Wyoming’s Largest Student Lender to Stop Making Student Loans

Nonprofit Wyoming Student Loan Corp., the state’s largest student loan lender, has announced that, as of April 1, 2010, it will no longer be issuing any new parent or student loans.

In a statement from president and CEO Phil Van Horn, the company, also known as WyoLoan, said that it will continue to fund any student loans that are already approved for the current 2009–10 academic year and for which all loan proceeds will disburse by March 31, 2010 (WyoLoan announcement of student loan suspension, Oct. 20, 2009).

“WyoLoan is making this announcement at this time so that any student who has applied or who may apply for a loan and for which funds would be released after March 31, 2010, can make other arrangements through their respective school financial aid offices,” the statement reads. “At the present time, we estimate the number of students who will have to resubmit applications to be less than two dozen.”

The company will also continue servicing its current 25,000 customers who already hold student loans, which total $350 million, The Associated Press reported (“WyoLoan to Stop Making Student Loans,” Oct. 30, 2009).

In the lender’s 30-year history, the company website says, WyoLoan has issued over $1 billion in education loans to more than 75,000 students and parents.


Congress Considers the End of the Road for Student Loan Lenders

The company’s decision comes in response to proposed federal legislation moving through Congress that would put an end to the federal student loan program known as FFELP (Federal Family Education Loan Program), which allows private third-party lenders like WyoLoan to issue government-backed student loans.

Currently, the government pays these private FFELP lenders a subsidy for the federal parent and student loans they originate. A second federal student loan program — the Federal Direct Student Loan Program, begun in 1992 — issues federal student loans directly to borrowers through the U.S. Department of Education, with no third-party involvement from a bank or other FFELP lender.

Under the proposed legislation, known as the Student Aid and Fiscal Responsibility Act (H.R. 3221), all federal parent and student loans would become Federal Direct loans, issued directly to borrowers through the government rather than through third-party FFELP lenders — effectively putting most private lenders like WyoLoan out of business.

President Obama has been a vocal backer of the SAFRA bill, maintaining that FFELP subsidies funnel government money to banks and away from students. Supporters claim that the elimination of FFELP subsidies will generate $87 billion in savings to taxpayers over the next decade.

Critics, however, dispute this savings figure and say that the legislation amounts to a government takeover of student loans, stripping students of their right to choose their own lender.

Wyoming’s congressional delegation has come out alongside WyoLoan against the SAFRA bill.

The bill was approved by the House of Representatives on Sept. 17 and now awaits a Senate vote.

Should the measure fail to pass, Van Horn said, WyoLoan will consider lifting the suspension of its student loan program.

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A regrettable proposal for student loans

Health care isn't the only system on the verge of being overhauled. Federal student loans, which six out of 10 families rely on to pay for college, could soon see their most dramatic changes since 1965. Given the stakes, it would be wise for policymakers to heed some of lessons found right here on these pages.

Since February, the Star Tribune's "Streamlining Minnesota" series has examined ways to achieve a more efficient public sector. Its blend of ambitious goals, idealism and pragmatism could teach national policymakers a thing or two.

A plan is now before Congress to eliminate the Federal Family Education Loan (FFEL) Program, which serves 90 percent of Minnesota schools. Replacing it would be the Federal Direct Loan Program, which come July 1 would be the only federal student loan program.

It's truly unfortunate that the proposed Student Aid and Fiscal Responsibility Act hasn't been subjected to the kind of evidence-based analysis advocated by "Streamlining Minnesota." Had it been, a strong case would have been made for preserving a program model based on consumer choice and borrower service.

Take two principles advanced in an article from March:

First, focus on results, not dollars. "The bottom line of government isn't dollars," Public Strategies Group cofounder Babak Armajani said. "It's results per dollar."

Yet it's exactly the dollars that have most influenced the thinking on the FFEL elimination proposal. Too many have been unduly swayed by the government's claims of gargantuan (read unrealistic) cost savings from eliminating the program.


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Florida settles suit with student loan firm

Florida and 11 other states settled with Student Loan Xpress Tuesday, forgiving $112.8 million in loans used to attend the now-closed Silver State Helicopters training school.

Students in Florida will have $17 million in loans forgiven by the financial aid company, which served as the preferred student lender for the school for at least two years and loaned about $174 million to 2,300 students across the country. School records show only a small percentage of the 2,700 students graduated and drop out rates were high.

The company had 34 locations nationwide, including schools at Fort Lauderdale Executive Airport, Jacksonville, Lakeland and Melbourne.

In 2008, Silver State had stopped operating and filed for bankruptcy. Most students were left owing Student Loan Xpress for training and certifications they didn't get. The Florida Attorney General's Office received more than 300 complaints about the company's bankruptcy and the student loans still owed.

Student Loan Xpress will forgive 75 percent of the total amount borrowed for most Silver State Helicopters students. The percentage for the remaining students will vary by the amount of training each successfully completed.

The agreement with the loan company should keep negative information about students who did not pay their loans from appearing on credit reports. At other schools where the company is the only private loan provider, it must provide written disclosures to prospective borrowers that say the loans don't constitute an endorsement of the school, its principals or the quality of education or training offered.


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Student loan rate goes negative

Around 390,000 graduates with outstanding student loans will see their interest rates turn negative in a move which will reduce debts over time even without repayments.
The UK's current period of Retail Prices Index (RPI) deflation will see the interest rate payable on student loans taken out before 1998 plunge to minus 0.4% - the first time the interest rate has turned negative since the Government-subsidised loan service was launched.
The Student Loans Company resets the interest rate payable every September 1, based on the level of RPI inflation in March of that year.
RPI turned negative for the first time in almost 50 years in March, plunging from zero to minus 0.4% as the recession bore down on the UK.
This will be good news for pre-1998 students with debts still outstanding and who have not yet reached the salary threshold for repayment, seeing their loans reduce without having to pay anything back.


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Deflation pushes student loan interest rate below zero

From today, graduates paying off student loans taken out before 1998 will see their outstanding balances shrink, even when no payments are made.

The UK’s government-backed student loans system uses the Retail Prices Index (RPI) to set an annual interest rate, which is applied from 1st September.

The RPI measure turned negative in March as the recession deepened, meaning that the rate payable on student loans taken out before 1998 now stands at minus 0.4%.

The shift into negative territory is a first for the student loan scheme and according to reports, around 390,000 graduates will benefit.

Meanwhile, the Student Loans Company has reduced to zero the rate payable by around 3.26 million students and graduates with loans taken out after 1998.

The firm has defended its decision not to apply a deflationary rate, explaining that post 1998 loans are already “well-subsidised”.


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Berkeley Law Expands Loan Program

UC Berkeley's Boalt Hall School of Law announced this week that it's expanding its loan repayment assistance program for alumni who pursue public interest or government work.
UC Berkeley's Loan Repayment Assistance Program has been helping graduates repay their student loans for the past decade. It will expand in January to offer unlimited help to alumni who earn up to $65,000 a year. Previously the amount had been capped at $100,000 for alumni who make less than $58,000 per year.

"The law school provides the graduates who meet the income and employment requirements with a forgivable loan. Every six months, they're required to make their student loan payments," explained Berkeley Law Assistant Dean of Financial Aid Dennis Tominaga. He said those loans are forgiven if the students maintain the income and job requirements and uses the money make student loan payments.

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Government Discrimination In Student Loans

Over on his Reuters blog, Felix Salmon has a post today pondering the difficulties that some graduates are having dealing with huge amounts of student loan debt. He says that it can sometimes be hard for students to grasp just how much they're borrowing when amounts turn out to be astronomical. I agree. He also provides a good example and concludes that the government should be more selective about who it gives student loans and for how much. This sounds nice in theory, I just don't think it could ever happen.

His example comes from a Wall Street Journal article that talks about a graduate from University of Pittsburgh Law School named Lillian Russell who has accrued $181,000 in student loan debt. She is now having trouble finding a high-paying lawyer job, and consequently might have trouble making large student loan payments once her grace period is over. Salmon writes:

Realistically, most graduates from the University of Pittsburgh law school are not going to waltz into $160,000-a-year jobs: Russell's experience, where she's clerking for something close to a normal living wage, is surely quite normal. It's ridiculous that colleges can charge pretty much whatever they want, and the federal government will always be there to provide loans. One good way of decelerating the inflation in tuition fees -- and the concomitant rise in student debt -- will be for the federal government to start getting much stricter about the kinds of sums it's willing to countenance.
I completely agree with Salmon. But I also think that, as long as the federal government provides student loans, his vision will never come to fruition. I don't think that the government can discriminate in the way that Salmon and I might like it to, because the government tends not to do discrimination. This is the inherent problem with its involvement in something better left to the private sector, like loan underwriting.

Think about what this would mean. The government would receive a loan application from a potential college or graduate student. What criteria would they use to determine funding? Presumably they would want to estimate the likelihood the applicant would be able to pay back the loans. Such factors they might consider could include prior academic record (to establish potential academic talent and ambition), school ranking (how good a job might the applicant get), intended career (earning potential), geographical location (job prospects, cost of living), etc. That means that the federal government might be more likely to provide $100,000 in loans to someone studying engineering at MIT than to an English major at Notre Dame.

And then there are likely other factors that the government would have to take into account for political reasons, which would entirely skew the decision from a loan underwriting perspective. Would preference be given to underrepresented minorities? Does family income matter? I'm extremely skeptical that it would do a good job in making reasonable underwriting decisions due to such unavoidable political conflicts.

I'm not sure we want the government making those kinds of value judgments, which is why I think it's hard to support any system other than the one we have now, where it gives as much in loan money to whoever wants it.*

Of course, if these were private student loan firms instead of Uncle Sam, then it would be an entirely different story. Credit card and mortgage companies, for example, should feel free to discriminate based on potential to pay back borrowing. They do that every day.

Greater private involvement and less government involvement in the student loan market would also bring down education costs, a goal that interests Salmon. If private universities -- particularly less prestigious ones -- could not find enough students to pay their outrageous tuitions, they would have to charge less.


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