Monday, April 13, 2009

Plan to change student lending sets up a fight

It seems that these days, one hears more and more of Republicans putting up a fight against yet another plan proposed by Democrats. One would think that they could find something more constructive to do, rather than obstruct and hire overpaid lobbyists to keep themselves electable.

I am not particularly a fan of large government, and I fully appreciate that makes me in the minority as an avowed Democrat. In this case, President Obama is on target. Essentially, the plan proposes that the government take over subsidized loans currently made by banks, giving low income students greater access to financial aid.

Here is an excerpt from the article: "For lenders, the stakes are huge. Just last week, Sallie Mae reported that despite losing $213 million in 2008, it paid its chief executive more than $4.6 million in cash and stock and its vice chairman more than $13.2 million in cash and stock, including the use of a company plane. The company, which did not receive money under the $700 billion financial system bailout and is not subject to pay restrictions, also disbursed cash bonuses of up to $600,000 to other executives.

Sallie Mae said that executive compensation was lower in 2008 than 2007 and that the stock awards were worthless in the current market.

Critics of the subsidized loan system, called the Federal Family Education Loan Program, say private lenders have collected hefty fees for decades on loans that are risk-free because the government guarantees repayment up to 97 percent. With the government directly or indirectly financing virtually all federal student loans because of the financial crisis, the critics say there is no reason to continue a program that was intended to inject private capital into the education lending system."

First Fannie and Freddie Mac and now Sallie Mae - when are these people going to get it? It is just not ok to keep on giving out HUGE compensation packages when losing money. Competition, even if it is from the government - is the best way to combat this.

Students all over the country are scrambling to secure financial aid, with banks making tighter parameters for those wishing to lend monies. They have received their TARP funds and now don't want to part with any loan money which was part of the reason they received the funds in the first place. Some banks are even considering giving back their TARP funds because they do not wish to be accountable to the government for what they do/have done with them.

Sallie Mae is not going down without a fight - just last week, Albert Lord, their CEO held a town-hall type meeting, announcing the return of some 2,000 jobs that went overseas in 2007. How very convenient. They have additionally brought in two major lobbyists. Here is another excerpt from the article: "To press its case, the nation’s largest student lender, Sallie Mae, has hired two prominent lobbyists, Tony Podesta, whose brother, John, led the Obama transition, and Jamie S. Gorelick, a former deputy attorney general in the Clinton administration."

This is going to be an interesting and potentially volatile showdown. Stay tuned.

Here is the link to the story:

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