Banks; predatory Tactics vs Students and Former Students

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http://www.uspirg.org/html/consumer/...bts/index.html

Editorial


Published: October 5, 2007

After years of looking the other way, Congress seems finally poised to rein in the predatory practices that have become all too common in the credit card business.

Several bills now pending would outlaw unfair billing practices, like the one known as universal default, under which a late payment on an unrelated bill — a utility bill, for example — allows credit card companies to raise their interest rates through the roof.

Other legislation would place limits on the way companies market to college students.

All too often, these companies sometimes deluge students with cards, even when they have no verifiable income, luring them and sometimes their families into debt. Under pending bills, the companies would be forced to consider a student’s ability to pay and could extend no more than a single card to a student with no income. In cases where parents are jointly liable, the spending limit could be raised only with parental approval.

These common sense measures are a good start.

The politically powerful credit card industry won’t sit idly by, however, and these reforms are much more likely to succeed if they are wrapped into a comprehensive bill — with more vocal support from the leadership.

Congress also needs to take a close look at the school-themed credit cards that are often offered by privately run college alumni associations. The associations earn royalties and sometimes share a portion of the money with the colleges, which are then required to promote the cards on campus.

These deals resemble the unsavory arrangements under which student loan companies paid kickbacks to colleges in exchange for being placed on so-called “preferred lender” lists.

The most prudent approach for colleges and alumni groups would be to promote these cards only to graduates who have jobs and bank accounts. If the colleges persist on marketing to students, Congress should bar the practice.

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For Immediate Release: September 7, 2007
For More Information: Luke Swarthout, U.S. PIRG Higher Education Advocate, 202-546-9707

Congress Passes Major Higher Education Reform

Today the U.S. Senate and House of Representatives passed the College Cost Reduction and Access Act by votes of 79 to 12 and 292 to 97 respectively. The bill now goes to the President who has said he will sign the legislation into law.

Statement by U.S. PIRG Higher Education Advocate Luke Swarthout:
"The College Cost Reduction and Access Act is the most meaningful higher education reform in more than 15 years. The legislation addresses the dual financial challenges of access and affordability that face American college students. The legislation provides billions of dollars a year in additional grant aid to low-income students through the Pell Grant program. It will also help students address the burden of rising student debt through lower interest rates and a new repayment system.

This legislation is an example of Congress getting policy making right. The bill trims excessive subsidies that benefit a handful of banks and directs them to millions of students and families who are working to pay for college. The bipartisan votes for this legislation, and the President’s pledge to sign it into law, are testament to the broad support for helping students and families pay for college."

The College Cost Reduction and Access Act will:

Increase the maximum Pell Grant award by $490 for each of the next two school years, by $690 for the following two school years and by $1,090 for each following year. The Pell Grant is the nation’s premier college access program, providing grants to 5 million low-income students each year. The maximum Pell Grant is currently $4,310.

Create an Income Based Repayment program that allows borrowers to repay their loans as percentage of their income. Borrowers would be expected to pay 15% of any income above 150% of the poverty line (about $15,000 for a single individual). This new program will protect borrowers with low salaries having to make unmanageable payments. As a result students will be able to make employment and life decisions based on their values rather than the volume of their debt.

Reduce interest rates on student loans for more than 5 million low and middle-income student borrowers receiving subsidized Stafford loans. To see how many students would benefit from these interest rate reductions read U.S. PIRG’s report , "Cutting Interest Rates, Lowering Student Debt" . (Note: this report does not describe the interest rate reduction used in the final College Cost Reduction Act)

Finance increased education spending by reducing subsidies to student lenders. Lenders will receive a reduced rate of return for offering federal student loans and a slightly reduced reinsurance rate from the federal government. As a result, the increased grant aid and loan benefits will have no additional cost to taxpayers.

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U.S. PIRG is the federation of state Public Interest Research Groups. State PIRGs are non-profit, non-partisan public interest advocacy organizations. The U.S. PIRG Higher Education Project was established in 1994 to secure more aid for students, with a focus on additional grants, reduced debt, and better service to students in the federal financial aid system.

Posted by Ed Mierzwinski at 03:53 PM | Comments (0)

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Published on Tuesday, April 10, 2007 by The Los Angeles Times
The Student-Loan Scam
Under a Republican Congress, For-Profit Lenders Pursued Their Own Interests — Often With The Help of Colleges.

by Stephen Burd

After 15 years of reporting on the student-loan industry, I didn’t think much could surprise me. But even I was shocked last week when I discovered Securities and Exchange Commission documents revealing that financial aid directors at three prominent universities - as well as a senior official at the U.S. Education Department - each had significant personal investments in a private student-loan companyWhat possibly could have motivated these officials to take tens of thousands of dollars in stock options from Student Loan Xpress? Has the whole student-loan business become so corrupt that they failed to see the conflict of interest?

If so, Washington is most to blame. For the last seven years, federal officials have turned a blind eye to problems with the companies that participate in the government’s student-loan programs.

When it came to power, the Bush administration - with its reverence for the private sector - rewarded loan industry officials and lobbyists with prominent positions throughout the Education Department. Meanwhile, lenders such as Sallie Mae have showered Republican congressional leaders with hundreds of thousands of dollars in contributions each campaign cycle. “Know that I have all of you in my two trusted hands,” Rep. John A. Boehner (R-Ohio), a top recipient of that campaign cash, once famously told a gathering of student-loan providers.

The cozy relations that developed among the Bush administration, the Republican-led Congress and the lenders have left the loan industry essentially unregulated. Some observers liken it to the Wild West: Lenders and colleges pursue their own self-interest with little regard for students or taxpayers.

Every company wants to be a college’s “preferred lender,” competing fiercely to get on such lists. But the dirty little secret of the guaranteed student-loan market is how concentrated it is: Only 32 lenders hold 90% of the loan volume. What’s more, the Education Department has found that at about 300 colleges, one lender controls 99% of the loan volume - essentially holding a monopoly on those campuses.

Any company trying to break into the market has to rely on unconventional means. Some upstarts have promoted revenue-sharing arrangements, in which colleges get a cut of each loan that their students take out. Established lenders, worried about losing market share, have taken up similar kickback practices. One of the most egregious schemes is called an “opportunity pool,” which was pioneered by loan giant Sallie Mae. Here’s how it works: A lender hands a college a fixed amount of private loan money that the institution then can lend to students who otherwise wouldn’t qualify for loans because of credit problems. These are private loans - ones that typically come with higher interest rates and fewer consumer protections. In return for the “opportunity pool,” the college makes that company its exclusive provider of federally backed loans.

Soon after Sallie Mae started its Opportunity Loan Program in 2000, some of its competitors questioned whether it violated the provision of the Higher Education Act that bars lenders from offering inducements to colleges “to secure applicants” for federal loans. They brought their complaints to the Education Department’s inspector general, who wrote a memo to department leaders urging them to examine “opportunity pools.” Department officials, however, refused to take action, insisting that the loan industry should regulate itself. Many lenders took that to be tacit approval of the deals. As a result, other companies, such as Citibank, started offering similar arrangements.

Giving credit-unworthy students high-interest private loans is a recipe for disaster - a disaster that the department could have stopped. Loan industry officials acknowledge that these deals are “loss leaders,” meaning the companies are willing to absorb some defaults in exchange for a greater presence on a campus.

Recently, as outrage over these types of deals has grown and the Democrats have gained control of Congress, the Education Department has had a change of heart. Officials are considering more heavily regulating how colleges choose lenders to recommend to their students. For example, the agency may require financial aid administrators to include at least three choices on their “preferred lender” lists.

The department’s proposals, which are being contested by lenders and aid administrators, are welcome but unlikely to go far enough. Instead, policymakers should consider a complete overhaul of the federal student-loan programs so that college aid administrators are no longer in the business of recommending favored lenders.

If there can be a lendingtree.com for home mortgages, there can be one for student loans too. Lenders should bid for student-loan business. Students would get cheaper loans. And there would be fewer incentives for the kind of unseemly activity that has been coming to light.

Stephen Burd is a fellow at the New America Foundation, was a reporter for the Chronicle of Higher Education

Copyright 2007 Los Angeles Times

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Student Loans

Are you having a dispute involving a student loan? Common problems include the following:

Student loan collectors are subject to the same federal and state debt collection laws as other collection agencies.
The federal Fair Debt Collection Practices Act (“FDCPA”)

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The Defaulted Government Student Loan


This material is for a student or his or her parents who have defaulted on a government student loan.

It may provide information on:

1. how to find the loan documents;

2. how to identify the specific government loan program; and

3. options for financially-challenged borrowers in default.
Most of this information applies to government student loans throughout the country.
Defenses and repayment opportunities regarding private loans (non-government) are not covered in this material.

There are links to:

• a Glossary for Government Student Loans;
• how to get your free credit report;
• Authorization to Release Information to a Third Party
• Authorization for Release of Student Loan information or Records to the Borrower
• a Chart - Government Student Loan Captions;
• a Letter of Complaint if you believe you are mistreated or misinformed by collection agency personnel; and
• Office of the Ombudsman – Privacy Release Statement.
Most people seek help regarding their defaulted student loan after they receive a communication from a bill collector or they are being sued. Others confirm they have a defaulted loan from other resources such as their credit report. They may not have specific knowledge of the loan, or they may know about the loan and have some or no documents.

Updated 12/14/06

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Courts & Agencies

1 The terms of the student loan require the student or parent as the borrower to make regular payments. The borrower is in default when he/she fails to make the agreed regular payments and the holder of the loan concludes that there will be no further payments.



The first step is to locate which entity has be documents regarding the defaulted loan. These documents are identified below. After you have copies of the documents, you must determine whether the loan was directly from the government, guaranteed by the government or was a private loan. If the loan is directly from the government or guaranteed by the government, there is a chart that provides information that identifies each specific type of loan.


What Loan Documents Are You Looking For?
Whatever the reason the student or parent of a student is seeking help with a defaulted loan, the first step is to obtain and review at least four documents that pertain to all student loans. They are the:

1. Promissory Note;
2. Disclosure Statement;
3. Collection History; and
4. Payment History.

Disclaimer

Legal Services of Northern Virginia, Inc. and the authors do not represent that the information provided about its use or the legal resources presented, will be appropriate for any specific application.

While they believe the information is reliable, human or mechanical error remains a possibility.

Therefore, LSNV and the author do not guarantee the accuracy, completeness, timeliness, or correct sequencing of information.

They are not responsible for errors or omissions, or for the use of, or results obtained from the use of, the information.

Click here for the full LSNV Disclaimer.

http://www.lsnv.org/LSNV_Disclaimer.pdf

Together they are often referred to as the “docs.” For a defaulted loan they may be in a number of different locations. If a bill collector is trying to collect the debt, then the entity that referred the debt to the collector should have the documents. See A. Bill Collector below.
If the student or parent is being sued, then the entity that is bringing the suit should have the documents.

See B. Law Suit.

If there is no bill collector or suit, then go to C. No Bill Collector Suit. See how to request the records on-line or by telephone. If the borrower desires to request records by mail, go to Authorization for Release of Student Loan information or Records to the Borrower.
http://www.lsnv.org/Release_Student_Loan_Records.pdf

If the borrower is being assisted by someone else, including a lawyer, go to D. Authorization to Release Information to a Third Party.

http://www.ed.gov/offices/OSFAP/DCS/...horization.pdf

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A. Bill Collector

B. Law Suit

C. No Bill Collector or Suit

Go to loan histories on-line at the Website for the National Student Loan Data System (NSLDS) http://www.nslds.ed.gov to try to locate information regarding the loan.

The Education Department will not discuss loan data with a borrower’s representative, for example an attorney. However, they will allow third parties to be on the telephone at the same time, so you can set up a conference call.
Federal Direct Loan

2 Your electronic Personal Identification Number (Also known as EAC). You must enter a valid PIN to use the NSLDS Student Access system.


The borrower information telephone number (800) 848-0979. Defaulted borrowers need to call Debt Collection Service, telephone (800) 621-3115, 8 a.m. – 10 p.m. – Eastern time – Monday through Saturday.

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Like the Education Department, the Direct Loan Servicer will not discuss loans data with borrowers’ representatives.

Student Loan Ombudsman
U.S. Department of Education FSA Ombudsman 830 First Street, NE Fourth Floor Washington, DC 20202-5144
Telephone 877-557-2575
Fax 202-275-0549
http://www.ombudsman.ed.gov/

Federal Family Education Loan Program (FFELP) Loans
Most government student loans are FFELP loans. The loan is made by a financial institution and guaranteed by the government. Most FFELP holders will honor the borrower's written request to discuss loan information with a third party.


If the loan was guarantied by the Virginia guaranty agency

Contact: Education Credit Management Corporation,
Boulders, Building VII, 7325 Beaufort Springs Drive,
Suite 200, Richmond, VA 23225
Telephone 888-775-3262
http://www.ecmc.org/main/about_us.html


D. Authorization for Release of student Loan Information or Records

Fax this completed form to numbers (319) 665-7646 or 665-7647.


If you are making an inquiry with Student Loan Ombudsman, you will have to use their form for this purpose - Office of the Ombudsman – Privacy Release Statement.


Which Government Loan Program Made the Loan?

After you get the above-described documents, use the information below to determine which government agency made the loan.


Programs

• Direct Loans or William D. Ford Loans (The loan comes directly from the U.S. Treasury)

• Federal Family Education Loan Program (FFELP) (Here there is both a lender and guarantee agency)

• Perkins Loans

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If the loan is not made or guaranteed by the government, then it is a private loan, and this material does not cover these types of loans.

Options for Financially-Challenged Borrowers in Default
First review the Department of Education – Options for Financially-Challenged Borrowers in Default.
Next select the form or forms to apply for the option that best addresses your situation:

Active links are at:
http://www.lsnv.org/Government_Student_Loan.pdf
on p 5

• Options for Financially-Challenged Borrowers in Default

• W-9 Request for Taxpayer Identification Number and Certification

• Statement of Financial Status (for determining Affordable Monthly Payment Amount)

• Statement of Financial Status For Wage Garnishment Hearings Only

• Loan Discharge Application: School Closure

• Loan Discharge Application: False Certification of Ability to Benefit

• Loan Discharge Application: False Certification (Disqualifying Status)

• Loan Discharge Application: Unauthorized Signature/Unauthorized Payment

• Total and Permanent Disability Cancellation Request

• Loan Discharge Application: Unpaid Refund

• Teacher Loan Forgiveness

• Teacher Loan Forgiveness Forbearance Form

• Declaration of Caregiver Services

• Administrative Wage Garnishment Request For Hearing

• Example Third Party Disclosure Authorization Form

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Conditions for Cancellation

Four circumstances will allow you to cancel a government student loan:

Bankruptcy

In Educ. Credit Mgm. Corp. v. Frushour (n re Frushour), No. 04-2553, United States Court of Appeals for the Fourth Circuit, 2005 U.S. App. LEXIS 29018, September 20, 2005, the 4th Circuit officially adopted the Brunner test for determining whether a debtor has demonstrated that payment of the student loan debt will impose an undue hardship on the debtor and the debtor’s dependents.



11 USC § 532 (a)(8). The Bruner test was devised by the 2nd Circuit, and has been adopted by most of the other federal circuits. In Brunner v. New York Higher Education Services Corp, 831 F.2d 395 (2d. Cir 1987) the there are three factors:
t I

School Closure

The student will:

• provide testimony, a sworn statement, or other documentation reasonably available to her/him that demonstrates to the satisfaction of the Department that the student meets the qualifications for loan discharge based on school closure, or that supports any representation that the student made on any accompanying documents.

• agree to cooperate with the Department regarding any enforcement actions related to her/his request for loan discharge.

• understands that her/his request for loan discharge may be denied, or the discharge may be revoked if she/he fails to provide testimony, a sworn statement, or documentation upon request, or if she/she provides testimony, a sworn statement, or documentation that does not support the material representations she/he has made, or if she/he completed or is in the process of completing the program of study or a comparable program at another school through transfer of credits or hours from the closed school or by any other means by which she/he benefited from the training provided by the closed school.

• The student further understand that if her/his loan(s) are discharged based on any false, fictitious, or fraudulent statements that she/he knowingly made, she/he may be subject to civil and criminal penalties under applicable federal law.

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