OurFuture.org Blogs: Armand Biroonak

Republicans Want the Status Quo for Student Loans

Armand Biroonak — Thu, 19 Nov 2009 21:45:54 -0800

Representative John Kline (R-MN) and Senator Mike Enzi (R-WY) introduced legislation this week that keeps our broken student loan system in status quo, with corrupt private lenders and federal bank subsidies worth billions. This is a move directly against the Democrat-backed Student Aid and Fiscal Responsibility Act (SAFRA) that ends the practice and moves to federal direct lending, thus avoiding the private sector middlemen.

The Republican legislation does nothing to aid students, but sure does resuscitate the private loan industry. The proposal extends the existing Ensuring Continued Access to Student Loans Act (ECASLA) that is the lifeline for the federally-guaranteed, subsidized lender program. ECASLA is set to expire in July 2010, so many in Congress want to make sure lenders’ profits stay fresh.

Proponents of the bill claim that a move to direct lending, particularly during the credit crisis, will jeopardize students ability to gain access to loans they need and that schools are unprepared for the transition –but this is bunk. Deputy Under secretary of Education, Robert Shireman, stated that it takes colleges and universities between three weeks to four months for a complete switch over to direct lending. And even the once hesitant National Association of Student Financial Aid Administrators now recommends that all schools not wait, and prepare to switchover without delay.

Funny enough, Republicans hail their new bill “bipartisan” too, thanks to co-sponsor, and lone Democrat, Senator Ben Nelson (NE). Nelson’s support is no surprise though; his top contributor is the student loan company, Nelnet Inc. He is not alone however, a number of Senate Democrats have expressed that they are on the fence about ending lender subsidies.

Just a signal of who stands to benefit from the Republican bill, private loan companies’ stocks increased nicely on Wednesday when news broke of the proposal. Sallie Mae even responded that, “a delay gives Congress ample time to fully consider how best to reform the student loan program." But also enough time for Sallie Mae and other lenders to ramp up their lobbying to kill SAFRA and protect their profits. In fact, Sallie Mae spent over $3 million lobbying Congress this year so far, and with health care (understandably) clogging the legislative queue, lenders have even more time to scheme.

The Student Aid Bill Must Pass

The alternative bill, the Student Aid and Fiscal Responsibility Act (SAFRA) already passed the House and will actually benefit students, not banks, saving $87 billion by ending subsidies, directing much of the savings in the form of increased Pell Grants, investments to community colleges and strengthening college access and completion programs –and those are just some of the bill’s benefits. SAFRA is truly a game changer for education. The Republicans’ idea? The same old games.

Urge your Senator to pass SAFRA and help students, not banks.

Student Loan Industry: We Are NOT Dead Yet

Armand Biroonak — Fri, 13 Nov 2009 15:21:21 -0800

Recently the Secretary of Education, Arne Duncan, advised college financial administrators that with the likely passage of the Student Aid and Fiscal Responsibility Act (SAFRA) in the Senate, universities nationwide should prepare to switch over to federal direct lending of student loans. SAFRA already passed by the House, would end the Federal Family Education Loan program (FFEL) that doles out billions in wasteful federal subsidies to private lenders. In response to the Secretary, banks and their allies in the Senate made it known that they are alive and ready to battle to keep their profits, that reform is in no way a done deal.

Some of the biggest private student loan companies have joined together to form a “grassroots” campaign against SAFRA, called Project Student Choice. They even have a Facebook page chock full of misguided information to lure student support. While this past week, Chase and Ed America –among the largest student loan companies –announced that they see no reason to stop providing loans under FFEL. In other words, they are confident that the Senate will not pass reform legislation, so no need for stockholders or colleges to prepare for the move. Ed America also made explicit their support of preserving the status quo with their endorsement of Republican Senator Lamar Alexander's (TN) plan that extends the life of FFEL. The company goes on to claim , “We want to put STUDENTS back into student loans.” Or put directly, preserve their profits.

Lenders have friends in the Senate too. Democrat Ben Nelson (NE) recently sent a letter in defense of the student loan industry, chastising Secretary Duncan’s announcement to colleges. The senator complained the Department of Education’s actions “may be seen as clouding the debate” and that this is “spreading alarm in order to promote the government-run Direct Loan program.”

Not surprisingly, Nelson’s top contributor is the troubled student lender Nelnet Inc. Nelnet is the same company I wrote about recently, who is being sued by the federal government, accused of defrauding the government nearly $300 million with their participation in FFEL. This is on top of Nelnet’s previous settlement with the Department of Education worth hundreds of millions for fraud in 2007.

Unfortunately, SAFRA and the historic reforms it provides by ending billion dollar corporate giveaways are on hold in the Senate at the moment. Until health care legislation is passed, the Student Aid bill joins the queue with other important bills awaiting Congress’ attention. With that said, this is no moment for progressives to take a cat nap. This longer than expected window of time only means that big banks and lenders can resurrect from the dead and build support in the Senate to kill reform legislation that jeopardizes their precious profits, at the expense of student and taxpayers.

Visit the Campaign for College Affordability and tell your Senator to put Students over Banks! by supporting the Student Aid and Fiscal Responsibility Act.

The Doldrums of Young America

Armand Biroonak — Sun, 08 Nov 2009 09:25:37 -0800

Recent data from the Department of Labor shows the national unemployment rate has climbed over 10 percent. But that number does not paint the whole picture when taking a closer look at jobless figures by age demographic. For young adults in their late teens and early twenties, unemployment figures indicate truly dismal times.

Compared to the national average, young adults face substantially higher levels of unemployment. Those 20-24 years old face unemployment at over 15 percent, for those between the ages of 18 to 19, even worse at over 25 percent.

But this just continues a trend that young adults have faced for nearly a decade.

And unemployment is taking a toll. Historically, a majority of students rely on at least part-time employment to help cover the costs of post-secondary education, but many of those jobs have dried up in the downturn.

Think having a bachelor’s degree in hand will be the ticket out? Think again. Earlier this year less than 20 percent of 2009 graduates reported finding a job by graduation. And for those lucky to land a job, average salaries are down compared to the past. In fact, the average income for college graduates has fallen since 2000 by 12 percent (adjusted for inflation). Not to leave out mentioning, as college graduates find less pay or remain unemployed, their student debt while in school rose sharply , now averaging $20,000 for graduates.

Source: Census 2000 and 2008.

This dynamic group either entering college or joining the workforce are the seeds for America’s future success, but their dream of prosperity has wilted in these extraordinary times. The lack of employment translates to fewer opportunities to gain an education, own a home and stand on secure financial footing down the line. Hopefully these numbers will wake-up Congress and the Obama administration for the need of a long-term industrial and jobs strategy to put Generation X back to work. Now is the time for action before America's brightest and energetic turn disillusioned and a permanent blue.

Higher Ed Slashed, Left Dripping in Red

Armand Biroonak — Sat, 31 Oct 2009 08:51:12 -0700

The Chronicle of Higher Education released a survey of chief financial officers at four-year universities across the country and it is no treat; their outlook for this budget year (FY 2010) was gloomy, by next year? Even scarier. According to universities surveyed, 62% of officials expect the worst of financial pressures are still to come, with higher education budgets dripping in red ink, bitten by the recession looking forward.

This is despite the fact that universities have already slashed budgets, passed hair-raising tuition hikes, and in some cases chopped enrollment. At least 34 states already took the ax to public colleges and universities, reducing faculty and staff, coupled with steep tuition increases for the upcoming year.

And fiscal year 2011 looks equally sour, a total of 39 states expect to face or have already addressed shortfalls, amounting to an estimated $80 billion or 14 percent of state budgets. Although no real specifics, these fiscal challenges will surely trickle down to effect higher education spending even further.

To make up at least some of the difference, universities are spooking students with truly frightening tuition rates. On average the past year, tuition rose by nearly 10 percent for public four-year institutions. This comes after students were tormented with tuition increases of over 60 percent adjusted for inflation since 2000.

Meanwhile, enrollment and aid cuts are furthering the pain for students in a number of states. The California State University system plans to cut enrollment by 40,000 students. In Illinois, about 140,000 undergraduates (a quarter of all Illinois college students) will likely lose financial aid from the state. Ohio cut its top grant program in half, by $224 million.

And it is not just universities, weak state budgets are haunting community colleges equally. The majority of community college administrators predict that they will have mid-year budget cuts next year. While students can expect tuition to rise more than double the rate of inflation, as 46 states predict tuition increases at their community colleges.

And community colleges are feeling the effects of this recession in another way, as throngs of returning workers seek skills or job retraining. But the timing could not be worse. By a margin of 3:1 states report stress on their institutions to accommodate growing enrollment amid classroom cuts. In fact, in many cases, community colleges are so overextended that they now offer classes well into the graveyard shift to meet demand.

So what can be done to alleviate the skeletal state of higher education? A good start will be if the Senate passes the Student Aid and Fiscal Responsibility Act that expands Pell Grants and invests in community colleges. But that will not stop the bleeding alone. A second stimulus to help bridge state budget gaps for the upcoming year is critical until the economy shows signs of life again. While also, greater student aid and the creation of a ‘micro-Pell grant’ for workers to help pay for non-degree training can improve accessibility and affordability. While looking outward, we must start considering a way to better finance our education system, so it no longer resembles a sugar high and low.

Big Bank Fraud, This Time with Student Loans

Armand Biroonak — Mon, 19 Oct 2009 21:35:09 -0700

Just when you thought that the dust had settled from the scandals of Wall Street (at least temporarily), details come out of another Ponzi scheme by the titans of banking, this time with student loans. According to recently released court documents, Citigroup, JP Morgan and the education finance company Nelnet are being sued by the federal government for fraud of nearly $280 million from their participation in the Department of Education’s Federal Family Education Loan program (FFEL). FFEL provides billions in annual bank subsidies to private lenders for making student loans –the same subsidies that the student aid bill currently in Congress looks to abolish.

According to court filings:

“Nelnet, JP Morgan Chase and Citigroup caused false certifications, records or other statements to be made and used to get false claims paid and approved.”

“Nelnet’s fraudulent course of conduct consisting of brazenly offering inducements to its employees and schools for loan applicants while keeping the DOEd in the dark by virtue of its implied and express certifications of compliance.”

Moreover, to rope in more borrowers to boost subsidy payouts, Nelnet deliberately misled consumers with false advertising, promising students could save thousands of dollars by consolidating their loans –even though FFEL prohibits private lenders from engaging in such practices.

Meanwhile, legislation that would end the system that Nelnet and other banks are profiting off of is in jeopardy of not passing in the Senate. The Student Aid and Fiscal Responsibility Act (SAFRA) would end the $87 billion worth of bank subsidies and move all student lending to the federal government. And even though the House passed the legislation, centrist Democrats such as Sens. Blanche Lincoln (Ark.), Mark Begich (Alaska) Ben Nelson (Nebraska), Tom Udall (New Mexico) vow to stand in the way, voicing opposition to the bill.

Sen. Ben Nelson is among the most vocal in keeping private lenders in business like Nebraska-based Nelnet, stating, "I just don't think we need to turn it [student loans] all over to the federal government.”

While others in the Senate, such as Sens. Bob Casey (Penn.) and Mark Warner (VA) are on the fence because of jobs —Sallie Mae, the largest lender under FFEL, has extensive operations in both states. For this reason, watch for proposals in the Senate to preserve private lenders' role for the future. And because the private industry has done so well with loans, lets not forget that Sallie Mae was embroiled in a major ‘pay-to-play’ scandal two years ago for bribing college financial aid officers and administrators to pawn loans upon students.

This sure is a system worth saving isn’t? All in all lender subsidies only feed big bank greed, which is why the passage of the student aid bill is so important. Lenders are geared up and have friends in the Senate to keep their profits at the expense of students and taxpayers. Visit our partner, the Campaign for College Affordability, to end this madness and pressure your senator to stop financing banks and start helping students.

House Hearing Shines Light on Student Bankruptcy Injustice

Armand Biroonak — Sat, 26 Sep 2009 07:53:42 -0700

Earlier this week the House held a hearing on private student loans and bankruptcy, shedding light for the first time on a rather unknown yet devastating aspect of student debt.

Did you know that because of legislation dating back to 1976 under the Higher Education Act private student loans are unable to be discharged through bankruptcy? In other words, feel free to run up the credit card and splurge, but take out loans to pay for education? That’s just reckless.

The number of students taking out private (or nonfederal) student loans has increased significantly over the past decade. Private student loans now make up nearly a quarter of the overall market, compared to just ten years ago when they made up a small fraction. This spike is not only due to skyrocketing tuition –the average four-year tuition has increased 30 percent from a decade ago –but also because of the complexity of the financial aid process that leaves many students vulnerable to take out the worst of loans. In fact, many students turn to private loans before even exhausting available federal aid and loan options.

Source: College Board

Meanwhile, private lenders capitalize on this confusion, even at times in cahoots with universities, preying on young adults, steering them towards more risky loans.

These loans pawned on students by private lenders are often downright predatory, offering little consumer protections. Private loan interest rates are normally variable, with average interest rates running between 9 and 13 percent, nearly double that of federal loans. On top of that, the flexibility of repayment for private loans are much less pliant, in almost all cases a missed monthly payment results in an automatic interest rate hike of 2 percent, with additional fines and fees to punish borrowers.

And you can imagine that with the toughest job market in decades, coupled with staggering student debt averaging $23,000, students are finding they can no longer keep up with repayment. But unlike federal loans, private lenders do not have to offer flexible payment plans or a forbearance option to struggling borrowers. Why should lenders? When they can maintain hefty profits.

While in truly tough times, students needing to discharge their private loans in bankruptcy are forbidden to. In other words, if you face chronic unemployment, a medical emergency or even die –tough luck, student loan debt will continue to be an albatross.

Congress though may finally be addressing this injustice. This week’s hearing was the first time the issue has been addressed since written into law in 1976! Rep. Steve Cohen (D-TN) announced he will soon file legislation to give private student loan borrowers more equitable treatment during the bankruptcy process. And in another good sign, House Chairman of Education and Labor Committee, Rep. George Miller is on board as well, stating, "There’s no justifiable reason that the lenders who provide them should be treated any differently than credit card companies, auto finance companies, utility providers, and other creditors.”

House Passes SAFRA, Senate Fight Coming

Armand Biroonak — Thu, 17 Sep 2009 12:58:45 -0700

I congratulate the House passing the Student Aid and Fiscal Responsibility Act (SAFRA) —see description of the bill here. This historic legislation commits billions to student aid and higher education investments, while ending wasteful bank subsidies that total $87 billion.

Although certainly a victory, the tougher fight ahead will be in the Senate. I'm all but sure the Republicans will maintain their status as the 'Party of No' voting against the bill, but a few Blue Dogs (ex: Nebraska Sen. Ben Nelson) likely will join them, standing in the way. Meanwhile, lobbyists already have swarmed against SAFRA, like Sallie Mae –the prominent student lender –who has showered donations to those in the Senate, Republican and Democrat, in order to gain support against the bill.

Also, look for message framing from opponents to mar the truth with descriptions of SAFRA such as, “anti-consumer choice,” “big government takeover,” and “deficit busting” –all which are flat-out false claims.

Follow closely the coming weeks as I sort out the battle of students vs. banks!

Students Over Banks...Pass SAFRA!

Armand Biroonak — Wed, 16 Sep 2009 08:35:56 -0700

The Student Aid and Fiscal Responsibility Act (SAFRA) is expected to be introduced in the House today. A historic bill, it will invest billions in student aid and higher education, while ending subsidies to banks (See Bob Brandon’s post outlining the bill here). But private lenders are determined to keep their profits by killing the bill, thus denying students the aid they need. So contact Congress to pass H.R. 3221, placing Students over Banks!

The Federal Family Education Loan program (FFEL) was established by the federal government over thirty years ago to encourage (via subsidies) private lending in the once small student loan market. Fast-forward to today, SAFRA aims to end costly subsidies in a sector that has matured, offering all loans under Federal Direct Lending.

Worried about profits, America’s Student Loan Providers have come out against the bill,

“The student loan program changes are not only misguided, but inconsistent with consumer choice and competition. By having the government take over all federal student loan originations, it would involve one of the largest expansions of a government program in recent memory. Within a decade the Federal Direct Loan Program would be a trillion dollar operation, making it one of the biggest banks in the world. It would ultimately have responsibility for tens of millions of borrowers.”

Where to begin with the lies? First, all lenders of FFEL are required to lend at interest rates determined by the government –competition therefore does not exist because banks can’t set any terms. Secondly, the government already is responsible for all loans and borrowers. Banks lend nearly risk-free under FFEL, with the government guaranteeing them a rate of return and covering borrower defaults. In fact, the federal tab picking up defaults is an estimated $9 billion this year alone. Lastly, a switch to Direct Lending does not balloon the costs to the government –it’s the opposite. Ending FFEL will save the government $87 billion over the next decade by ending subsidies, with SAFRA paying down the deficit by $10 billion.

Even the loan industry’s last-ditch proposal to service government loans under Direct Lending proves nonsensical. The latest CBO confirms the past week that private servicing will cost $17 billion MORE than a complete switch to Direct Lending.

Republicans of course are looking to maintain the status quo for their banker friends. The top House Republican on the Education and Labor Committee, Rep. John Kline (R-MN), warned in an op-ed Monday,

“It’s time to hit the brakes. Rather than frantically rushing to enact a proposal before the costs and consequences are fully understood, Democrats should join Republicans in our plan to commission a comprehensive study about the future of student lending. We can extend a program that works today — in the process, putting billions toward deficit reduction — while finding a long-term solution that will benefit students, schools and taxpayers alike.”

I’d say students have waited long enough for critical investments in student aid and higher education; that is why passing SAFRA is so important. The choice could not be any clearer, but watch as the bank lobby and their supporters in Congress move against the bill. Make your voice heard now, call your House representative and tell them to support H.R. 3221, placing Students over Banks!

Afghanistan Policy Not Working, There and Here

Armand Biroonak — Fri, 11 Sep 2009 07:31:24 -0700

As today marks the eighth anniversary of the tragic September 11th attacks, it is also a reminder of the calamitous road of foreign policy that the Bush administration took us down shortly after. The Iraq War was of course an outright disaster, but Obama’s recent troop escalation into Afghanistan should worry progressives equally.

American strategy after nearly eight years in Afghanistan has achieved little. According to U.S. Commander of Afghanistan, Stanley McChrystal, “conditions on the ground are serious” while the Chairman of the Joint Chiefs of Staff, Adm. Mike Mullen warned, “the situation has deteriorated.” Meanwhile, troops are greeted to a resurgent Taliban in all parts of Afghanistan. This helps explain why the past August was the deadliest month for troops since the war began over seven years ago.

Yet, with a big troop surge in Afghanistan already announced by Obama earlier this year, hints of an even greater troop increase may be on the way. This should prompt progressives to ask the larger question, what is victory for the U.S.?

American leadership has yet to put forward an exit strategy for our troops. In fact, last month Ambassador Richard Holbrooke quipped that success in Afghanistan can be defined as, “we’ll know it when we see it.” More troubling for U.S. strategy, Bruce Riedel, former advisor on Afghanistan to President Obama, puts bluntly that even with sufficient troop numbers, “Anyone who thinks that in 12 to 18 months we’re going to be anywhere near victory is living in a fantasyland.”

A military solution then is not the answer. What Afghans truly desire is stability and development. Ravaged by war for decades, Afghans are unfortunately all too familiar with world powers turning their soil into a battlefield. The key is for an American presence in Afghanistan to act not as a military occupying force, but rather as a partner ( with the international community) for reconstruction and economic development. Studies support this approach, such as the RAND Corporation’s conclusion that

“the United States would be more effective and less dependent on large-scale use of military power to counter insurgency by correcting major deficiencies: civil competence and capacity to build effective and legitimate local government...[and] capabilities to organize, train, equip, and advise local military and police forces.”

Ironically, according to military experts, the Taliban is doing just this. Despite repressive practices, they have gained credibility by providing services to the people. In fact, Adm. Mullen explained how the “Taliban is getting pretty effective at [governance]. They’ve set up functional courts in some locations, assess and collect taxes, and even allow people to file formal complaints against local Talib leaders.”

And shifting back home, progressives know past strategy should no longer live in the present, that our priorities have been misplaced for too long. Focus abroad the past eight years has jeopardized our ability to address threats here at home. Due to the War in Iraq, the National Guard was unable to respond more effectively during Hurricane Katrina. While needed investments such as fixing our crumbling infrastructure are placed on the backburner, with over $1 trillion spent for the wars of Iraq and Afghanistan instead.

It is clear then that the progressive movement will have to push harder and demand an exit strategy for Afghanistan from the Obama administration and Congress. For the sake of American troops, our security and the Afghan people, it is time for change. Legislation demanding an exit strategy is already in Congress –pressure your representative to support it!

See Brave New Films, “Rethink Afghanistan”

Back to School, Students Turn to Loans for Help

Armand Biroonak — Fri, 04 Sep 2009 13:54:41 -0700

Students are borrowing more than ever to pay for college. As reported in the Wall Street Journal, for the 2008-09 academic year, students borrowed nearly 25 percent more than the previous year to pay for school, borrowing a total of over $75 billion. But as the economy worsens and states continue to slash higher education spending, this upcoming year will certainly be worse.

Why?

To begin with, the bad economy translates to fewer jobs available for students. Job openings that students traditionally apply for either are filled by more experienced workers or have vanished completely. This has helped push the current unemployment rate for 16 to 24 year olds over 18 percent. And considering how nearly half of full-time students and over 80 percent of part-time college students rely on jobs while in school –the dismal job market thus pressures them to borrow more. I of course neglect the impact of parents losing jobs, but its effect is easy to predict.

A second, more important reason is cash strapped states are cutting student aid and hiking tuition. Already 32 states have announced such measures, leaving students to foot the bill. In Michigan, the state has frozen merit awards to nearly 97,000 students. In Illinois, 145,000 need-based students have been told that their aid will be cut in half. And to highlight this trend once more, Pennsylvania is slashing aid for over 170,000 of its students.

These cuts will be extremely painful when considering in prior years nearly two-thirds of students nationwide received some form of financial aid.

Meanwhile, with states’ belt-tightening they are jacking up tuition. Tuition hikes of course are sadly, nothing new –the average tuition at a public four-year university has already increased 29% between 2000 and 2007. But by next year, states warn they will raise tuition again, and quite dramatically. For example, Cal State, California’s largest post-secondary system, announced a 20 percent increase for 2010 and Florida’s public universities tell of a 15 percent increase.

These radical actions are sure to leave students and parents in a vulnerable position. The unpredictability of next semester's costs and dwindling aid packages lead to a scramble for money by individuals, and as we can see by the latest data, a turn to borrowing.

Moreover, with state budgets appearing increasingly gloomy for 2010, college affordability will only grow worse. Already, the Obama administration has shown a commitment to higher education, with a historic increase in Pell Grants. Now is the time though for further action to be taken. Obama must make clear that states can no longer privatize the education system by slashing aid and hiking tuition, resulting in more students taking on loans. The solution is for the administration to incentivize and reward ‘good state’ behavior (that avoids harmful cost cutting) by offering stop-gap measures to plug the hole in states’ budgets. But Obama must act quickly as state finances are disappearing by the day.