This just struck me as odd when I read it. I was even more dismayed when public comment was disregarded. These changes serve to confuse borrowers even more than they already are.
Not understanding this. Welcome any input.
One story I've been following for a couple of months. I frankly doubt it will get any notice in the press.
The Federal Reserve makes changes to the Truth In Lending Act every so often. They have undertaken this process recently, and in particular, are looking at Regulation Z- a part of the Act that covers disclosure with student loans (private student loans). Its all really a confusing mess to be honest, but I noticed the following:
The Federal Reserve, for reasons unknown, proposed two important changes:
- Allow lenders to use University logos, emblems, mascots, etc, for marketing purposes for private student loans. (This is where students see the "Cornell University Student Loan", with the schools emblem, mascot, etc used as lures to make the students think the loans are somehow specifically taylored for the university. This type of activity was expressly restrictede by legislation that came out in the wake of the various scandals that broke in 2007.
- Emphasize interest rate on private loans, rather than the annual percentage rate (APR). APR is generally seen as a more informative measure, because it incorporates fees, and non-interest related charges, as well as interest. The reasons cited for this proposal rested on a focus group that was conducted that they claim showed that borrowers tended to understand interest rates better than the more complicated APR.
My analysis: These two changes obviously benefit the lenders, and serve to confuse the borrowers. There is no reasonable explanation for why the Federal Reserve decided to take such an interest in student loans at this minute level of detail, except that they have been influenced by the student loan industry. It would be interesting to hear the Fed's explanation of the origins of these modifications.
StudentLoanJustice.Org realized these changes were steamrolling through in time to register public comments protesting these borrower unfriendly changes. However, our comments were not heeded, and the Reserve went forward with the changes as proposed.
I really thought that in this new presidential administration, the changes in law that we saw would tend towards benefitting the borrowers...not the banks. Instead, we are seeing precisely the opposite.
You can see the Federal Register item describing the entire process at:
http://cryptome.org/...
And in keeping with the week's diaries, I am posting a story from a borrower so we do not forget that there are real, live people on the other end of these activitites in Washington D.C.
Renee
In 2003, I was suckered into borrowing from Sallie Mae for my private loans. It was the only choice offered to me by my university's admissions advisor. Unfortunately, I would find out after I graduated that universities are offered incentives from Sallie Mae for pushing their name. I understand that I borrowed money and I understand that I have to pay it back. What I don't understand is the 13% interest they tack on your loans.
I also don't understand that when I borrowed the money from Sallie Mae, I had a good credit rating and therefore I wouldn't need a co-signer for my loans. But when it as time to consolidate my loans to pay them back, I needed a co-signer as Sallie Mae said my credit rating was low. That's funny cause my credit rating has always been good. Never had any late payments on my credit card. Never had any problems with my home bank and borrowing money from them. Infact, when I called my home bank and told them about the situation, they said my credit rating was fine. HHMMM. So because I couldn't find a co-signer, and quite frankly why should I REALLY NEED one, my three loans from Sallie Mae remain to this day at 13% interest EACH, making my monthly payments over $1200 dollars for the next 20 years now.
I find this convenient for them to make some extra money off of 13% than 7%. I was in an immediate financial bind to which I needed to apply for a forbearance/ deferment. And managed to cough up the first $150 dollars that is needed for the forbearance application. But my financial situation lasted longer than the forbearance did and I couldn't come up with another $150 when THEY wanted. I had argued many times over with Sallie Mae about this $150 fee. The whole point of a forbearance / deferment is an application stating you HAVE NO MONEY. If I have $150 to put down for the application, then I have $150 to put towards my loan. If I am THAT BROKE, than $150 is for me to live off of not throw around for some application to say I have no money. So when I informed them I couldn't give them the money, they asked if I could pay $300 to them to put towards my loan???? Does that make sense? Obviously I said 'no'. And they said 'well I guess we will just have to put you down as refusal to pay'. Well, I didn't refuse to pay. I just said I can't pay you. There's a difference.
Is this $150 application fee legal? Government loans are not required a fee. Private loans are, according to Sallie Mae. But what does that money go to? Does it REALLY COST $150?