Wednesday, May 09, 2007
Hmmm....
So where have I been? Mostly siting at my laptop and playing WoW. Anyway, It's been a while since I've posted, and there are so many topics to cover I'm not sure where to begin. That said I should probably cover the recent financial aid scandal concerning student loans.
As you probably already know, certain schools and a myriad of lenders have been caught with their hands in the collective cookie jar, accepting kickbacks, meals, trips, etc. for loan business. Things were a little too cozy throughout the industry, but some schools and individuals went WAY over the line. Also included were some Dept. of Ed officials who held stock in a student loan company charged with holding loan records for those who consolidated with Direct Loans (like me) . this answered a nagging question for me; I'll cover that later.
Before I start my own rant, I should mention that I too have accepted meals and trips from lenders. It would be rare to find a a financial aid counselor who didn't. The trip was to freaking Indianapolis, while other were getting trips to the Caribbean. The running joke in the office was that we worked for the wrong school. The dinner associated with the trip was outstanding, and I eat enough for 4 people, maybe more. Still, the bank got no more business from me as a result, and their customer service still sucks. If the point of the trip was to drive loans, it failed badly. This was the biggest or most expensive thing I have ever received from a lender, but they always drop off post-its or pens, etc. You see this all the time in the doctor's office. The trip to Indy aside, none of the free stuff we get would approach the level of an ethical violation. The more egregious cases came from schools with a much higher loan volume than mine, and this is where the trouble begins.
I've said it here before, but it bares repeating: beware the student loan lender. While it is true you're no longer stuck (at least in NY) with only one lender, you can still make a mistake and pay dearly. The question is not one of student loans however, as this just gets you used to use one bank over another. the real $$ is made via alternative loans.
Alternative loans are the ultimate necessary evil. Schools are very expensive, and aside from the state schools (and then only off campus), one cannot borrow enough from the Stafford loan program to pay the bill. Early in one's studies even the Stafford is not enough, but next year it will be closer. Assuming the family cannot pay the difference out of pocket or tap into equity in their homes, alternative loans pay the difference.
Stafford loans, regulated by the Dept of Ed under the authority of the Higher Ed Act, have very strict guidelines as to interest rates, repayment schedules, customer service, etc. Alternative loans have none of that, and you can ruin your financial future by taking the wrong loan with the wrong company. E.g., I was online here at the office, and saw an ad that stated I should not use the equity in my home to pay for my child's education. Obviously, I'm paraphrasing. The ad was much more manipulative. I clicked to find out what loans this company was offering. I was floored when I read the results; the interest rates were through the stratosphere. they were offering prime plus 7.5% at the high end, which means, at the time of the ad, an interest rate of nearly 13%!!! WHAT THE FUCK?!!?!?!?! ARE THEY SHITTING ME?!?! Um, no, not really. Citibank had a home equity line of credit for prime minus 1% and the interest is (on some level) tax deductible. No wonder they don't want you use a 2nd mortgage, bastards. I should note that the worst rate was for those with the worst acceptable credit, which sounds like an oxymoron. I won't mention this bank's name, as I don't remember, but I'm sure you can find the ad today.
All of the above means that the real money is made on alternative loans, but students and their families will use the same bank for the alternative loans that they used for the Stafford. As such, steering one to a specific bank for the freshman $2625 loan can reap huge benefits long term. The temptation to reap these rewards is great enough that some were willing to bend the rules to get the sales they needed. The bank reps are essentially salesmen, although not as shady as some, and almost all have some financial aid experience. They have goals and numbers that must be met, and these people get paid huge amounts of money to meet those expectations. They aren't shy about spreading a little (or more) money around if they know it will end up back in their pockets. The greater the potential, the more money they are willing to spend.
This explains why the banks are willing to break the rules, but what about the schools? Why weren't they more vigilant? Well, often the schools were receiving payment to steer business to specific lenders or were school as lenders, which means the school held the loan for around 5 minutes, then sold it to whatever bank pre-arrainged to purchase the loan at premium, thereby paying off the school that sold them the loan. Even worse, some banks actually made financial aid directors "employees" (job description: show up, chec in to suite, eat pastries, drink mimosas, bitch about students, have dinner, drink champange, collect check, lather, rinse, repeat...) on various advisory boards for the banks. Not all were as illegitimate as listed above, of course. These cozy set ups enabled the schools to profit. There were other ways as well, such as donantions to scholarship programs, etc.
OK, schools and lenders and directors are covered, what about the financial aid counselors? Didn't they know what was going on was wrong? That is the wrong question to ask, actually. The question should be why didn't they care? This is a much easier question to answer. I'll start with a want ad on one of the financial aid association websites. It asked if I needed a master's degree or if my child needed college tuition. If I/he/she did, I should apply to XXXXXXX college and work for them. I wouldn't do this for many reasons, but the want ad is telling. 1) This school does not treat their financial aid counselors as professionals. 2) the pay must be absoulte shit. 3) The school does not expect you to be working for them in 3 or 4 years anyway. All of these factors equate to an ethical vacuum. If I'm not going to be around in 2 years, am making terrible money, and am generally unvalued, what difference does it make if I'm ethically compromised? Correct, it doesn't. You make 21K per year and see if you turn down an all expense paid vacation to the Bahamas. Also, people use these interactions to land jobs with the aforementioned banks, and the cycle continues.
I'll stop here. There is much more to tell, but I'll do that later.
As you probably already know, certain schools and a myriad of lenders have been caught with their hands in the collective cookie jar, accepting kickbacks, meals, trips, etc. for loan business. Things were a little too cozy throughout the industry, but some schools and individuals went WAY over the line. Also included were some Dept. of Ed officials who held stock in a student loan company charged with holding loan records for those who consolidated with Direct Loans (like me) . this answered a nagging question for me; I'll cover that later.
Before I start my own rant, I should mention that I too have accepted meals and trips from lenders. It would be rare to find a a financial aid counselor who didn't. The trip was to freaking Indianapolis, while other were getting trips to the Caribbean. The running joke in the office was that we worked for the wrong school. The dinner associated with the trip was outstanding, and I eat enough for 4 people, maybe more. Still, the bank got no more business from me as a result, and their customer service still sucks. If the point of the trip was to drive loans, it failed badly. This was the biggest or most expensive thing I have ever received from a lender, but they always drop off post-its or pens, etc. You see this all the time in the doctor's office. The trip to Indy aside, none of the free stuff we get would approach the level of an ethical violation. The more egregious cases came from schools with a much higher loan volume than mine, and this is where the trouble begins.
I've said it here before, but it bares repeating: beware the student loan lender. While it is true you're no longer stuck (at least in NY) with only one lender, you can still make a mistake and pay dearly. The question is not one of student loans however, as this just gets you used to use one bank over another. the real $$ is made via alternative loans.
Alternative loans are the ultimate necessary evil. Schools are very expensive, and aside from the state schools (and then only off campus), one cannot borrow enough from the Stafford loan program to pay the bill. Early in one's studies even the Stafford is not enough, but next year it will be closer. Assuming the family cannot pay the difference out of pocket or tap into equity in their homes, alternative loans pay the difference.
Stafford loans, regulated by the Dept of Ed under the authority of the Higher Ed Act, have very strict guidelines as to interest rates, repayment schedules, customer service, etc. Alternative loans have none of that, and you can ruin your financial future by taking the wrong loan with the wrong company. E.g., I was online here at the office, and saw an ad that stated I should not use the equity in my home to pay for my child's education. Obviously, I'm paraphrasing. The ad was much more manipulative. I clicked to find out what loans this company was offering. I was floored when I read the results; the interest rates were through the stratosphere. they were offering prime plus 7.5% at the high end, which means, at the time of the ad, an interest rate of nearly 13%!!! WHAT THE FUCK?!!?!?!?! ARE THEY SHITTING ME?!?! Um, no, not really. Citibank had a home equity line of credit for prime minus 1% and the interest is (on some level) tax deductible. No wonder they don't want you use a 2nd mortgage, bastards. I should note that the worst rate was for those with the worst acceptable credit, which sounds like an oxymoron. I won't mention this bank's name, as I don't remember, but I'm sure you can find the ad today.
All of the above means that the real money is made on alternative loans, but students and their families will use the same bank for the alternative loans that they used for the Stafford. As such, steering one to a specific bank for the freshman $2625 loan can reap huge benefits long term. The temptation to reap these rewards is great enough that some were willing to bend the rules to get the sales they needed. The bank reps are essentially salesmen, although not as shady as some, and almost all have some financial aid experience. They have goals and numbers that must be met, and these people get paid huge amounts of money to meet those expectations. They aren't shy about spreading a little (or more) money around if they know it will end up back in their pockets. The greater the potential, the more money they are willing to spend.
This explains why the banks are willing to break the rules, but what about the schools? Why weren't they more vigilant? Well, often the schools were receiving payment to steer business to specific lenders or were school as lenders, which means the school held the loan for around 5 minutes, then sold it to whatever bank pre-arrainged to purchase the loan at premium, thereby paying off the school that sold them the loan. Even worse, some banks actually made financial aid directors "employees" (job description: show up, chec in to suite, eat pastries, drink mimosas, bitch about students, have dinner, drink champange, collect check, lather, rinse, repeat...) on various advisory boards for the banks. Not all were as illegitimate as listed above, of course. These cozy set ups enabled the schools to profit. There were other ways as well, such as donantions to scholarship programs, etc.
OK, schools and lenders and directors are covered, what about the financial aid counselors? Didn't they know what was going on was wrong? That is the wrong question to ask, actually. The question should be why didn't they care? This is a much easier question to answer. I'll start with a want ad on one of the financial aid association websites. It asked if I needed a master's degree or if my child needed college tuition. If I/he/she did, I should apply to XXXXXXX college and work for them. I wouldn't do this for many reasons, but the want ad is telling. 1) This school does not treat their financial aid counselors as professionals. 2) the pay must be absoulte shit. 3) The school does not expect you to be working for them in 3 or 4 years anyway. All of these factors equate to an ethical vacuum. If I'm not going to be around in 2 years, am making terrible money, and am generally unvalued, what difference does it make if I'm ethically compromised? Correct, it doesn't. You make 21K per year and see if you turn down an all expense paid vacation to the Bahamas. Also, people use these interactions to land jobs with the aforementioned banks, and the cycle continues.
I'll stop here. There is much more to tell, but I'll do that later.
