December 16, 2006
Saturday

Can you imagine the uproar if homeowners were suddenly told that if they want to re-finance their home, they can't?

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.

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 past July, the vast majority who have consolidated will be legally barred from ever re-financing again, no matter what other lender later offers them a lower rate.

Legally barred from ever refinancing? Hard to believe, but true. And here's how it happened.

Sallie Mae and most of the other big lenders don't want the lure of lower rates tempting their customers to switch to competitors. So, they called upon the Republican leaders, many of whom had accepted large donations and trips aboard lender jets to luxury golf resorts and other desirable destinations, and got them to attempt to hide this ugly anti-competitive legislation in the Budget Deficit Act of 2006.

When consumer groups such as the American Student Association began complaining about the proposed no-more-refinancing law, Sallie Mae lobbyists countered by spreading misinformation around designed to lead people to believe that a borrower moving their loan from one lender to another would cost the taxpayers money needed in other places, when, in fact, the borrower savings would all come from the smaller lenders' willingness to accept less profit.

In the end, Sallie Mae, which, according to Fortune Magazine, is one of America's most profitable companies, won the battle. The losers were America's millions of students and parents who have been denied the opportunity to negotiate lower rates for themselves in an open market.

Then, adding insult to injury, Sallie Mae, not unlike a football player spiking a ball after a game-winning touchdown, began celebrating. Tom Joyce, a Sallie Mae VP, was quoted by USA TODAY as saying, "The consolidation loan program was never meant to be a re-financing bonanza for students." But 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."

The Democrats say they are going to do something about these issues. They have proposed a 50% cut in student loan interest rates (Reverse the Raid on Student Aid Act; H.R. 5150 and the Senate's RSSA Act), and Hillary Clinton's Student Borrower Bill of Rights (S. 3255) proposes to repeal the laws banning the refinancing of Federal Consolidation loans and other predatory lending practices, but there is no guarantee that either of these proposals will actually become law.

You may voice your opinion on these issues by calling the following numbers:

U.S. Senate: (202) 224-4543

U.S. House of Representatives: (202) 226-2068.

It's up to you, now.

C. Victoria Patrick
San Jose, CA

Received December 14, 2006 - Published December 16, 2006

About: Educator, College Administrator, Financial Adviser (retired)

 

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