 8.9% From 2010- 2012 the percentage went DOWN to 6%
Auto-loans started out at 2% in 2002 but from 2002-2006 it went down too about 1.5% then from 2006-2011 it went up too 5.5% then in 2012 it went down to 4%
People who attend private profit-making schools account for 47 percent of all those with a loan in default. Public schools account for 42 percent; private nonprofit, 12 percent. Loans are considered in default when payments are 360 days delinquent.
TOP 15 private, for-profite schools
Number of Defualts School
35,049 University of Phoenix
7,271 ITT Technical School (The one I unfortunitly went too)
5827 Kaplan University
3875 Devry University
3221 American Intercontinental u.
2634 Colorado Technical Institute
1936 The Art Institute of Phoenix
1659 Ashford University
1222 Everest University (orlando)
1220 Strayer University
1155 The Art Institute of Pittsburgh
1153 Everest Institute
1131 Everest University (tampa)
1074 Bryant & Stratton college
1041 Virginia College
As the number of defaults has grown, so have the government’s efforts to collect from borrowers. In the last fiscal year, the government and agencies working on its behalf collected $12 billion through collection agencies, garnishing wages, withholding tax refunds and other methods.
The share loan value that is delinquent from 2002-2012
student loans delinquent in 2002 was at 6.3% now in 2012 its up too 9.4%. The student loan delinquencies continue to rise
Credit cards, Mortgages, Auto-loans, increased at different rates from 2002-2012
Credit cards in 2002 was 8.8% and in 2010 it went up to 14% but then in 2012 it went BACK DOWN to 11%
Mortgages in 2002 on the other hand started out at 1% then dropped down to 1.6% in 2006. But from 2006 too 2010 it sky rocketed to 8.9% From 2010- 2012 the percentage went DOWN to 6%
Auto-loans started out at 2% in 2002 but from 2002-2006 it went down too about 1.5% then from 2006-2011 it went up too 5.5% then in 2012 it went down to 4%
People who attend private profit-making schools account for 47 percent of all those with a loan in default. Public schools account for 42 percent; private nonprofit, 12 percent. Loans are considered in default when payments are 360 days delinquent.
TOP 15 private, for-profite schools
Number of Defualts School
35,049 University of Phoenix
7,271 ITT Technical School (The one I unfortunitly went too)
5827 Kaplan University
3875 Devry University
3221 American Intercontinental u.
2634 Colorado Technical Institute
1936 The Art Institute of Phoenix
1659 Ashford University
1222 Everest University (orlando)
1220 Strayer University
1155 The Art Institute of Pittsburgh
1153 Everest Institute
1131 Everest University (tampa)
1074 Bryant & Stratton college
1041 Virginia College
As the number of defaults has grown, so have the government’s efforts to collect from borrowers. In the last fiscal year, the government and agencies working on its behalf collected $12 billion through collection agencies, garnishing wages, withholding tax refunds and other methods.
Student debt rises as most other debts falls
It's not just the heat that rose this summer: Both the total student loan debt and the percentage of borrowers who aren't making timely payments increased, too, according to the Federal Reserve Bank of New York.
In its "Quarterly Report on Household Debt and Credit," the New York Fed found that education debt totaled $914 billion as of June 30—up $10 billion from March 31. Unlike student loan debt, the amount owed on some other forms of debt, such as mortgages and home equity lines of credit, has decreased.
"Since the peak in household debt in [the third quarter of 2008], student loan has increased by $303 billion, while other forms of debt fell a combined $1.6 trillion," the report notes.
In another increase as of June 30, 8.92 percent of student loan borrowers were at least 90 days late on their payments—in what's known as delinquency—up from 8.69 percent in March and 8.45 percent the quarter before. That's higher than the delinquency rate for other categories of debt, including home equity lines of credit and automotive, which each posted rates below 5 percent this quarter.
The percentage of delinquent student loan borrowers is slightly less than that of credit card debt holders and those owe debt in the New York Fed's "other" category who are in delinquency (10.9 and 10.24 percent, respectively).
But the actual delinquency rate for student loan borrowers may be about twice as high, according to the New York Fed, "because almost half of these loans are currently in deferment, in grace period, or in forbearance and therefore temporarily not in the repayment cycle."
Students experiencing financial hardship can take steps to avoid delinquency. Contact your student loan servicer to ask about opportunities to lower or postpone your payments, and don't be afraid to reach back to your college's financial aid office with questions, too.
If you're considering borrowing to help pay for college, be sure to research your options and determine a smart amount to borrow, based on your financial situation, academic major, and career plans.
In its "Quarterly Report on Household Debt and Credit," the New York Fed found that education debt totaled $914 billion as of June 30—up $10 billion from March 31. Unlike student loan debt, the amount owed on some other forms of debt, such as mortgages and home equity lines of credit, has decreased.
"Since the peak in household debt in [the third quarter of 2008], student loan has increased by $303 billion, while other forms of debt fell a combined $1.6 trillion," the report notes.
In another increase as of June 30, 8.92 percent of student loan borrowers were at least 90 days late on their payments—in what's known as delinquency—up from 8.69 percent in March and 8.45 percent the quarter before. That's higher than the delinquency rate for other categories of debt, including home equity lines of credit and automotive, which each posted rates below 5 percent this quarter.
The percentage of delinquent student loan borrowers is slightly less than that of credit card debt holders and those owe debt in the New York Fed's "other" category who are in delinquency (10.9 and 10.24 percent, respectively).
But the actual delinquency rate for student loan borrowers may be about twice as high, according to the New York Fed, "because almost half of these loans are currently in deferment, in grace period, or in forbearance and therefore temporarily not in the repayment cycle."
Students experiencing financial hardship can take steps to avoid delinquency. Contact your student loan servicer to ask about opportunities to lower or postpone your payments, and don't be afraid to reach back to your college's financial aid office with questions, too.
If you're considering borrowing to help pay for college, be sure to research your options and determine a smart amount to borrow, based on your financial situation, academic major, and career plans.
This is another analyst that Nasdaq has reported about Sallie Mae
SLM Corp. ( SLM ), commonly known as Sallie Mae, reported its second-quarter 2012 core earnings of $243 million or 49 cents per share, lagging the Zacks Consensus Estimate by a nickel.
Results also compared unfavorably with the prior-year quarter's core earnings of $260 million. However, aided by share buybacks, on a per share basis, earnings in the reported quarter were up a cent from 48 cents earned in the year-ago quarter.
Sallie Mae's results were negatively affected by non-cash loan premium amortization in the quarter. It is attributable to federally guaranteed student loans of about $4.5 billion, which are anticipated to be integrated under the lately accomplished Special Direct Consolidation Loan Initiative.
Also, higher funding costs as well as a decline in federally guaranteed student loan balances added fuel to the fire. However, lower loan loss provision, reduced operating expenses and higher debt repurchase gains were the positives for the quarter.
On a GAAP basis, Sallie Mae's second-quarter 2012 net income came in at $292 million or 59 cents per share, compared with a net loss of $6 million or 2 cents per share, reported in the comparable quarter last year.
Notably, the second-quarter 2012 GAAP results at Sallie Mae included $82 million "mark-to-market" unrealized gains on derivative contracts compared with a $414 million loss in the year-ago period.
However, the cost-cutting measures primarily resulted in a 10.8% year-over-year decrease in operating expenses, bringing it to $239 million at Sallie Mae.
Segment Performance
Consumer Lending: The segment's core earnings stood at $85 million in the reported quarter, substantially higher than $49 million recorded in the year-ago quarter. Reduced loan loss provision aided the upswing.
Net interest margin, before loan loss provision, improved to 4.14% from 4.05% in the prior-year period. Private education loan originations were $321 million, up 22% year over year.
The charge-off rate (as a percentage of loans in repayment) was 3.09% on an annualized basis, dipping from 3.71% in the prior-year quarter. Provision for loan losses dropped 15.1% year over year to $225 million in the reported quarter.
Business Services: The segment reported core earnings of $138 million, down 1.4% from the year-ago quarter. Notably, on behalf of the Department of Education, Sallie Mae provided services to 3.8 million loan customers as of June 30, 2012. The company earned $22 million in servicing revenue in the second quarter of 2012 from its Department of Education loan servicing contract, growing from $15 million in the year-ago quarter.
Federally Guaranteed Student Loans (FFELP): The business segment generated core earnings of $44 million in the reported quarter, falling 59.3% from $108 million in the year-ago quarter, reflecting the non-cash loan premium amortization. Moreover, the reduction stemmed from lower net interest income that resulted from the reduced balances of the FFELP loan portfolio as well as higher funding costs.
Outlook
Sallie Mae has updated its guidance for 2012. For the full year, management now expects to generate core earnings of $2.15 per share and anticipates private education loan originations of at least $3.2 billion.
Capital Deployment Update
Sallie Mae's capital deployment efforts are encouraging. In the quarter under review, the company authorized an additional $400 million for its ongoing share repurchase program, which was announced in January 2012.
In the quarter under review, Sallie Mae repurchased 23.8 million shares worth $341 million. As of June 30, 2012, the company had $291 million remaining under its current share repurchase authorization.
Our Take
We believe that Sallie Mae's leading position in the student lending market and its cost curtailment initiatives will position it comfortably in the long run. Capital deployment efforts further enhance investors' confidence in the stock.
Suspension of the new federal student loan origination, in order to comply with the legislation, will continue to impact revenue generation at student lenders like Sallie Mae and Nelnet Inc. ( NNI ). However, we believe that the company's diversifying efforts coupled with an economic recovery, though at a sluggish pace, would bolster its earnings by expanding its private education loan business and reducing its loan loss provision expenses.
Sallie Mae retains a Zacks #1 Rank, which translates into a short-term Strong Buy rating. Also, considering the fundamentals, we maintain a long-term Outperform recommendation on the stock.
Results also compared unfavorably with the prior-year quarter's core earnings of $260 million. However, aided by share buybacks, on a per share basis, earnings in the reported quarter were up a cent from 48 cents earned in the year-ago quarter.
Sallie Mae's results were negatively affected by non-cash loan premium amortization in the quarter. It is attributable to federally guaranteed student loans of about $4.5 billion, which are anticipated to be integrated under the lately accomplished Special Direct Consolidation Loan Initiative.
Also, higher funding costs as well as a decline in federally guaranteed student loan balances added fuel to the fire. However, lower loan loss provision, reduced operating expenses and higher debt repurchase gains were the positives for the quarter.
On a GAAP basis, Sallie Mae's second-quarter 2012 net income came in at $292 million or 59 cents per share, compared with a net loss of $6 million or 2 cents per share, reported in the comparable quarter last year.
Notably, the second-quarter 2012 GAAP results at Sallie Mae included $82 million "mark-to-market" unrealized gains on derivative contracts compared with a $414 million loss in the year-ago period.
However, the cost-cutting measures primarily resulted in a 10.8% year-over-year decrease in operating expenses, bringing it to $239 million at Sallie Mae.
Segment Performance
Consumer Lending: The segment's core earnings stood at $85 million in the reported quarter, substantially higher than $49 million recorded in the year-ago quarter. Reduced loan loss provision aided the upswing.
Net interest margin, before loan loss provision, improved to 4.14% from 4.05% in the prior-year period. Private education loan originations were $321 million, up 22% year over year.
The charge-off rate (as a percentage of loans in repayment) was 3.09% on an annualized basis, dipping from 3.71% in the prior-year quarter. Provision for loan losses dropped 15.1% year over year to $225 million in the reported quarter.
Business Services: The segment reported core earnings of $138 million, down 1.4% from the year-ago quarter. Notably, on behalf of the Department of Education, Sallie Mae provided services to 3.8 million loan customers as of June 30, 2012. The company earned $22 million in servicing revenue in the second quarter of 2012 from its Department of Education loan servicing contract, growing from $15 million in the year-ago quarter.
Federally Guaranteed Student Loans (FFELP): The business segment generated core earnings of $44 million in the reported quarter, falling 59.3% from $108 million in the year-ago quarter, reflecting the non-cash loan premium amortization. Moreover, the reduction stemmed from lower net interest income that resulted from the reduced balances of the FFELP loan portfolio as well as higher funding costs.
Outlook
Sallie Mae has updated its guidance for 2012. For the full year, management now expects to generate core earnings of $2.15 per share and anticipates private education loan originations of at least $3.2 billion.
Capital Deployment Update
Sallie Mae's capital deployment efforts are encouraging. In the quarter under review, the company authorized an additional $400 million for its ongoing share repurchase program, which was announced in January 2012.
In the quarter under review, Sallie Mae repurchased 23.8 million shares worth $341 million. As of June 30, 2012, the company had $291 million remaining under its current share repurchase authorization.
Our Take
We believe that Sallie Mae's leading position in the student lending market and its cost curtailment initiatives will position it comfortably in the long run. Capital deployment efforts further enhance investors' confidence in the stock.
Suspension of the new federal student loan origination, in order to comply with the legislation, will continue to impact revenue generation at student lenders like Sallie Mae and Nelnet Inc. ( NNI ). However, we believe that the company's diversifying efforts coupled with an economic recovery, though at a sluggish pace, would bolster its earnings by expanding its private education loan business and reducing its loan loss provision expenses.
Sallie Mae retains a Zacks #1 Rank, which translates into a short-term Strong Buy rating. Also, considering the fundamentals, we maintain a long-term Outperform recommendation on the stock.
They are cutting cost. i wonder what they are cutting besides what they are reporting like maybe cutting jobs????
(RTTNews) - Sallie Mae (SLM: News ), formally known as SLM Corp., on Wednesday reported a turnaround to profit in the second quarter, reflecting a smaller loan loss provision and decline in operating expenses. Private education loan originations rose 22 percent in the quarter. However, core earnings missed analysts' estimates.
Looking ahead to fiscal 2012, Sallie Mae raised its outlook for core earnings and affirmed its forecast for private education loan originations.
Sallie Mae's provisions for loan losses decreased 16 percent from the year-ago period to $243 million as a result of overall improvements in credit quality as well as delinquency and charge-off trends.
The company's consumer lending segment, which originates, finances and services private education loans, originated $321 million in loans, up 22 percent from last year.
Core earnings for the segment surged 73 percent from last year to $85 million, primarily driven by a lower loan loss provision. The charge-off rate was 3.09 percent, down from 3.71 percent in the year-ago period.
The business services segment includes fees from servicing, collections and college savings businesses. Core earnings edged down 1 percent to $138 million in the quarter.
Federally Guaranteed Loans segment, comprised the company's amortizing portfolio of federally guaranteed loans, reported a 59 percent decline in core earnings from last year to $44 million.
The results were impacted by the acceleration of $50 million of non-cash loan premium amortization, in addition to higher funding costs and lower net interest income resulting from the declining balance of the FFELP loan portfolio.
Sallie Mae's second-quarter net income was $292 million or $0.59 per share, compared to loss of $6 million or $0.02 per share in the year-ago period.
Core earnings for the quarter were $243 million or $0.49 per share, up from $260 million or $0.48 per share in the year-ago quarter. On average, eight analysts polled by Thomson Reuters expected the company to earn $0.54 per share. Analysts' estimates typically exclude special items.
Net-interest income for the quarter declined 14 percent to $746 million from $868 million last year. Net interest income was impacted by the Special Direct Consolidation Loan Initiative that ended June 30, 2012, resulting in the acceleration of $50 million of non-cash loan premium amortization in the quarter.
Operating expenses declined 11 percent from last year to $239 million, primarily due to the current-year benefit of cost-cutting efforts. As at June 30, 2012, Sallie Mae held $133 billion of federally guaranteed student loans compared with $143 billion at June 30, 2011.
Looking ahead to fiscal 2012, Sallie Mae raised its outlook for core earnings and affirmed its forecast for private education loan originations.
Sallie Mae's provisions for loan losses decreased 16 percent from the year-ago period to $243 million as a result of overall improvements in credit quality as well as delinquency and charge-off trends.
The company's consumer lending segment, which originates, finances and services private education loans, originated $321 million in loans, up 22 percent from last year.
Core earnings for the segment surged 73 percent from last year to $85 million, primarily driven by a lower loan loss provision. The charge-off rate was 3.09 percent, down from 3.71 percent in the year-ago period.
The business services segment includes fees from servicing, collections and college savings businesses. Core earnings edged down 1 percent to $138 million in the quarter.
Federally Guaranteed Loans segment, comprised the company's amortizing portfolio of federally guaranteed loans, reported a 59 percent decline in core earnings from last year to $44 million.
The results were impacted by the acceleration of $50 million of non-cash loan premium amortization, in addition to higher funding costs and lower net interest income resulting from the declining balance of the FFELP loan portfolio.
Sallie Mae's second-quarter net income was $292 million or $0.59 per share, compared to loss of $6 million or $0.02 per share in the year-ago period.
Core earnings for the quarter were $243 million or $0.49 per share, up from $260 million or $0.48 per share in the year-ago quarter. On average, eight analysts polled by Thomson Reuters expected the company to earn $0.54 per share. Analysts' estimates typically exclude special items.
Net-interest income for the quarter declined 14 percent to $746 million from $868 million last year. Net interest income was impacted by the Special Direct Consolidation Loan Initiative that ended June 30, 2012, resulting in the acceleration of $50 million of non-cash loan premium amortization in the quarter.
Operating expenses declined 11 percent from last year to $239 million, primarily due to the current-year benefit of cost-cutting efforts. As at June 30, 2012, Sallie Mae held $133 billion of federally guaranteed student loans compared with $143 billion at June 30, 2011.
Student Loan's Will Get More Expensive Even Without The Deal Being Made By Congress
College students are facing a roughly $20 billion increase in the cost of their federal loans, despite a much-heralded deal in Washington to contain the expense of higher education.
Starting Sunday, students hoping to earn the graduate degrees that have become mandatory for many white-collar jobs will become responsible for paying the interest on their federal loans while they are in school and immediately after they graduate. That means they’ll have to pay an extra $18 billion out of pocket over the next decade.
Meanwhile, the government will no longer cover the interest on undergraduate loans during the six months after students finish school. That’s expected to cost them more than $2 billion.
These changes have received little attention as lawmakers instead focus on preventing a spike in interest rates on federal student loans. They are the fallout of earlier political battles and compromises over broader issues such as the federal budget and the national debt ceiling. And they are forcing students such as Clarise McCants to make tough choices about how to pursue their academic goals without jeopardizing their financial security.
“I don’t want to hastily make a decision that could waste thousands of dollars I don’t have,” said McCants, who said she will have to put off graduate school after finishing her undergraduate degree at Howard University in the spring. “That could kind of prove disastrous for my finances.”
Much of the recent debate around the nation’s soaring student debt burden has centered on how to prevent the interest rate on new federally subsidized undergraduate loans from doubling to 6.8 percent on Sunday. President Obama made the issue part of his stump speech at colleges nationwide, while Republican rival Mitt Romney also came out in support of the measure. Earlier this week, Senate leaders announced that they had finally reached a compromise on how to pay the estimated $6 billion cost of freezing the rate for one year. Congress is expected to approve the deal by Friday.
But the deal’s benefits are being blunted by the two changes that will saddle students with higher costs.
Lawmakers ended a long-standing program that pays the interest on federally subsidized loans for six months after a student graduates from college. The change applies to new loans issued through July 2014.
Students who take out these loans over the next year will receive the lower interest rate — but that amount will be charged to their bill as soon as they throw their graduation caps in the air. Students who apply for the federal loans next year will be hit with a double whammy: a higher interest rate that begins after graduation.
“It really makes the loans kind of unpredictable and hard to understand for students and families when these changes are happening through the budget process,” said Megan McClean, managing director of policy and federal relations for the National Association of Student Financial Aid Administrators, a trade group.
The outlook for students pursuing advanced degrees is even more grim.As of Sunday, Uncle Sam will no longer pay the interest on new graduate loans while students are in school and for six months after they finish. The change comes as government data show that the average annual cost of a master’s degree and professional programs in law and medicine has jumped by double digits. Enrollment in graduate programs has risen by 33 percent since 2000, to 2.8 million students.
The graduate loan subsidy is a casualty of last summer’s debate over the national debt ceiling. Lawmakers eliminated the program to cover a shortfall in funding loans for low-income students.
“It’s a difficult question, because as some experts point out . . . [subsidies are] a back-end benefit to students,” said Julie Morgan, associate director for post-secondary education at the Center for American Progress. “They do save them money . . . but they don’t encourage students to attend school.”
Mechelle Sieglitz said she recently learned that she would have to rely on unsubsidized federal loans for her last year of divinity school, putting tuition out of reach. So she took a teaching job and is hoping to save enough money to finish her education later.
“Though I’ve been able to find ways around the system, I know a lot of kids are not going to be as fortunate and will have to drop out to avoid mounting tuition and shrinking options,” she wrote.
Personal finance expert John Ulzheimer, head of consumer education for SmartCredit.com, said the changes to student loans are forcing many borrowers to have what he called an “economic come-to-Jesus moment” about what their degrees are worth.
Bryce Freeman, a student at the University of Florida at Gainesville, said the change to graduate loans will influence which schools he considers for a master’s degree in public policy. Although Georgetown University and the University of California at Berkeley are appealing, the cost may put them out of reach.
“That’s the million-dollar question,” he said. “You have to find a balance between a program that’s going to get you a good-paying job and one that makes sense financially.”
Starting Sunday, students hoping to earn the graduate degrees that have become mandatory for many white-collar jobs will become responsible for paying the interest on their federal loans while they are in school and immediately after they graduate. That means they’ll have to pay an extra $18 billion out of pocket over the next decade.
Meanwhile, the government will no longer cover the interest on undergraduate loans during the six months after students finish school. That’s expected to cost them more than $2 billion.
These changes have received little attention as lawmakers instead focus on preventing a spike in interest rates on federal student loans. They are the fallout of earlier political battles and compromises over broader issues such as the federal budget and the national debt ceiling. And they are forcing students such as Clarise McCants to make tough choices about how to pursue their academic goals without jeopardizing their financial security.
“I don’t want to hastily make a decision that could waste thousands of dollars I don’t have,” said McCants, who said she will have to put off graduate school after finishing her undergraduate degree at Howard University in the spring. “That could kind of prove disastrous for my finances.”
Much of the recent debate around the nation’s soaring student debt burden has centered on how to prevent the interest rate on new federally subsidized undergraduate loans from doubling to 6.8 percent on Sunday. President Obama made the issue part of his stump speech at colleges nationwide, while Republican rival Mitt Romney also came out in support of the measure. Earlier this week, Senate leaders announced that they had finally reached a compromise on how to pay the estimated $6 billion cost of freezing the rate for one year. Congress is expected to approve the deal by Friday.
But the deal’s benefits are being blunted by the two changes that will saddle students with higher costs.
Lawmakers ended a long-standing program that pays the interest on federally subsidized loans for six months after a student graduates from college. The change applies to new loans issued through July 2014.
Students who take out these loans over the next year will receive the lower interest rate — but that amount will be charged to their bill as soon as they throw their graduation caps in the air. Students who apply for the federal loans next year will be hit with a double whammy: a higher interest rate that begins after graduation.
“It really makes the loans kind of unpredictable and hard to understand for students and families when these changes are happening through the budget process,” said Megan McClean, managing director of policy and federal relations for the National Association of Student Financial Aid Administrators, a trade group.
The outlook for students pursuing advanced degrees is even more grim.As of Sunday, Uncle Sam will no longer pay the interest on new graduate loans while students are in school and for six months after they finish. The change comes as government data show that the average annual cost of a master’s degree and professional programs in law and medicine has jumped by double digits. Enrollment in graduate programs has risen by 33 percent since 2000, to 2.8 million students.
The graduate loan subsidy is a casualty of last summer’s debate over the national debt ceiling. Lawmakers eliminated the program to cover a shortfall in funding loans for low-income students.
“It’s a difficult question, because as some experts point out . . . [subsidies are] a back-end benefit to students,” said Julie Morgan, associate director for post-secondary education at the Center for American Progress. “They do save them money . . . but they don’t encourage students to attend school.”
Mechelle Sieglitz said she recently learned that she would have to rely on unsubsidized federal loans for her last year of divinity school, putting tuition out of reach. So she took a teaching job and is hoping to save enough money to finish her education later.
“Though I’ve been able to find ways around the system, I know a lot of kids are not going to be as fortunate and will have to drop out to avoid mounting tuition and shrinking options,” she wrote.
Personal finance expert John Ulzheimer, head of consumer education for SmartCredit.com, said the changes to student loans are forcing many borrowers to have what he called an “economic come-to-Jesus moment” about what their degrees are worth.
Bryce Freeman, a student at the University of Florida at Gainesville, said the change to graduate loans will influence which schools he considers for a master’s degree in public policy. Although Georgetown University and the University of California at Berkeley are appealing, the cost may put them out of reach.
“That’s the million-dollar question,” he said. “You have to find a balance between a program that’s going to get you a good-paying job and one that makes sense financially.”
2 Bills to stop student loan hike got shut down
WASHINGTON - The Senate held two votes Thursday on measures to ensure that student-loan rates for millions of college students do not double in July. At the conclusion of the legislative action, the issue remained exactly where it had begun - stuck.
The measures, one offered by Democrats and the other by Republicans, each failed to reach the 60-vote threshold necessary to move forward, as the parties remain at loggerheads over how to pay for the $6 billion loan subsidy.If they cannot resolve the dispute, loan rates will rise from 3.4 to 6.8 percent on July 1, increasing the cost of college for seven million students.Leaders in both parties have said they want to freeze rates for another year. President Obama has barnstormed college campuses arguing for lowered rates. Mitt Romney, the presumptive GOP presidential nominee, has said he agrees that Congress should extend the lower rates.
But as with many issues in Washington, agreeing on the end goal has so far not been enough to get a bipartisan bill.
Democrats have proposed paying for the additional year of loan subsidies by ending a tax provision that allows executives of some small businesses to collect some of their income as business profits instead of wages, allowing them to avoid paying payroll taxes.
Republicans said the Democrats' proposal amounted to a tax increase on those best positioned to create jobs in the sluggish economy. They also argued that payroll taxes are earmarked to fund Medicare, and any new revenue should go to the retiree health program.
On a 51-43 vote, the measure failed to advance.
The Republican proposal would have paid for the loan-rate freeze by eliminating the preventative health-care fund created in the 2010 health-care act. Republicans call it a slush fund and have pointed to what they say are misuses in its spending. Democrats note that it funds HIV/AIDS screenings, obesity prevention, and other key programs that could help bring down health-care costs.
The Senate Republican bill mirrored a measure adopted last month by the GOP-controlled House. Republicans called the House action a bipartisan vote and said their Senate colleagues should move forward with the bill. Thirteen House Democrats had joined 202 Republicans in supporting it.
The White House has said Obama would veto that bill if it advanced, but it failed to move ahead in the Senate on a 34-62 vote.
Senate Minority Leader Mitch McConnell (R., Ky.) called on Obama to become more involved in talks to find a resolution. "As with so many pressing issues, the president has not led on this issue. He has campaigned on it but has not worked to actually fix it," he said.
The Senate will be on a one-week recess next week for Memorial Day, while the House returns from a break. The two chambers will likely turn their attention to trying to negotiate a deal later in June.
The measures, one offered by Democrats and the other by Republicans, each failed to reach the 60-vote threshold necessary to move forward, as the parties remain at loggerheads over how to pay for the $6 billion loan subsidy.If they cannot resolve the dispute, loan rates will rise from 3.4 to 6.8 percent on July 1, increasing the cost of college for seven million students.Leaders in both parties have said they want to freeze rates for another year. President Obama has barnstormed college campuses arguing for lowered rates. Mitt Romney, the presumptive GOP presidential nominee, has said he agrees that Congress should extend the lower rates.
But as with many issues in Washington, agreeing on the end goal has so far not been enough to get a bipartisan bill.
Democrats have proposed paying for the additional year of loan subsidies by ending a tax provision that allows executives of some small businesses to collect some of their income as business profits instead of wages, allowing them to avoid paying payroll taxes.
Republicans said the Democrats' proposal amounted to a tax increase on those best positioned to create jobs in the sluggish economy. They also argued that payroll taxes are earmarked to fund Medicare, and any new revenue should go to the retiree health program.
On a 51-43 vote, the measure failed to advance.
The Republican proposal would have paid for the loan-rate freeze by eliminating the preventative health-care fund created in the 2010 health-care act. Republicans call it a slush fund and have pointed to what they say are misuses in its spending. Democrats note that it funds HIV/AIDS screenings, obesity prevention, and other key programs that could help bring down health-care costs.
The Senate Republican bill mirrored a measure adopted last month by the GOP-controlled House. Republicans called the House action a bipartisan vote and said their Senate colleagues should move forward with the bill. Thirteen House Democrats had joined 202 Republicans in supporting it.
The White House has said Obama would veto that bill if it advanced, but it failed to move ahead in the Senate on a 34-62 vote.
Senate Minority Leader Mitch McConnell (R., Ky.) called on Obama to become more involved in talks to find a resolution. "As with so many pressing issues, the president has not led on this issue. He has campaigned on it but has not worked to actually fix it," he said.
The Senate will be on a one-week recess next week for Memorial Day, while the House returns from a break. The two chambers will likely turn their attention to trying to negotiate a deal later in June.
Found some interesting fact about jp morgun
WASHINGTON - Soon after lawmakers finished work on the nation’s new financial regulatory law, a team of JPMorgan Chase lobbyists descended on Washington. Their goal was to obtain special breaks that would allow banks to make big bets in their portfolios, including some of the types of trading that led to the $2 billion loss now rocking the bank.
Jamie Dimon, testifying before House Financial Services Committee.Several visits over months by the bank’s well-connected chief executive, Jamie Dimon, and his top aides were aimed at persuading regulators to create a loophole in the law, known as the Volcker Rule. The rule was designed by Congress to limit the very kind of proprietary trading that JPMorgan was seeking.
Even after the official draft of the Volcker Rule regulations was released last October, JPMorgan [JPM 36.96 -3.78 (-9.28%) ] and other banks continued their full-court press to avoid limits.
In early February, a group of JPMorgan executives met with Federal Reserve officials and warned that anything but a loose interpretation of the trading ban would hurt the bank’s hedging activities, according to a person with knowledge of the meeting. In the past, the bank argued that it needed to hedge risk stemming from its large retail banking business, but it has also said that it supported portions of the Volcker Rule.
In the February meeting was Ina Drew, the head of JPMorgan’s chief investment office, the unit that suffered the $2 billion loss.
JPMorgan officials declined to comment for this article. But in the company’s annual report, Mr. Dimon wrote: “If the intent of the Volcker Rule was to eliminate pure proprietary trading and to ensure that market making is done in a way that won’t jeopardize a financial institution, we agree.”
He added: “We, however, do disagree with some of the proposed specifics because we think they could have huge negative unintended consequences for American competitiveness and economic growth.”
JPMorgan wasn’t the only large institution making a special plea, but it stood out because of Mr. Dimon’s prominence as a skilled Washington operator and because of his bank’s nearly unblemished record during the financial crisis.
“JPMorgan was the one that made the strongest arguments to allow hedging, and specifically to allow this type of portfolio hedging,” said a former Treasury official who was present during the Dodd-Frank debates.
Those efforts produced “a big enough loophole that a Mack truck could drive right through it,” Senator Carl Levin, the Michigan Democrat who co-wrote the legislation that led to the Volcker Rule, said Friday after the disclosure of the JPMorgan loss.
The loophole is known as portfolio hedging, a strategy that essentially allows banks to view an investment portfolio as a whole and take actions to offset the risks of the entire portfolio. That contrasts with the traditional definition of hedging, which matches an individual security or trading position with an inversely related investment — so when one goes up, the other goes down.
Portfolio hedging “is a license to do pretty much anything,” Mr. Levin said. He and Senator Jeff Merkley, an Oregon Democrat who worked on the law with Mr.
Levin, sent a letter to regulators in February, making clear that hedging on that scale was not their intention.
“There is no statutory basis to support the proposed portfolio hedging language,” they wrote, “nor is there anything in the legislative history to suggest that it should be allowed.”
While the banks lobbied furiously, they were in some ways pushing on an open door. Officials at the Treasury Department and the Federal Reserve, the main overseer of the banks, as well as the Comptroller of the Currency, also wanted a loose set of restrictions, according to people who took part in the drafting of the Volcker Rule who spoke on the condition of anonymity because no regulatory agencies would officially talk about the rule on Friday.
The Fed and the Treasury’s views prevailed in the face of opposition from both the Securities and Exchange Commission and the Commodity Futures Trading Commission, which regulate markets and companies’ reporting of their financial positions. Both commissions and the Federal Deposit Insurance Corporation, which insures bank deposits, pushed for tighter restrictions, the people said.
Even some of those who have said the Volcker Rule is fatally flawed agree that, in its current form, the rule would have allowed JPMorgan Chase to do what it did.
“Would the Dodd-Frank law have stopped this?” asked Peter J. Wallison, a fellow in financial policy studies at the American Enterprise Institute, who has been a consistent critic of the postfinancial crisis reforms. “No,” he answered. “Dodd-Frank specifically allows hedging and market-making transactions.”
The Volcker Rule was not intended to offer such a broad exemption to the ban on proprietary trading. People involved with the drafting of the Dodd-Frank law itself say that the authors fought repeatedly to tighten the language, in part to specifically exclude portfolio hedging.
In its earliest form, the Merkley-Levin amendment to the Dodd-Frank regulatory law said that any “risk-mitigating hedging activity” — or hedging positions that reduced a bank’s risk — would be allowed. Through several drafts, that exception was steadily narrowed. The final law permitted only hedges tied to specific investments.
But when the proposed rules were released in October 2011, more than a year after Dodd-Frank went into effect, the exemptions were much broader, and allowing a bank to use hedging techniques in a portfolio was included as a potential loophole.
The drafters recognized that the exemption could be a potential problem. In soliciting comments from bankers, they specifically asked if portfolio hedging created “the potential for abuse of the hedging exemption” or make it too difficult to tell whether certain bets are hedging or prohibited trading.
Paul A. Volcker thinks there is a potential for abuse. Mr. Volcker, the former Federal Reserve chairman whose advocacy for the proprietary trading ban was so fierce that his name was attached to it, told a Congressional hearing this year that with hundreds of trillions of dollars of derivatives being traded, “you have to wonder whether they’re all directed toward some explicit protection against some explicit risk.”
Mr. Dimon said on Thursday that JPMorgan’s “synthetic credit portfolio,” an amalgam of derivatives and hedging bets that blew up in recent weeks, was part of “a strategy to hedge the firm’s overall credit exposure.” But “Volcker allows that,” he said.
That was not the intent of the law, said Phil Angelides, who headed the Financial Crisis Inquiry Commission. “I think the regulators need to go back and sharpen their pencils,” Mr. Angelides said. “The intent of the law was to stop insured depositories from doing propriety trading with this kind of risk profile.” And whatever JPMorgan calls it, “it sure looks like proprietary trading, which Dodd-Frank was designed to stop insured depositories from engaging in.”
Jamie Dimon, testifying before House Financial Services Committee.Several visits over months by the bank’s well-connected chief executive, Jamie Dimon, and his top aides were aimed at persuading regulators to create a loophole in the law, known as the Volcker Rule. The rule was designed by Congress to limit the very kind of proprietary trading that JPMorgan was seeking.
Even after the official draft of the Volcker Rule regulations was released last October, JPMorgan [JPM 36.96 -3.78 (-9.28%) ] and other banks continued their full-court press to avoid limits.
In early February, a group of JPMorgan executives met with Federal Reserve officials and warned that anything but a loose interpretation of the trading ban would hurt the bank’s hedging activities, according to a person with knowledge of the meeting. In the past, the bank argued that it needed to hedge risk stemming from its large retail banking business, but it has also said that it supported portions of the Volcker Rule.
In the February meeting was Ina Drew, the head of JPMorgan’s chief investment office, the unit that suffered the $2 billion loss.
JPMorgan officials declined to comment for this article. But in the company’s annual report, Mr. Dimon wrote: “If the intent of the Volcker Rule was to eliminate pure proprietary trading and to ensure that market making is done in a way that won’t jeopardize a financial institution, we agree.”
He added: “We, however, do disagree with some of the proposed specifics because we think they could have huge negative unintended consequences for American competitiveness and economic growth.”
JPMorgan wasn’t the only large institution making a special plea, but it stood out because of Mr. Dimon’s prominence as a skilled Washington operator and because of his bank’s nearly unblemished record during the financial crisis.
“JPMorgan was the one that made the strongest arguments to allow hedging, and specifically to allow this type of portfolio hedging,” said a former Treasury official who was present during the Dodd-Frank debates.
Those efforts produced “a big enough loophole that a Mack truck could drive right through it,” Senator Carl Levin, the Michigan Democrat who co-wrote the legislation that led to the Volcker Rule, said Friday after the disclosure of the JPMorgan loss.
The loophole is known as portfolio hedging, a strategy that essentially allows banks to view an investment portfolio as a whole and take actions to offset the risks of the entire portfolio. That contrasts with the traditional definition of hedging, which matches an individual security or trading position with an inversely related investment — so when one goes up, the other goes down.
Portfolio hedging “is a license to do pretty much anything,” Mr. Levin said. He and Senator Jeff Merkley, an Oregon Democrat who worked on the law with Mr.
Levin, sent a letter to regulators in February, making clear that hedging on that scale was not their intention.
“There is no statutory basis to support the proposed portfolio hedging language,” they wrote, “nor is there anything in the legislative history to suggest that it should be allowed.”
While the banks lobbied furiously, they were in some ways pushing on an open door. Officials at the Treasury Department and the Federal Reserve, the main overseer of the banks, as well as the Comptroller of the Currency, also wanted a loose set of restrictions, according to people who took part in the drafting of the Volcker Rule who spoke on the condition of anonymity because no regulatory agencies would officially talk about the rule on Friday.
The Fed and the Treasury’s views prevailed in the face of opposition from both the Securities and Exchange Commission and the Commodity Futures Trading Commission, which regulate markets and companies’ reporting of their financial positions. Both commissions and the Federal Deposit Insurance Corporation, which insures bank deposits, pushed for tighter restrictions, the people said.
Even some of those who have said the Volcker Rule is fatally flawed agree that, in its current form, the rule would have allowed JPMorgan Chase to do what it did.
“Would the Dodd-Frank law have stopped this?” asked Peter J. Wallison, a fellow in financial policy studies at the American Enterprise Institute, who has been a consistent critic of the postfinancial crisis reforms. “No,” he answered. “Dodd-Frank specifically allows hedging and market-making transactions.”
The Volcker Rule was not intended to offer such a broad exemption to the ban on proprietary trading. People involved with the drafting of the Dodd-Frank law itself say that the authors fought repeatedly to tighten the language, in part to specifically exclude portfolio hedging.
In its earliest form, the Merkley-Levin amendment to the Dodd-Frank regulatory law said that any “risk-mitigating hedging activity” — or hedging positions that reduced a bank’s risk — would be allowed. Through several drafts, that exception was steadily narrowed. The final law permitted only hedges tied to specific investments.
But when the proposed rules were released in October 2011, more than a year after Dodd-Frank went into effect, the exemptions were much broader, and allowing a bank to use hedging techniques in a portfolio was included as a potential loophole.
The drafters recognized that the exemption could be a potential problem. In soliciting comments from bankers, they specifically asked if portfolio hedging created “the potential for abuse of the hedging exemption” or make it too difficult to tell whether certain bets are hedging or prohibited trading.
Paul A. Volcker thinks there is a potential for abuse. Mr. Volcker, the former Federal Reserve chairman whose advocacy for the proprietary trading ban was so fierce that his name was attached to it, told a Congressional hearing this year that with hundreds of trillions of dollars of derivatives being traded, “you have to wonder whether they’re all directed toward some explicit protection against some explicit risk.”
Mr. Dimon said on Thursday that JPMorgan’s “synthetic credit portfolio,” an amalgam of derivatives and hedging bets that blew up in recent weeks, was part of “a strategy to hedge the firm’s overall credit exposure.” But “Volcker allows that,” he said.
That was not the intent of the law, said Phil Angelides, who headed the Financial Crisis Inquiry Commission. “I think the regulators need to go back and sharpen their pencils,” Mr. Angelides said. “The intent of the law was to stop insured depositories from doing propriety trading with this kind of risk profile.” And whatever JPMorgan calls it, “it sure looks like proprietary trading, which Dodd-Frank was designed to stop insured depositories from engaging in.”
This site is eyeopening to what the our debt looks like http://www.usdebtclock.org/index.html# Its unbelievable of how much money gets tossed around by the government and when they do that the debt keeps getting bigger and bigger.
CNN news report about student loans raising their interest rates
Student loan rate hike: What you need to knowBy Jennifer Liberto @CNNMoney April 24, 2012: 2:35 PM
Congress has until July 1 to extend current low rates on subsidized student loans for more than 7 million undergraduates.
WASHINGTON (CNNMoney) -- On July 1, the interest rates on student loans subsidized by Uncle Sam will double to 6.8%.
The upshot? Students taking out loans for the next school year will have to dig deeper in their pockets to pay them off. Unless Congress steps in to stop the increase from going forward.
College 101• College Costs• Financial Aid• Student LoansThe issue has become a political talking point. President Obama, who called for congressional action in his State of the Union speech in January, is using the issue to stump for votes.
His Republican rival Mitt Romney says he, too, believes Congress should step in.
On Tuesday, Senate leaders said they will take up a bill within days to extend the lowered interest rates. The Senate minority leader, Mitch McConnell, said Republicans are willing to consider the measure as long as there is a way to pay for the extension.
What's at stake: More than 7 million undergraduates have subsidized student loans, which means the federal government absorbs some of the interest rate for lower- and middle-income families based on financial need.
If Congress does nothing, the cost to students borrowing the maximum $23,000 in subsidized loans is an extra $5,000 over a 10-year repayment period. The cost to the federal government to extend the lower interest rate is $5.8 billion, according to an analysis by the nonpartisan Congressional Budget Office.
College degree = $650,000 more in earningsAnd that's a big reason why House Republicans aren't inclined to go along with extending the rate.
How it got to this point: Subsidized student loan interest rates used to be 6.8%. But when Democrats took over the House in 2007, they passed phased-in cheaper rates for subsidized student loans. The rates fell to the current low of 3.4% for subsidized Stafford loans this past school year. The rates are scheduled to revert back to 6.8% for the 2012-2013 school year.
And with unemployment just below 24% for teenagers and 14% for those ages 20 to 24, more young people are going back to school or staying in school, according to recent data by Equifax.
Additionally, more students struggle to pay back those loans. Student loan delinquencies involving payments more than three months late rose 14.6% in 2011 from the year before, according to Equifax.
While Obama has pushed to expand access to college for low- and middle-income children, lawmakers have taken several steps to whittle away at student aid. Congress eliminated subsidized loans for graduate students, as well as most discounts. They also cut $8 billion out of the Pell Grant program for low-income students and reduced the income threshold for eligibility for a full Pell Grant.
What happens next: President Obama has made extending the cheaper student loan rate a campaign issue, and will continue to use his bully pulpit tourge lawmakers to prevent a doubling of interest rates on federally subsidized student loans.
Bills in the Senate and House would extend current student loan interest rates for a year. But House Republicans aren't on board yet. They don't want the federal government to extend low rates without finding a "meaningful" way to pay for them.
"The rising cost of tuition is a serious problem for students and their families, so it's unfortunate that Washington Democrats put in place a law that would double student loan rates," said Michael Steel, a spokesman for House Speaker John Boehner. "That's why Republicans and Democrats on both sides of Capitol Hill will be working on this issue in the coming months."
Congress has until July 1 to extend current low rates on subsidized student loans for more than 7 million undergraduates.
WASHINGTON (CNNMoney) -- On July 1, the interest rates on student loans subsidized by Uncle Sam will double to 6.8%.
The upshot? Students taking out loans for the next school year will have to dig deeper in their pockets to pay them off. Unless Congress steps in to stop the increase from going forward.
College 101• College Costs• Financial Aid• Student LoansThe issue has become a political talking point. President Obama, who called for congressional action in his State of the Union speech in January, is using the issue to stump for votes.
His Republican rival Mitt Romney says he, too, believes Congress should step in.
On Tuesday, Senate leaders said they will take up a bill within days to extend the lowered interest rates. The Senate minority leader, Mitch McConnell, said Republicans are willing to consider the measure as long as there is a way to pay for the extension.
What's at stake: More than 7 million undergraduates have subsidized student loans, which means the federal government absorbs some of the interest rate for lower- and middle-income families based on financial need.
If Congress does nothing, the cost to students borrowing the maximum $23,000 in subsidized loans is an extra $5,000 over a 10-year repayment period. The cost to the federal government to extend the lower interest rate is $5.8 billion, according to an analysis by the nonpartisan Congressional Budget Office.
College degree = $650,000 more in earningsAnd that's a big reason why House Republicans aren't inclined to go along with extending the rate.
How it got to this point: Subsidized student loan interest rates used to be 6.8%. But when Democrats took over the House in 2007, they passed phased-in cheaper rates for subsidized student loans. The rates fell to the current low of 3.4% for subsidized Stafford loans this past school year. The rates are scheduled to revert back to 6.8% for the 2012-2013 school year.
And with unemployment just below 24% for teenagers and 14% for those ages 20 to 24, more young people are going back to school or staying in school, according to recent data by Equifax.
Additionally, more students struggle to pay back those loans. Student loan delinquencies involving payments more than three months late rose 14.6% in 2011 from the year before, according to Equifax.
While Obama has pushed to expand access to college for low- and middle-income children, lawmakers have taken several steps to whittle away at student aid. Congress eliminated subsidized loans for graduate students, as well as most discounts. They also cut $8 billion out of the Pell Grant program for low-income students and reduced the income threshold for eligibility for a full Pell Grant.
What happens next: President Obama has made extending the cheaper student loan rate a campaign issue, and will continue to use his bully pulpit tourge lawmakers to prevent a doubling of interest rates on federally subsidized student loans.
Bills in the Senate and House would extend current student loan interest rates for a year. But House Republicans aren't on board yet. They don't want the federal government to extend low rates without finding a "meaningful" way to pay for them.
"The rising cost of tuition is a serious problem for students and their families, so it's unfortunate that Washington Democrats put in place a law that would double student loan rates," said Michael Steel, a spokesman for House Speaker John Boehner. "That's why Republicans and Democrats on both sides of Capitol Hill will be working on this issue in the coming months."
The republicans have no idea what the potential of there false claims are doing to the average college student
House Republicans Push False Choice To Justify Jacking Up Student Loan Interest RatesBy Pat Garofalo on Apr 4, 2012 at 2:00 pm
Unless Congress acts, the interest rate on federal student loans will double this summer from 3.4 percent to 6.8 percent. The Obama administration has called for Congress to prevent the increase and Senate Democrats are looking to move a bill doing just that through the upper chamber.
However, House Republicans are refusing to come along, claiming that spending $6 billion to prevent the interest rate increase would require cuts to other higher education programs:
House Education and the Workforce Committee Chairman John Kline (R-Minn.) says that though he’d like to reduce college costs, paying for the loans with deficit spending isn’t the right way to go — and the only alternative would take away from other programs in his own budget for higher education financing. [...]
[T]o maintain the cheap loans, another higher-ed program would have to face the chopping block, said Jennifer Allen, a spokeswoman for the House Committee on Education and the Workforce.
“We are continuing discussions on action to help borrowers and ease the college cost burden for students and families,” Allen said. “Tackling the challenge of the Stafford loan interest rate increase will require tough choices.”
This is, quite simply, a false choice. There is nothing preventing Congress from finding the money to prevent the interest rate increase from anywhere in the federal budget. For instance, Congress could cut wasteful oil subsidies and outdated weapons systems in order to come up with the $6 billion. (The GOP has also evidently neglected to notice that federal student lending is actually profitable for the U.S.)
Already, student loan debt (which tops $1 trillion according to some estimates) is having a detrimental effect on the economy. “We’ve seen massive state divestment from education,” explained Rich Williams, higher education advocate at US Public Interest Research Group. “That’s on top of a bad economy which has caused families to have fewer resources…[I]n this economy we cannot double the interest rates on student loans.” But Republicans are claiming that to do otherwise would put other higher education programs in danger, forcing a disingenuous choice due to their open hostility to financial aid.
Unless Congress acts, the interest rate on federal student loans will double this summer from 3.4 percent to 6.8 percent. The Obama administration has called for Congress to prevent the increase and Senate Democrats are looking to move a bill doing just that through the upper chamber.
However, House Republicans are refusing to come along, claiming that spending $6 billion to prevent the interest rate increase would require cuts to other higher education programs:
House Education and the Workforce Committee Chairman John Kline (R-Minn.) says that though he’d like to reduce college costs, paying for the loans with deficit spending isn’t the right way to go — and the only alternative would take away from other programs in his own budget for higher education financing. [...]
[T]o maintain the cheap loans, another higher-ed program would have to face the chopping block, said Jennifer Allen, a spokeswoman for the House Committee on Education and the Workforce.
“We are continuing discussions on action to help borrowers and ease the college cost burden for students and families,” Allen said. “Tackling the challenge of the Stafford loan interest rate increase will require tough choices.”
This is, quite simply, a false choice. There is nothing preventing Congress from finding the money to prevent the interest rate increase from anywhere in the federal budget. For instance, Congress could cut wasteful oil subsidies and outdated weapons systems in order to come up with the $6 billion. (The GOP has also evidently neglected to notice that federal student lending is actually profitable for the U.S.)
Already, student loan debt (which tops $1 trillion according to some estimates) is having a detrimental effect on the economy. “We’ve seen massive state divestment from education,” explained Rich Williams, higher education advocate at US Public Interest Research Group. “That’s on top of a bad economy which has caused families to have fewer resources…[I]n this economy we cannot double the interest rates on student loans.” But Republicans are claiming that to do otherwise would put other higher education programs in danger, forcing a disingenuous choice due to their open hostility to financial aid.
I just received an e-mail from Congressman Joe Courtney of Ct.
on July 1, 2012 student loan interest will double.
Dear Joseph,
For weeks, I have been telling you about a looming deadline: on July 1, without Congressional action, the already-spiraling debt burden on college students will get much worse when the interest rates on subsidized Stafford student loans will double. I have introduced legislation to prevent this increase, and so far, my bill (H.R. 3682) has 116 co-sponsors.
Last week, Rep. Chris Murphy – one of the bill’s co-sponsors – and I took the message to Hartford. In front of a contingent of UConn students and Connecticut High School seniors, we made the case that keeping interest rates down and slowing the growth of student-loan debt are very much in our national interest.
Its been a while for any kinda of news. I've been busy with work. Got some great news!!!!
But I was tipped of on some great news about a new bill in progress. Its called H.R. 4170. The new revised version of the student loan forgiveness act which will be more focused more on the economy, and purchasing power of the people that have student debt, and how it will help the economy. I will creat a new page to post all the info about the bill who created and stuff like that. I will try to get that going either tonight or tomorrow night so a lot of info will becoming soon. Please stay toned for updates on the new page :)......This one might catch the eyes on the house and the senate. We can only cross our fingers that this bill will be looked at and pass.
Found some Info on government regulations for sallie mae
HERE IS THE LINK TO REGULATIONS GOVERNING BOOK-ENTRY SECURITIES OF THE STUDENT LOAN MARKETING ASSOCIATION (SALLIE MAE) CLICK HERE
Facebook - if you would like to like me on facebook <---(click orange text)
This is an eye opening documentary about the college industry
So I've been doing some more research.....
On my search for more information to put up on here. I came across a news article about the Bureau of Federal Consumer Protection Agency that will be enforcing the rules and regulations on loan companies and debt collection agencies. These people can walk into a debt collection agency and say "I want to see your financials" and "how do you run the place". And then if they find that there is something kinda fishy on how they collect there debts. The FCPA would shut the place down on the spot and and legal action would go into effect. Also if they find that multiple collection agencies are abusing the laws to make more profits. They will make new laws, and would go into effect after they write the law. No congess action or any house actions will be needed.
I say its about GOD DAMN TIME!!!!! that the government steps in and help out the small people to enforce the rules and regulations on these debt collectors.
I have a PDF version of the Fair Debt Collection Act <==(CLICK THERE)
This is the rules and regulations that debt collectors have to obey. If they dont then you can take them to court (-:
I say its about GOD DAMN TIME!!!!! that the government steps in and help out the small people to enforce the rules and regulations on these debt collectors.
I have a PDF version of the Fair Debt Collection Act <==(CLICK THERE)
This is the rules and regulations that debt collectors have to obey. If they dont then you can take them to court (-:
This video was on the FTC website .....and here is a link to the Bureau of Consumer Protection
UPDATE!!!! Good Info
I've got a hold of the finanical report for the department of education. They also have a another report that covers what happened for the year and what changes was made in the fiscal year. While i was reading i found some good info. They talked about a survey was conducted on how many people defaulted on there student loans. The report was for 2011 but the survey only goes up to 2009 they left out 2010 and 2011. In 2009 there was 8.8% of people that defaulted on their loans. It was up from the previous year which was 7.0% of people. For the For-profit sector of schools it was at 15% in 2009. In 2008 it was only at 11.6%. It goes on and mentions who was counted in the survey. It was 3.6 million from 5900 schools all over the nation. It also says that more then 320,000 people defaulted. Hhmmm!!!!
How much is the actual number, i wonder? The number has to be a lot bigger then what they thought. If the department of education cant give an exact number its either they dont want you to know how many people defaulted or they just want to make their survey look some-what good.But if you do the math on the trending of the 2 years they compared and compare them with 2011. For the For-profit schools the difference of the 2008 and 2009 is 4.4%. Now if we awesome that the number increases at the same rate in 2010 19.4% would have defaulted in 2010 and in 2011 23.8% would have defaulted on their loans. 23.8% that's almost a quarter of the people that was surveyed. The amount of people that would have defaulted by 2011 would be 856,800 people, i got that by using the surveyed number of people but that number would be almost doubled that because there would have been more people surveyed over a spand of time
They also mention that the people who was surveyed defaulted within the first year of the monthly payments. So what about the other people that has defaulted after making 2 years worth or more of monthly payments. They just get tossed under the rug so that they wont bring down the survey??? hmm!!
How much is the actual number, i wonder? The number has to be a lot bigger then what they thought. If the department of education cant give an exact number its either they dont want you to know how many people defaulted or they just want to make their survey look some-what good.But if you do the math on the trending of the 2 years they compared and compare them with 2011. For the For-profit schools the difference of the 2008 and 2009 is 4.4%. Now if we awesome that the number increases at the same rate in 2010 19.4% would have defaulted in 2010 and in 2011 23.8% would have defaulted on their loans. 23.8% that's almost a quarter of the people that was surveyed. The amount of people that would have defaulted by 2011 would be 856,800 people, i got that by using the surveyed number of people but that number would be almost doubled that because there would have been more people surveyed over a spand of time
They also mention that the people who was surveyed defaulted within the first year of the monthly payments. So what about the other people that has defaulted after making 2 years worth or more of monthly payments. They just get tossed under the rug so that they wont bring down the survey??? hmm!!
This is a new act that was approved to allow whistle-blowers to investigate companies
SEC Whistleblower ActOn July 21, 2010
Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. A portion of the Act amended the Securities Exchange Act of 1934, which had included a relatively rudimentary whistleblower act directed at exposing insider training. The SEC adopted Final Rules to implement the Act on May 25, 2011 which went into effect on August 12, 2011. The Act marked a significant increase over its predecessor statute in whistleblower incentives and protections.
Notably, the Dodd-Frank Act and corresponding regulations provide that a whistleblower is entitled to 10% to 30% of any recovery by the SEC that exceeds $1 million. The Act provides that the percentage will be determined by the significance of the whistleblower’s information, the degree of assistance provided by the whistleblower, the “programmatic interest of the Commission in deterring violations of the securities law,” and additional factors established by the Commission. The Act also provides protection against retaliation and allows a whistleblower to bring a private action for reinstatement, back pay and damages if he or she experiences retaliation. Finally, the Act is unique in the level of confidentiality provided – a whistleblower who is represented by counsel may stay anonymous throughout the entire proceedings until the payment of an award.
Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. A portion of the Act amended the Securities Exchange Act of 1934, which had included a relatively rudimentary whistleblower act directed at exposing insider training. The SEC adopted Final Rules to implement the Act on May 25, 2011 which went into effect on August 12, 2011. The Act marked a significant increase over its predecessor statute in whistleblower incentives and protections.
Notably, the Dodd-Frank Act and corresponding regulations provide that a whistleblower is entitled to 10% to 30% of any recovery by the SEC that exceeds $1 million. The Act provides that the percentage will be determined by the significance of the whistleblower’s information, the degree of assistance provided by the whistleblower, the “programmatic interest of the Commission in deterring violations of the securities law,” and additional factors established by the Commission. The Act also provides protection against retaliation and allows a whistleblower to bring a private action for reinstatement, back pay and damages if he or she experiences retaliation. Finally, the Act is unique in the level of confidentiality provided – a whistleblower who is represented by counsel may stay anonymous throughout the entire proceedings until the payment of an award.