By C. Victoria Patrick
March 08, 2006
Sallie Mae pretends to have the best interests of their customers at heart, while they covertly work behind the scenes to pass anti-competitive legislation that will end up costing students and parents billions of dollars.
Specifically, I'm talking about Sallie Mae's recently successful effort to add to and solidify the restriction-of-trade laws that have dogged the federal student loan program for decades. This collection of laws make it difficult, if not impossible, for student loan borrowers to shop around for the lowest available rates when they wish to consolidate their education debt.
Put another way, Sallie Mae and a few other big lenders don't want the lure of lower rates tempting their customers to switch to competitors. That's why they ve lobbied so hard for these restrictions. And as of now, they are winning the battle -- and perhaps, even the war.
For years participants in the federal student loan program have converted their variable-rate federally guaranteed college loans into fixed-rate federal consolidation loans, to lock in favorable interest rates, in much the same way that homeowners do with their mortgages. And for the same reasons.
But under the new laws effective this July, the vast majority who have consolidated will be legally barred from ever re-financing again, no matter what other lender later might have offered them a better deal. And no matter how many times you read this paragraph, its meaning will remain the same.
Some would argue that because the government is subsidizing student loans, open market re-financing is not appropriate. But the fact is that under the just repealed laws that heretofore allowed reconsolidation, lenders -- and not the taxpayers, absorbed the cost of lower rates offered to borrowers.
Also, you should know that borrowers whose loans are owned by a single lender have always been prohibited from shopping around for the best of rates and terms when it came time to consolidate. Congress had been promising to repeal that anti-competitive law, known as the Single Holder Rule, but the proposal was mysteriously dropped from the Budget Deficit Act at the very last minute.
The dollars lost to higher interest rates resulting from this collection of restriction-of-trade legislation will never show up in the Congressional Budget Office cost estimates that everyone in Washington is forever quoting. And if you are wondering where those dollars will end up, you need look only so far as the bottom line of Sallie Mae's income statement.
And to add insult to injury, Sallie Mae, like a football player spiking a ball after a game-winning touchdown, has begun celebrating. Their VP, Tom Joyce, was quoted in USA TODAY as saying, "The consolidation loan program was never meant to be a re-financing bonanza for students." And later, his crowing grew even louder when he told the Orlando Sentinel, "Smaller corporations will now think twice about getting into the student loan business."
Those ugly statements by Sallie Mae's chief media spokesperson graphically emphasize the immediate necessity of Republicans and Democrats joining forces to restore open competition in this very important marketplace. The cost of college is just too high to protect Sallie Mae's profits any longer.
C. Victoria Patrick
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