Get Giant Lenders Off Corporate Welfare
February 27, 2010
By Nicole Mayer:
Eliminate the middle man and you pay less. Everyone knows that. So, once and for all, it’s time to save the taxypayers some money by removing private lenders from the process of writing government backed student loans. It’s a concept the Obama administration has embraced and is pushing to make a reality. Consumers would be much better off if they would just hurry up.
Time to Get it Done
It was one year ago that President Obama first unveiled a proposal to have the government take control of the federal student loan industry. The plan was to eliminate the Federal Family Education Loan Program (FFELP), in which private lenders service federal loans and rake in big bucks doing so. A June 2009 analysis conducted by the Congressional Budget Office showed this switch could result in a savings of $87 billion in taxpayers money over the next ten years.
A Washington Post article in May 2009 noted, “for the past two decades, every attempt to overhaul the $85-billion-a-year student loan industry by eliminating subsidies to lenders has faced insurmountable opposition from one of the most powerful institutions in the business: Sallie Mae, the world’s largest student loan company.”
However, when President Obama unveiled his plan in 2009, Sallie Mae curiously didn’t come out full force against it. In fact, Sallie Mae’s February 26, 2009, press release stated “We commend President Obama’s call to invest savings from low-cost federal funding sources to help students achieve their education goals.” Sallie Mae was “committed to delivering and servicing federal student loans regardless of the funding source.”
Get Giant Lenders Off Corporate Welfare
The plan seemed like a no-brainer. Get giant lenders like Sallie Mae off corporate welfare and give money to students who need it. The House of Representatives gave its approval by passing the Student Aid and Fiscal Responsibility Act of 2009 on September 17, 2009, with a vote of 253-171.
But the tides have changed. Today, the student lending bill is stuck in the Senate. It is now vulnerable to revision, weakening and delay. Even if it survives revision, there are doubts over whether the Senate will pass the bill any time soon. Democratic support for the bill is weaning along with the many Republicans who have already expressed opposition. So, what happened?
What Happened?
Let’s look at the timing of this. In February 2009, Sallie Mae, the source of the heaviest student loan lobbying of all time, was engaged in a bidding war over a government contract worth hundreds of millions of dollars. The company was at risk of losing its lifeline– the servicing of federal student loans and the fees and subsidies that come along with that job. Is not hard to see why Sallie Mae would stand behind any proposal made by the government while its very existence was in jeopardy.
Fast forward one year later. Sallie Mae was awarded the highly sought-after servicing contract , and now the company’s tune has changed. Although it claims its position has not wavered, the lending giant now insists “the President’s proposal could be enhanced in a way that preserves private sector competition. . .”
Saving Money for Whom?
Then came the “research” done by the private lenders, claiming they could also save the taxpayers’ money. This statement may come as a slap in the face, making one wonder, so you could have been saving us money all along but you just didn’t bother? The Congressional Budget Office’s response to the private lenders’ proposal, known as the “Student Loan Community Proposal” was that it would take $13 billion of the estimated $87 billion of savings and put that money right into the private lenders’ pockets.
Secretary of Education Arne Duncan recently spoke out in support of student loan reform in a Wall Street Journal Op-Ed piece. In that article, Duncan recounts that “For far too long, bankers have gotten a free ride from the U.S. Department of Education.” Duncan goes on to state, “Sallie Mae, the largest player in the student lending business, has spent millions of dollars to lobby Congress and run ads in several states, claiming that our proposal will cost jobs and inhibit service. These claims must be challenged.” Secretary Duncan points out that “Sallie Mae sent thousands of American jobs overseas in 2007 to further increase profits, and it agreed to bring them back last year only to compete for our loan-servicing business.” The Consumer Warning Network was the first to cover this chain of events in an April 2009 piece.
The future of the Bill at issue is unknown. If you have an opinion, contact your Senators and share your opinion!
The Wolf Guards the Sheep
February 3, 2010
By Terry Smiljanich:
Our lawmakers have turned protecting consumers into a game of smoke and mirrors. Just who exactly are they really protecting? Let’s dig deeper.
Remember that legislation Congress passed last May to help curb credit card company abuses (like raising interest rates through the roof), but then conveniently put off the effective date until February, 2010? And when credit card companies took advantage of that delay and went on a binge of rate increases, remember that attempt to correct the situation by advancing the effective date up to December, 2009? So what ever happened to that?
Loyal Customers Witness Implosion of Toyota/Lexus Brand
January 29, 2010
By Angie Moreschi:
As part of a family of loyal, long-time Toyota/Lexus drivers, I’m downright angry. Angry that Toyota screwed up a good thing.
Toyota could have used me in an ad a year ago ( I used to hail my previous Lexus for saving my daughter’s life in a bad accident we had). But now, I’m left worrying about whether my reflexes will be fast enough to save my children’s lives if I become one of the unfortunate victims of a sticking gas pedal.
Talk about the sudden implosion of an iconic brand… but maybe it wasn’t so sudden. Read on to find out about my unfortunate year as the owner of a brand new Lexus.
Debt Consolidation Could be a trap
January 28, 2010
You’ve probably seen the commercials on TV or heard them on your radio. A debt consolidation company offers to help you settle your debt for pennies on the dollar. But watch out, these companies could just make your money problems even worse.
Consumer advocates warn that debt consolidation company promises are often too good to be true. Many of the companies charge large up-front fees in addition to monthly payments and a percentage of your debt — all for services that can ruin your credit score, result in a onslaught of collection agency calls and leave you with tax obligations. In many cases, consumers pay thousands of dollars only to find themselves in worse financial shape than when they hired the debt consolidation company.
Click here to read more from business columnist Kathy Kristof of CBS MoneyWatch.
For-profit Colleges Under the Microscope as Students Complain
January 21, 2010
For-profit colleges use glitzy commercials to lure students to sign up, but what do those students get for their money? Degrees at these fast-growing schools can climb as high as $70,000 to $80,000, for programs like video game design, fashion merchandising and construction management, much of that tuition often subsidized by the taxpayers through government backed loans and grants.
Now, a growing number of students are complaining about their experience at these schools, which many say has left them deep in debt and disappointed. The Denver Post recently took an in-depth look at these for-profit colleges, like Westwood College, DeVry and Everest College. Find out what students and even former employees have to say, in the report below:
As for-profit colleges flourish, focus turns to grads’ success and debt
By Allison Sherry
The Denver Post Posted: 01/17/2010 01:00:00 AM MST Updated: 01/17/2010 09:00:54 AM MST
Zahra Crowley used to be an admissions representative at for-profit Westwood College. “It was about reaching your numbers,” she said of the high-pressure sales pitches she delivered. (RJ Sangosti, The Denver Post ) Related
The television ads promise a glittering future: Give us three years and we will get you your dream job. No high school diploma or GED certificate? No problem. Single mother trying to give your kids a better life? Sign up for classes today.
The standard pitch from the for-profit college industry has become a daytime television commercial staple. Recruiters for new students hang out at high schools, teen job fairs - even homeless shelters.
And it has worked.
Since 2004, the number of private degree- granting institutions has grown from 45 to 76 schools in Colorado, reflecting the popularity of for-profit colleges.
But with that growth have come complaints and lawsuits over recruiting practices, tuition costs
Elesha Stone and other students take part last month in practice activities simulating an operating room during a surgical procedures class at the Westminster campus of Colorado Technical University. (Matt McClain, Special to The Denver Post ) and the ability of graduates to land jobs in their fields of study. There also is growing concern in Washington, D.C., about the graduates’ ability - or inability - to repay the millions in federal loans for- profit students take out to pay tuition.
In three years, the state has received 164 student complaints about for-profit schools. The state has revoked authorizations of two for-profit schools and one for-profit vocational school since September.
“This is not dissimilar to what we see in other fast-growing sectors,” said Frederick Hess, education policy director at the American Enterprise Institute, a right-leaning policy think tank. “There is a larger population looking at postsecondary school. Now it’s time to figure out quality control. We need to keep in check the snake oil.”
At times, promises made during enrollment at the for-profit schools are delivered. Graduates make more money than before and are able to pay back the thousands of dollars they often owe in student loans.
Supporters say the industry has crafted an innovative educational model that serves students who aren’t getting what they need from traditional public and nonprofit schools.
In some cases, students would
Colorado Technical University in Colorado Springs, CO. (Special to The Denver Post Nathan W. Armes)not be accepted at a traditional school or need the highly flexible schedules for-profit schools offer.
“These are students who tend to not have been very successful in academic settings before. They’re intimidated; they’re not sure they can do it,” said Trace Urdan, a financial analyst in San Francisco with Signal Hill who follows the industry.
“At a for-profit school, everybody who works there knows your name. They’re looking out for you. They’re all over you if you don’t go to class. They work really hard to get those students and to get them through the program,” he said.
But a Denver Post examination of graduation rates, loans, default rates and other federal Department of Education data found that on many fronts,
Heritage College (John Prieto | The Denver Post)for-profit schools as a group underperform their public and nonprofit counterparts.
Among the findings:
- For-profit students are defaulting on their loans at much higher rates than students enrolled in public or private nonprofit schools. Twenty-three percent of students who attended Colorado for-profit schools were in default in the first three years they are required to make payments, according to a Denver Post analysis of 2009 federal Department of Education data.
Adams State College in Alamosa had the state’s highest default rate among four-year public schools at 15 percent.
- Tuition rates are high. Associate’s degrees usually run $30,000 to $40,000, and bachelor’s degrees usually cost between
ITT Technical Institute (John Prieto | The Denver Post.)$60,000 and $75,000 at for-profit colleges.
That compares with Metropolitan State College of Denver, where a three-year bachelor’s degree runs about $12,900, and the University of Colorado at Boulder, where the cost is $29,000 for in-state students. At the private, nonprofit University of Denver, a three-year bachelor’s degree costs $148,704.
- Taxpayers are paying for it. Last year, Colorado students received $1.6 billion in federal loans and Pell grants. Of that, $690 million went to for-profit schools, according to an analysis of federal loan data.
- Twenty-five percent of students seeking bachelor’s degrees at for-profits receive their degrees within six years, compared with 55 percent at public colleges
Click on image to enlarge and 64 percent at private nonprofit colleges, according to the National Center for Education Statistics.
For-profit schools say they serve a needier student population than most other colleges, which pulls down their graduation rates. Indeed, public schools that serve higher-risk populations, such as Metro State, do not perform any better. Its six-year graduation rate is 22 percent.
- Since 2006, the Colorado Department of Education has received 164 complaints against for-profit colleges - or one for every 214 students attending for-profit schools allowed to collect federal loan dollars. That compares with 178 complaints filed against public colleges - or one for every 1,224 students.
While the complaints themselves are not public, state officials told The Post the complaints against public schools are mostly academic in nature - disputes about grades or professors, for example. Complaints from students attending for-profit schools are consumer in nature, ranging from recruiting practices to lack of transparency about tuition costs and financial aid, according to John Karakoulakis at the state Department of Higher Education.
RECRUITERS PAID TO AGGRESSIVELY ENROLL
Critics say problems often begin the moment potential students reach out to the for-profit college.
Colleges are allowed to compensate admissions representatives based, in part, on the number of students they sign up. Critics say that makes the process less of a counseling session and more of a sales job.
“Whenever you pay someone such as a recruiter based on numbers they bring in, you’re just opening the door for abuse,” said Rich Williams, a higher education associate with the Public Interest Research Group in Washington.
Aggressive recruitment strategies is a key allegation made in a complaint against Westwood College, a Denver-based online and career college, that is now before the American Arbitration Association. The complaint alleges Westwood engaged in “deceptive and illegal trade practices” by failing to disclose the total cost of the education program and misleading potential students about job placement opportunities and the ability to transfer credits to other schools.
Westwood has denied all the allegations and said it trains its employees to be upfront with potential students.
Among the more than 500 people who have contacted the James, Hoyer law firm in Florida about the complaint is Zahra Crowley, who now works for the University of Colorado. In 2007 she was an admissions representative for Westwood.
“It was about reaching your numbers,” she said of the high-pressure sales pitches she delivered on the phone. “They would move you down a pay level if you didn’t make your numbers. . . . Of course we were just worried about that.”
Westwood said recruitment numbers are only one factor influencing compensation - and it is legal.
During the George W. Bush administration, rules that banned compensating admissions representatives at colleges for the number of students admitted were relaxed. All colleges and universities can now make the number of students an admissions rep enrolls part of the salary decisions, but other factors, such as student retention, also must be considered.
Negotiations are underway on proposed federal rules that may once again ban any compensation or gifts based on student enrollment.
Westwood College admissions officer Rick Yaconis said the school would work with whatever federal rules were in place but that current guidelines spell out specific pay- for-performance criteria that are useful.
“Every profession has a way to measure people’s effectiveness,” he said. “If our objective is to recruit qualified students who can impact their lives positively and have the opportunity to be successful in school, we want to find a way to measure that.”
BYPASS HIGH SCHOOL TO START COLLEGEFederal officials also are re-examining another public program bringing high school dropouts to the doors of for-profit colleges.
The Ability to Benefit program allows students without a high school diploma or GED certificate to take a test of basic skills to get into college and collect federal loans and grants to pay for it.
Josh Jurado was drawn to a $15,000 medical program offered by Everest College’s Aurora campus after dropping out of Hinkley High School.
“I called them and I did a little tour. I thought it seemed pretty cool,” he said. “It wasn’t like high school.”
That is what education advocates like about the Ability to Benefit program: It offers another route to higher education for students who do not fit in traditional high schools.
But federal officials have, in recent years, found problems with the testing program, which was created in the early 1990s after investigators found for-profit colleges packing classrooms with students who didn’t have high school diplomas.
In 2008, federal investigators posed as students taking entrance tests at an unnamed for-profit college. A Government Accountability Office report said investigators tried to flunk, but test proctors gave them the answers. Similar problems were found in other investigations.
As a result of the GAO report released last year detailing the abuse, federal officials are considering new rules to ensure test proctors are independent and not receiving any compensation from the college.
“All of these issues are a matter of quality control,” said U.S. Rep. Jared Polis, a Democrat from Boulder who is on the House Committee on Education and Labor. “We want to enhance student access to high-quality programs.”
Federal officials acknowledge they have not kept close track of how many students have been admitted under Ability to Benefit tests or how well they do after they get their diplomas.
Community colleges in Colorado say about one half of 1 percent of their students are admitted under the tests - or 360 of 79,933.
At three Everest College campuses in Colorado, more than 24 percent of the 2,100 students were admitted through the testing program, said Corinthian Colleges vice president Anna Marie Dunlap.
“High school dropouts are a neglected and under-served population,” Dunlap said in an e-mail. “The Federal government set up the (Ability to Benefit) program to provide this population with an opportunity to gain skills that are in demand in the labor market.”
For Jurado, Everest’s medical assistance program seemed perfect. He said he’s learning to administer shots, take care of patients and prepare for a doctor to enter an exam room.
“I’m just hoping to find a good job,” he said.
DEBTS, UNPAID LOANS AFFECT TAXPAYERS TOO
That Jurado gets a good job also matters to taxpayers.
Ninety-four percent of students attending for-profit schools take out a federal loan to pay for it, according to the College Board. That compares with 33 percent of students attending public community colleges and 69 percent of students going to private nonprofit colleges, such as the DU or Colorado College.
Last year in Colorado, students took out $1.4 billion in federal loans to pay for college. Of that, 41 percent, or $573 million, went to for-profit schools, a Post analysis of U.S. Department of Education data found.
The problem: Data show those attending for-profit schools are more likely to default on their loans.
At Everest, 36 percent of students were in default within the first three years of repayment. Dunlap notes the two-year default rate is just 20 percent, below what the government requires, but said the school is working with students to lower the three-year rate.
Among Colorado students attending for-profit schools, about 23 percent were in default on their loans in the first three years of repayment. Among students attending public schools, only 10.4 percent of students were in default in the first three years, according to federal data.
“The issue is really around the abuse of students and the abuse of taxpayer money,” Polis said. “College was designed to help students with their station in life, but (among for-profit colleges) it has instead become an albatross of debt.”
Zarina Musheyeva is so overwhelmed by her debt, she is contemplating walking away from it all.
The 23-year-old graduated with a fashion merchandising degree in 2008 from Westwood College and is more than $60,000 in debt. She got a job as a manager at a department store after graduating, but that wasn’t the job she envisioned for herself and so last year she moved to New York City, stayed with family and tried to break into the fashion industry there.
Though Musheyeva found work as an office manager for a handful of dermatology clinics, she has not figured out how she will make a dent in what she owes. Her payments will reach almost $1,000 a month by the end of the year, and her money problems have ravaged her credit. She can’t get a loan to buy a car.
“I’d have to be a millionaire to pay this,” she said.
Musheyeva is among the students who contacted the lawyers to be part of the arbitration against Westwood.
Westwood notes it works with students to find them work in their field, and in its response to the complaint, Westwood said students know from the start what kind of debt they are accruing to go to college.
“Should we be concerned as a nation that so many low-income students are borrowing a lot of student loans? The answer is yes,” said Lauren Asher, president of the Institute for College Access and Success in Berkeley, Calif. “That much debt can ruin someone’s life.”
In many cases, families of debt-ridden for-profit graduates are unable to help them out. Those attending for-profit schools are among the least wealthy subset of college students, with family median incomes of $24,900. Among students attending public schools, median family incomes are $40,000, according to the federal Government Accountability Office.
ACCREDITATION LEAVES ROOM FOR SURPRISE
Students who do not understand the convoluted differences in accreditation credentials when they enroll at for-profit colleges can be in for a surprise after graduation.
William Tooley - another of the 500 students who have complained about Westwood - started at Westwood College in 2005 with the goal of eventually earning a master’s degree from Colorado State University.
The Fort Collins resident, 38, said that when he enrolled in Westwood’s three-year, $68,380 game software development program, he pressed his admissions representative about whether he could go on to graduate school.
“He assured me. He said he had many, many students who went on to school afterwards,” Tooley said.
Yet both Regis University and CSU have said he wouldn’t likely be accepted to engineering graduate programs because his degree isn’t from a regionally accredited program.
“They look at my piece of paper like it doesn’t count, it doesn’t work,” he said.
That Tooley could have had the impression his degree would be accepted by a regionally accredited school is surprising to Westwood vice president Bill Ojile.
“If you look at the disclosures we give students . . . it’s really hard to understand how someone would walk away thinking, ‘Boy, I want to go to Westwood and if I decide to go to CU, my credits will transfer,” he said.
“We do go to great pains to try and advise students of the unlikelihood.”
Generally, for-profit schools are accredited by national accrediting groups that have a different approach and focus from the regional accrediting groups that most often examine public and nonprofit schools.
Regional groups, which accredit schools such as CSU and Regis, put heavy emphasis on a program’s academics, including the structure of the faculty, the library quality and coursework.
National groups place much of the accreditation emphasis on attendance, graduation rates and job placement, reflecting the for-profit schools’ chief goal of educating students so they can go out and get a job. Accreditors usually require schools get between 65 percent and 70 percent of graduates into jobs “in the field.”
The national accrediting bodies, such as the Accrediting Commission of Career Schools and Colleges, were formed because for-profit schools with their nontraditional structure were not always able to get regional accreditation. That matters because without accreditation, schools can’t access federal loans and grants for their students.
“We’re both recognized accreditors by the U.S. Department of Education. We just have different approaches,” said Karen Solinski, a vice president of the Higher Learning Commission, a regional accreditor that approves about 1,100 schools in the West and Midwest.
David Longanecker, a former assistant education secretary in the Clinton administration, thinks the accreditation process for every school should be more transparent.
Outcomes, such as how much students learned in particular majors or classes, are not public record. Neither are job placement rates.
In a case settled last year, federal investigators alleged the accreditation process was flawed at Westwood College in Texas.
Investigators alleged the school falsely reported its job placement rates and told federal regulators some graduates had jobs at businesses “in the field” when they only had internships there, according to court documents.
Westwood College settled the federal case in April for $7 million and denied any wrongdoing.
The peer review process is, Longanecker said, “insiders judging how well an institution does. You don’t go to Ford and ask how good the cars are. It provides very little for consumers.”
Christopher Lambert at the Accrediting Commission of Career Schools and Colleges disagrees.
He said his national accrediting group requires all schools to disclose program details, including cost and student- teacher ratio, to potential students.
“The important thing to us is that a school says, ‘This is what you’re going to learn. Here is all the information you need to make an informed decision,’ ” Lambert said.
STATE, FEDS DIFFER ON SCHOOL REGULATION
Colleges have found fertile ground to operate in Colorado because the state has not required much to open a campus or a storefront school.
That is evident in the numbers: 466 schools are authorized by state officials to operate here, yet the federal government allows only 112 of those schools to give out loan dollars and Pell grants.
In 2008, though, state laws were strengthened and state regulators gained a little more muscle to monitor the quality of for-profit schools. Before, state officials simply looked at the business plan, but now they investigate an applying institution’s quality, faculty qualification and admissions practices.
Since September, state regulators have yanked permission for two for-profit colleges and one vocational school to operate.
They now are investigating six student complaints against Westwood’s school loan program and its admissions representatives, said Karakoulakis of the state Higher Education Department. The complaints include allegations the school enrolled students in its high-interest APEX loan program without their permission, he said.
Westwood officials said no student would be enrolled in a loan program without signing an agreement.
“We feel like the college will be vindicated across the board,” Ojile said. “There is nothing to any of those issues they’ve raised.”
Even as the state and federal governments take a harder look at for-profit schools, observers point out that the reason so many are thriving is because they fill a free-market hole left by public community colleges.
“I think there are good and bad actors in the proprietary (for-profit) sector, and I think there are good and bad actors among community colleges,” Longanecker said.
Colorado’s community college system is cash-strapped. More than 50 programs in 13 schools, from mortuary science to nursing, are full and putting students on wait lists. Enrollment this school year is up 19 percent from the fall of 2008.
System president Nancy McCallin can only afford to hire about half of her professors full time. The rest work part time and are not usually able to send a text message to students when they miss a test or multiple classes - the kind of service many for-profit schools provide.
But McCallin would still rather see the students come her direction.
“We don’t load our students down with debt,” she said.
Danielle McGuire, who just graduated from Heritage College with an associate’s in massage therapy, would like to have gone somewhere less expensive. But the nursing program at Emily Griffith Opportunity School was full.
Today she is more than $10,000 in debt from the degree, but she found a job in her field at a chiropractor’s office. She got the job from a required internship set up by Heritage College.
“It was expensive,” said McGuire, who hopes to work in massage therapy as she attends school to be a licensed practical nurse. “But it worked for me.”
Related Stories:
- Jan 17: Salary prospects were attractive
- Jan 18: Rules may tighten in regulating for-profit colleges
To contact reporter Allison Sherry: 303-954-1377 or asherry@denverpost.com
Read more: http://www.denverpost.com/search/ci_14209838#ixzz0dHOUMTMC
How Quickly We Forget
January 16, 2010
By John Newcomer:
Remember when gasoline cost $3.00 a gallon? It was not that long ago. Yes, in the summer of 2006 prices at the pump started to hit $3.00 a gallon, and the price stayed there for some time.
We screamed and whined when it cost us more than $100 to fill up our gas tank. We vowed to change and sell that gas hog. Next time I will buy a fuel efficient car more fitting with the new world economy.
Lame Excuses from South Dakota, the Loan Shark Capital of the World
December 17, 2009
By Terry Smiljanich:
After Consumer Warning Network helped expose how South Dakota politicians are in the banking industry’s back pocket, the bankers and politicians responded. As we reported, South Dakota legislators led the way in giving banks the opening to charge loan shark interest rates. So, are they ashamed for their role in this travesty of justice? Apparently not.
When the Argus Leader, the leading newspaper in Sioux Falls, South Dakota, wrote a story about the CWN article, the reporter asked its state politicians for a comment. Did they argue that rates as high as 36% are fair and equitable? Did they argue that South Dakota was not a prime cause for such high nationwide rates? Not exactly.
Loan Shark Capital says Banks Love Us: Let Consumers Eat Cake
December 16, 2009
A “Where’s the Outrage?” column by CWN Managing Editor Terry Smiljanich has raised the ire of some law makers and bankers in South Dakota. Smiljanich called South Dakota the “Loan Shark Capital of the World” and wrote about how that state’s legislators are to blame for opening the flood gates for banks to charge outrageously high interest rates on credit cards in all 50 states. The Sioux Falls Argus Leader did a story about Terry’s column, in which they talked to some state officials who used the old stand-by “it’s best to let the market work it out.” Well, of course, we all know how well trusting corporate America has worked out. Read the Argus Leader story below. Terry will respond in a new column soon.
Consumer group: S.D. interest rate law a sham
State officials say regulation best left to the marketplace
December 15, 2009
Anna Bahney
abahney@argusleader.com
South Dakota is called the “loan shark capital of the world” by a Florida-based consumer advocacy group because of the high interest rates banks based here can charge on credit cards.
The nonprofit Consumer Warning Network is urging credit card customers across the country to contact South Dakota lawmakers and complain about banks that charge up to 36 percent interest.
“What I think people ought to do is to ask a simple question: Do you think this is fair? And what are you going to do about it?” said Terry Smiljanich, managing editor at the Consumer Warning Network. “I dare any South Dakota legislator to stand up and say with pride we are happy credit card companies charge 36 percent.”
Consumer Warning Network is a nonprofit established by former federal investigators, prosecutors and investigative journalists to empower consumers.
Banking officials said that credit card statements with high interest rates are hardly being mailed from South Dakota alone.
Delaware, for example, has more large credit card operations than South Dakota.
Nevada also has open lending laws which allow higher interest rates than many other states. After South Dakota’s laws were removed, other states followed suit to compete for business.
“I don’t think it is something unique to South Dakota, it is an epidemic countrywide,” said state Sen. Scott Heidepriem, the minority leader and a gubernatorial candidate.
He added that an idea behind removing the usury limit was to put the rate in the market’s hands.
“When we changed the law, we said we’re going to bet the marketplace sets the limit, not some arbitrary rate,” Heidepriem said. “We benefited greatly from that.”
‘Marketplace is there to sort it out’
Despite the rising interest rates, he said that the governor on the rate should remain the market.
“The marketplace is there to sort it out,” he said. “And, hopefully, it will.”
In May 1980, when South Dakota’s law eliminating all usury laws - which state that interest shall not be charged above a certain percentage - was enacted, it was a move by then Gov. Bill Janklow to entice new businesses with high-paying jobs.
In short order, Citibank announced it would shift its credit card operations to Sioux Falls by summer to evade New York’s interest rate limit of 18 percent on credit card balances of less than $500 and 12 percent on balances above $500.
Other banks followed.
Credit card balances slide again
The average consumer credit card interest rate in the U.S. is 12.75 percent, up from 12.05 percent six months ago. As banks make it more expensive to use cards, consumers have scaled back their credit card debts. Federal Reserve data released last week showed that card balances fell in October for a record 13th consecutive month.
Asked for a reaction to the organization’s appeal, Roger Novotny, the director of banking for South Dakota, said he doesn’t think too much of it - considering it is coming from Florida.
“Florida was one of the centers of the subprime mortgage mess,” Novotny said. “For people in Florida to be pointing to us and saying we’re the problem, at the point we are at economically, is laughable.”
Financial literacy called bigger worry
Novotny contends that high-cost unsecured-debt is not treated that much differently in South Dakota than in other states.
“Our restrictions are at times very similar to theirs. Other states have subprime credit issuers,” he said.
The usury rate, Novotny added, is a smokescreen. Risk drives interest rates, he said.
In that case, is a 36 percent interest rate on a credit card too high?
It depends on the credit worthiness of the user, Novotny said. Of more concern to him is financial literacy and making sure that people know what they are signing on to when they get a credit card.
“I bet you people do more research buying a flat-screen TV more than getting a credit card, and that’s a crime,” he said.
At what point will high credit card rates tarnish South Dakota’s image? Not any time soon, Novotny said.
“I don’t see that our reputation is tarnished as a financial service center. They provide employment for a lot of people and provide access to the credit for a lot of others.”
But for Smiljanich of Florida, who said he has spent time in Sioux Falls and the Black Hills, the state has lost some luster.
“Not as far as your state’s natural beauty goes,” Smiljanich said, “but as far as your politicians go, they should be ashamed.”
College Students Hit with High Interest Loans
December 1, 2009
College degrees are supposed to last a lifetime, but should tuition loan payments? How some schools got away with charging interest rates of up to 18 percent.
By David A. Graham | NEWSWEEK
Nov 20, 2009
Graduation day should have been a happy one for Tyrone Bailey. The first in his family of three children to earn anything beyond a high-school diploma, Bailey, 24, received a bachelor’s in criminal studies from Westwood College in Torrance, Calif., two years ago. But even while the day’s pomp and circumstance played out, his thoughts turned quickly to the tough job market and the $20,000 in loans he borrowed directly from his alma mater that were set to accrue a whopping 18 percent interest rate.
Not long ago, low-interest student loans were as easy to come by as a pass to get out of gym class. But the economic downturn and ensuing credit crunch put an end to that. As relatively cheap, private bank and federally backed loans became harder to come by, some colleges, vocational schools, and online institutions filled the void by lending directly to students like Bailey. Loans from traditional sources like Student Loan Marketing Corp., commonly known as Sallie Mae, fell by more than 50 percent from 2007-08 to 2008-09 after years of rapid growth, according to the College Board.
Since they’re largely unregulated and come from many sources, the rise of direct school-to-student loans are hard to estimate on a national level. “It’s a new twist that in the proprietary-school sector, schools are making their own loans,” says Deanne Loonin, who directs the National Consumer Law Center’s Student Loan Borrower Assistance Project. For example, Westwood, which operates 17 campuses nationwide and offers online-degree programs as well, hands out direct loans to about a quarter of its 17,000 students. Like most privately held companies, it isn’t required to disclose just how much money it loans out. But it’s likely similar to schools like Corinthian Colleges, the Santa Ana, Calif.-based owner of Everest College and WyoTech chains, whose direct-lending division is expected to make $140 million for the school during the current fiscal year. Then there’s ITT Educational Services, which, according to SEC filings, generated $52 million from its in-house student-loan program. (ITT didn’t respond to NEWSWEEK’s request for comment, and neither school makes its interest rates public.) Career Education Corp., which runs campuses under a variety of names (including the Brooks Institute, American InterContinental University, and Sanford-Brown Institutes and Colleges), has expanded an existing program over the last year, says Jeff Leshay, senior vice president for corporate communications. The program now brings in about $34 million annually, still a small percentage of total revenues, which the school projects will be $1.75 billion for the year. That program charges interest rates between federal level and market rate for private loans.
Consumer advocates see nothing wrong with schools that offer to help finance their students’ educations. It’s rates as much as 10 percent higher than federal student-loan rates that have them worried. Before the recession and credit crunch hit the student-loan market, it wasn’t uncommon to see federally backed loans hovering around 3 percent or even lower. For qualified students, 8 percent bank loans are still common. Mark Kantrowitz, publisher of Finaid.org, says it’s hard to estimate the average private student-loan rate, but he said most loans are in the low double figures. Eighteen percent, however is near predatory and driven by a pure profit motive, says Loonin. “The [traditional] lenders pulled out for now, and [some] schools were searching for ways to continue to have their students pay the same kinds of tuition,” says Loonin.
But that empathy didn’t always jibe with Westwood’s loan program. At least not while it was charging Bailey and other graduates 18 percent interest on their student loans. Bailey is one of four former students who were named as plaintiffs in a class-action lawsuit in May against Westwood’s parent company, Denver-based Alta Colleges, alleging that the administration made unrealistic job-placement promises, issued deceptive statements about the school’s accreditation, and was not sufficiently clear about the high interest rates the school charged on its direct-loan program.
Westwood’s Rudawsky says the suit is “98 percent fiction” and notes that the school requires students max out government loans and grants and private options before turning to the school for financing. Following the controversy, the school has dropped its rate to 10 percent for new and incoming students and to zero for existing students and graduates. Rudawsky maintains that its direct-loan program has suffered from a high rate of defaults and was not a moneymaker for the school.
But the school wasn’t always so empathetic, according to Inez Morris, who was student-aid director at a Westwood campus near Atlanta for a year before being fired in 2006. She told NEWSWEEK that aid officers were instructed not to explain the full cost of a Westwood degree nor the terms of the loans. “I don’t think [students] understood the interest rates, I don’t think they understood that it was not a federal loan, or they didn’t understand what they were signing,” says Morris, who is working with the plaintiffs’ lawyers in the class-action suit against Westwood. Often, she says, the loans were originated to close balances for students who had dropped out but had not paid for the time they spent at the school. She also adds that students discovered they had high-interest loans only when notified by a letter after leaving school.
Not all vocational, technical, or online schools charge as high an interest rate as Westwood did, nor do they structure their programs in quite the same way. DeVry, which charges 12 percent interest on its Educard loan program, says the school doesn’t have the financial mechanism to run a complicated program with multiple rates. “We are an educational-services provider, not a bank,” says DeVry spokeswoman Joan Bates. Apollo Group, owners of the University of Phoenix, is one school that has declined to offer direct-to-student loans. “[We] made the deliberate decision not to engage in private lending because, quite simply, we believed it was not in the best interests of our students,” says Sara Jones, senior vice president for public affairs.
Rudawsky says Westwood gives students detailed descriptions of the financial-aid process, both in writing and verbally, and that financial-aid counselors help each student to fill out applications for federal aid. “Westwood goes above and beyond to create transparency for students and to walk them through every step of the process,” he says.
Bailey says that process wasn’t strong enough, and he says the interest-rate reduction doesn’t cut it, either. “Here I am stuck with [$20,000] of debt and a degree that’s useless,” says Bailey, who is now working a near-minimum wage job at the Long Beach sanitation department while he works toward a master’s degree online via the University of Phoenix. He says he couldn’t get a job that would pay his loans, so he entered a new degree program in order to defer loan payments. According to Bailey, no traditional school was willing to accept his Westwood credits. That’s common practice-most traditional nonprofit schools rarely accept transfer credits from for-profit institutions because of differences in the accreditation process. “I’m asking for my loans to be forgiven and for them to pay for education at a traditional school; I still want an education so I can start a career.”
The Westwood case aside, the direct-to-student loan market is likely to continue growing. Consumer advocates like Loonin say they hope a proposed consumer-finance-protection agency might crack down on the way such loans operate. But with regulatory efforts tangled up in higher-profile causes like credit-card reform, high-interest loans may be on the tenure track.
Find this article at http://www.newsweek.com/id/223727
Best Buy’s Late Fee Gotcha
November 20, 2009
Consumers, brace yourself. We’ve uncovered yet another way customers are getting zapped by using a credit card. This time, giant electronics retailer Best Buy engages in some tricky billing that slaps a customer with a late fee for paying early. It may sound crazy, but just click here to learn more and watch the story above.
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