It is actually illegal for students to Refinance their debt, due to the Sallie Mae lobbying freight train. This is a piece by C. Victoria Patrick describing how this happened. The piece makes some good points, and clearly details Sallie Mae's continuing efforts to crush competition through Beltway manipulation.
These, and other issues, like destroying peoples lives through predatory student loan legislation, are detailed at www.studentloanjustice.org.
According to the U.S. Department of Education, over the last three decades, the ratio of federal aid in the form of grants versus loans has changed significantly from 77% grants and 20% loans to the exact opposite – 70% loans and 20% grants, which has resulted in a 50% increase in the average amount of student debt in the last ten years alone.
Experts are unanimous in their view that America needs to reverse course in order to ensure college access for all students and to insure that our nation will be able to compete with other countries in the years ahead.
But instead of passing laws to make college more affordable, the Republican controlled 109th Congress increased the interest rates on college loans to a fixed rate of 6.8% for students and 8.5% for parents and passed a tough new law designed to restrict competition among consolidation lenders.
For years students and parents have converted their variable-rate federally guaranteed college loans into fixed-rate federal consolidation loans in order to lock in favorable interest rates, in much the same way that homeowners do with their mortgages. And, for the same reasons.
But effective this past July 1st, the vast majority of students and their parents who have already consolidated, or wish to consolidate in the future, are legally barred from re-financing again, no matter what other lender might offer them a lower rate.
Legally barred from ever refinancing? Hard to believe, but true. And here's how it happened.
Simply stated, 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 new lender's 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 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 chest beating grew even more bellicose when he told the Orlando Sentinel, "Smaller corporations will now think twice about getting into the student loan business."
Such ugly statements by Sallie Mae's chief media spokesperson confirmed what industry insiders already knew: Sallie Mae pretends to have the best interests of students and parents at heart, while they covertly work to pass anti-competitive legislation that cost students and parents billions of dollars, most of it finding its way to Sallie Mae’s bottom line.
Can you imagine the uproar if homeowners were suddenly told that they could no longer re-finance their home loans?
The Democrats are trying 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
Educator, College Administrator, Financial Adviser (retired)
[doctori@san.rr.com]