Both Sides of the Fence

A Tosa resident since 1991, Christine walks the dog, cooks but avoids housework, writes and reads, and enjoys the company of friends and strangers. Her job takes her around the state, learning about people's health. A Quaker (no, they don't wear blue hats or sell oatmeal or motor oil), she has been known to stand on both sides of the political and philosophic fence at the same time, which is very uncomfortable when you think about it. She writes about pretty much whatever stops in to visit her busy mind at the moment. One reader described her as "incredibly opinionated but not judgmental." That sounds like a good thing to strive for!

Benefits of competition?--revised

Economy, Student loans

Note: This morning, I received a note asking me to withdraw my blog entry "Competition = higher costs" because it was based on a misunderstanding. The writer, Kevin Bruns, executive director of America's Student Loan Providers, is right about the error in my premise, but maybe not about everything being wrong. So instead of pulling it as requested,  I'll print in full the note from Kevin and fix my entry. 6-5-09


You have confused the private education loans made by lenders (which have no relationship to the government and exist because schools increase tuition at a rate above inflation and Congress limited how much students could borrow in federal loans) WITH federally guaranteed student loans made by lenders.

In other words the premise of your article is wrong.

The Citibank letter relates to its desire to continue making federally guaranteed loans, which it has probably done for decades. The Obama administration wants to eliminate the program. The letter has nothing to do with private education loans.

The petition relates to federal guaranteed loans, not private loans. The signers support the continuation of choice and competition in FEDERAL student loans.

The administration's proposal would create a single lender, the Federal Direct Loan Program. It would have a monopoly with no virtually no competition.  Think Postal Service without competition from FedEx,  UPS or email.

Given the scope of the confusion, I request the article be pulled to avoid creating confusion among your readers.

Kevin Bruns
America's Student Loan Providers
Washington, DC

Here's the revised blog entry, with thanks and apologies to Kevin.

Two words that can be relied on to set us into fear and trembling are "competition," which makes our hearts soar, and "socialism," which when used as the opposite of competition is supposed to make us fear for a bleak and uniform future.

A letter being circulated by Citbank aims to make the case for competition in federally guaranteed student loans offered by private banks. Under legislation proposed by the Obama administration, those loans would be offered directly by the Federal government, without the banks as middleman.

Excerpts from a letter Citibank, one of the big recipients of taxpayer bailout dollars, sent to borrowers:

Citibank The Student Loan Corporation
May 7, 2009

Dear [Redacted],

Thank you for the opportunity to help you obtain the education of your choice. As a student loan provider for the past 50 years, Citi has provided financial aid assistance to millions of students and parents nationwide.

Given the challenging economy and continued increases in the cost of higher education, it is critical that the U.S. student lending system serves the best interests of students and their families. If you believe that competition and choice among student loan providers is valuable, you have an opportunity to make your voice heard.


Why Does Competition And Choice Matter?
Without private lender involvement through the Federal Family Education Loan Program, students and their families will not enjoy the benefits that competition has made possible for more than 40 years. This competition has provided not only a choice of lenders, but also innovative products and services, such as:

* a variety of borrower benefits that lower your cost of borrowing
* financial literacy programs that educate you on how to borrow responsibly
* web-based tools and resources to advise you about your financing options
* default prevention services to help you pay back your loans

Competition also has driven increased customer satisfaction as a result of the responsiveness, personal attention and on-campus support that student loan lenders have provided to borrowers and schools nationwide.

So it looks like the banks' claim to added value is in unspecified benefits, their websites, and other information, including web-based "advising."

I wondered exactly what "Default Prevention Services" meant. After all, you can't default on student loans, unlike all other loans. No delays are granted for special circumstances. And for those who fall behind, the interest rates get cranked up as high as 18%, plus penalties.

The answer, from another institution's website:

Take Aim with ECSI’s Default Prevention Services

As you know, the best way to manage your Cohort Default Rate
is to monitor and counsel your borrowers in their earliest
stages of delinquency. With that in mind, ECSI’s Default
Prevention Services (DPS) was designed as a cost-effective
solution to compliment the Federal Due Diligence Requirements
and intensify your collection efforts through a series of fully
customized Collection Letters, Phone Calls, and E-mails to help
you manage your most important responsibility.

As to the websites and "advising," New York Times columnist Gail Collins points out that:

Most current and former students do not seem to find this as being all that big a deal. What they need to know is exactly how much it will cost to pay back the loan after graduation, information about which they tend to hear less than the Web-site-quality matter. Besides, the loans often come in pieces, cobbled together from an array of different programs. It would be hard for an accountant to figure out what it all meant, and 19-year-olds are not at the point in life that maximizes attention to detail.

And the competition? Collins, again:

The real competition among the lenders is not to win over students so much as the school financial aid officers. This has led to unfortunate but deeply unsurprising instances of thinly disguised bribes and kickbacks. But even the most honorable officials don’t have much time for discussion when several hundred students are clamoring outside their doors. “You walk in and it’s like an assembly line in the bursar’s office,” said Stephen Marston, who graduated from New York University in 2006 with a degree in psychology. “They fill out everything for you. Here’s Sallie Mae — go ahead and sign. Payments weren’t even discussed.”

To date, some 14,084 people have signed a petition to keep the middlemen in business, possibly in order to gain the special satisfaction that comes from a better quality of  "personal attention" from bill collectors.

My own confusion in trying to figure out what's going on is proof that some Americans are in serious need of financial education. But I suspect we're all in need of a healthy dose of skepticism whenever we hear the word "competition" used as sufficient justification unto itself.

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