In the wake of the Credit Freeze, I’m a student who needs some private loans for my schooling starting in the Spring. I’m an older student with established credit. I’ve seen a lot of student loan organizations close their doors lately and now that I’m in a position to apply, I need to know where to turn…Is there a list of who’s still lending privately and who is “frozen”? Any suggestions?

According to a recent AP article, there is some cause for concern. A survey by the National Association of Independent Colleges shows that students are being forced to drop out — and one in five colleges reported a smaller incoming class than expected, despite the largest crop of 18-year-olds since the Baby Boom.

According to the website FinAid.org, 36 lenders have stopped providing private student loans, says the AP, and the rest have upped their standards. This is actually good news for you — because the article says that the number one barrier to obtaining a loan in this environment is a lack of a credit history or a poor credit history.

John E. Dean, special counsel to the Consumer Bankers Association, which represents for-profit student lenders, told the AP:

"The easiest step... is to bring in a creditworthy co-signer," he said. "That will make a difference on the availability of loans and the price."

If your credit history is established, it's time to shop around for the best deal. FinAid.org provides a list of lenders (in alphabetical order) that you may want to start with.

Before you even consider a private loan, however, you should make sure you read up on how they are different from federal loans. Here's some information from the Student Borrowers Assistance Project, which is program of the National Consumer Law Center.

Anyone else looking for student loans in this market? Do you have advice for Michael?

(Photo: rmgustaf )

So what exactly is the problem? After 12 online (and phone) disputes to Equifax and 14 calls (and faxes) to the Direct Loan Servicing Center, each party seems to blame the other.

David is fed up with being given the runaround. He's drafted a very clear letter and faxed it not only to Equifax and the Direct Loan Servicing Center, but also:

• U.S. Department of Education Federal Studen Aid Ombudsman
• Nationwide Consumer Rights
• National Association of Consumer Advocates
• The Consumerist

Here's the letter, which we're printing in part to publicize Equifax's negligence but also as a guide for others who face a similar problem:

My name is [redacted] and I write this letter to each representative at once so that the issues of the past two years can be remedied and that the buck can, hopefully, stop being passed in regards to the gross errors on my credit report. I am not some typical, ranting customer who has an axe to grind, but rather someone who has had his Federal Student Loan credit falsely reported since July of 2006.

Just so we are all on the same page, I have filed 12 disputes online with Equifax and have called both Equifax and the Direct Loan Servicing Center 14 times (all documented) since July of 2006.

The issue is that my Federal Student Loan balance of $28,455 is being reported twice on my Equifax credit report. The initial account was opened in 09/2000 and then later consolidated in 07/06. However, rather than the balance for the 09/00 account being reduced to $0.00 and the status appearing as “consolidated”, the balance remained. The $28,455 balance also appears, as expected, on the 07/06 account.

Again, the issue is simply that my pre-consolidation account from 09/00 still has a balance of $28,455 as does my post-consolidation account from 07/06. This appears on my Equifax credit report as though I have a total balance owed to the Direct Loan Servicing Center of $56,910 between two accounts.

The Direct Loan Servicing Center has repeatedly verified that I only have one account with a balance, the 07/06 account, and that my only debt to them is $28,455. This was done by Brian Cornia at DL on 05/08/08 and previously by Stephanie (of Team 2) on 01/29/08.

So what exactly is the problem? After 12 online (and phone) disputes to Equifax and 14 calls (and faxes) to the Direct Loan Servicing Center, each party seems to blame the other. Direct Loans claims repeatedly that they are sending the correct information to Equifax, however, as seen in my credit report (below) from 24/Sep/2008, this is still not the case (this full credit report will also be faxed in full, this can be seen on pages 4 and 5).

It may very well be that Direct Loan Servicing Center is dropping the ball on this, but we feel it's ultimately Equifax's responsibility to ensure the accuracy of the data that it collects, places a value on, and then sells for profit to other companies. By misreporting David's credit history and failing to fix it for 26 months now, they're doing persistent damage to his credit history, and not providing a very reliable service to their own customers either.

(Photo: The Shining)

With all the talk of a credit crisis, you would think that a bank would welcome a customer trying to pay down his high-interest student loans. Not So. Like many people in my position, I went deeply into debt in order to attend law school. Since graduating in December, I've been actively attempting to pay-down my debt. Student loans come in different shapes and sizes, and your average indebted student has many different types of loans. The most common is a Federal Stafford Loan; these typically have lower interest rates and longer deferment periods than their counterparts, but they only go so far. Another type of loan is the "graduate plus" loan; these often have much higher interest rates. And when your tuition is $20,000 per year, you typically need a graduate plus loan in addition to your Stafford Loan.

I took my student loans through Wells Fargo, which, in retrospect, was a bad move. My loans have entered repayment, and when you have extra money left over after paying your minimum loan payment at the end of the month, and you want to pay down your debt, the savvy debtor will spend that money on his high-interest Graduate Plus Loan (8.25%), rather than his low interest Federal Stafford Loan (4%). Simple right?

Well, all these different loans are under a single account number so when you pay extra, there is no way to tell where you want that money to go. As a result, I called Wells Fargo in January, and I let them know that any extra payments above my minimum payments were to be directed towards my highest interest loans. "No problem," said the CSR, "in fact, it is Wells Fargo policy to direct any extra funds we receive towards the loans that are hurting you the most." This system worked great for months; I would take any surplus funds I had left over at the end of each month and make an online payment which was automatically directed against my Graduate plus Loans.

But then, one day, it stopped. Wells Fargo began directing my extra payments either evenly over all my loans (high interest and low interest) or, in some cases, entirely to my lowest interest loans. Every month for the last three months this has happened, and every month I would call and inform them of the problem. Every time they would apologize profusely for the error, insist it was an isolated incident, reverse the payment and wish me a nice day. Every month, that is, except this one. This month I called up and was told that Wells Fargo simply couldn't direct my funds the way I requested. "If you want your extra payments to go to your highest interest loans, you will have to pay by check, and you will have to send a letter with your payment telling us how you want it apportioned... every month." I pressed on, explaining that this system had been in place for months and that I had been assured this was company policy. They had no response. I asked to speak with a manager and got the same answer. I asked if I could set up a separate account, one account for my high interest loans and one account for my low interest loans. "No," they said, "Wells Fargo policy: one debtor one account."

Then I tried to get clever. I asked Wells Fargo to set up two different due dates for my loan payments. One due date (the 20th) for my low interest loans, one due date (the 19th) for my high interest loans. That way, when I went online to make a payment, there would be two different payment options. That way, I figured, I could pay extra for my payment due on the 19th, and achieve my goal. But Wells Fargo was one step ahead. Unlike in the past, when I could choose whatever amount I wanted when making my payments, Wells Fargo would only let me pay the minimum balance for my high interest loans. But, of course, I could pay as much as I liked on my low interest loans.

SCREENSHOTS OF CALEB'S ACCOUNT:

I next called the Department of Education Federal Student Aid Ombudsman; this entity is supposed to be the watchdog for these kind of shenanigans. They were totally impotent. "There's nothing we can do," they told me, "but if it makes you feel any better, we've been getting a lot of these types of complaints."

No ma'am, actually that doesn't make me feel any better.

Now, maybe its just me, and maybe I'm just being paranoid, but it looks like Wells Fargo has engineered its system to make it as hard has possible for former students to pay down their high interest loans. They're determined to squeeze every last cent from these high interest rate loans.

-Caleb F

That really, really doesn't sound right. Instead of the Department of Education, you might want to try talking to your bank's regulator. In this case, that's the Comptroller of the Currency. You can call them at 1-800-613-6743 or email Customer.Assistance@occ.treas.gov. Other ways of contacting them are here.

Has this been happening to anyone else?

We've sent an inquiry to Wells Fargo media relations and eagerly await their reply. UPDATE: We've put Caleb in contact with Wells Fargo so they can investigate his issue.

Two readers have forwarded us a second email sent out by Citibank today, but it's not another vaguely worded PR blast from the CEO. Instead, this one announces that Citibank is adopting the zero-tolerance approach to late payments favored by the credit card industry—miss a payment due date and you'll lose any interest rate discount(s) you currently enjoy.

Sean writes,

Just got this email from Citi's student loan business. Yes, I carry my loans with Citibank, but I consolidated when the interest rate was at rock bottom in spring of 2004. 3% baby!

Looks like if you post your payment one day late, Citibank will terminate any interest-rate deductions you have earned. I guess this is one of the "bold steps" Vikram is taking to shore up profits.

Anyone with loans with Citibank better make damn well sure they pay on time, otherwise it can cost them big time.

Dear Valued Student Loan Customer,   We are writing to inform you about important changes to the terms of your loan. To retain your borrower benefits with us, you must make and have your payments posted to your account no later than the scheduled due date. Any payment posted after the due date will result in the termination of such benefit. Interest rate reductions and other benefits do not apply during periods of deferment and/or forbearance and automatically terminate for payments returned for insufficient funds, loan delinquency, default, and/or the purchase of your loan by a guarantor.

Gosh, Citibank, we were kinda hoping your bold steps would be a bit more consumer friendly, you know?

(Thanks to Sean and Eric!)
(Photo: ElvertBarnes)

Sallie Mae has publicly apologized for a coding error, potentially affecting around 1 million customers, that caused some consumers credit scores to drop over 100 points, and some consumers report that their dinged scores are already back up. If your score is not back to normal and you are in the middle of a transaction where your good credit is at stake, Sallie Mae said it will provide a credit reference letter. You can also call Sallie Mae customer service at 1-888-2-sallie. Sallie has pledged that the fix is in, but consumers can still take matters into their own hands by pulling their free credit report from annualcreditreport.com and disputing the incorrect information with Experian. Note, it's against Federal law for creditors to report false information to credit bureaus, and consumers can sue violators up to $1,000.

PREVIOUSLY: FICO Scores Drop Over 100 Points After Sallie Mae Recode, Potentially Millions Affected

(Photo: Getty)

More than 50 lenders have stopped making student loans in the past few months as the credit crunch continues to make student lending unprofitable. Sallie Mae recently warned that it could no longer make profitable student loans at all.

Bank of America to Direct Student Loans to Federal Program [WSJ]
(Photo:Meghann Marco)

I recently completed a 3 year enlistment with the US Army, and one of my benefits was the student loan repayment program. The Army paid off my student loans, 1/3 of the loan per year for three years, making payments directly to my lender, the infamous Sallie Mae. The first two payments were a month or two later than the Army said they would be, but still, free money, and I made the small in-between payments to keep the account current.

Then I finished my enlistment, was honorably discharged, and waited for the last payment to come in. It was 4 months late and when it got there (mid-December), it looked like it was $1500 MORE than what was left owed on my account. I called the Army and they confirmed that they had payed the correct amount they owed me, taking interest into account. The overpayment belongs to me. Yay, more free money!

Alas, no such thing...

I called Sallie Mae to see how they would handle the overpayment. They said a check would be sent to me about the third week in January and to call them back if it didn't arrive. Mid-February, the check has not appeared and I called Sallie Mae again. They said the problem may have been my recent address change and said they would stop payment on the first check and send a second one. It would take 3-4 weeks.

Late March, the check has still not arrived, and I call Sallie Mae again. Reading Consumerist pays off - I recognize that the customer service representative does not speak English as well as it appears and is using the "keyword" strategy...meaning she spouts phrases irrelevant to the situation I describe based on words she picks out of my description seemingly at random. I ask to speak to a supervisor, who surely must speak English better than the service rep did.

Sadly, he speaks better English than all three of the representative I had previously spoken to - since all of them had given me the wrong information. The check had never been sent to me at all. Since the overpayment was made by the Army, the money had been sent back to the Army. Simple company policy. Which not one of the service reps apparently knew about. The payment on the first check had never been stopped because the Army had already cashed it. No one at Sallie Mae though this might be important to tell me.

My $1500 has been with the Army since January, and I should have spent all this time trying to get the money from them. The supervisor declined to pay the interest on the money I could have been collecting all this time (sure a lender understands about interest and timely payments) but was very sorry. Suffice to say, Sallie Mae will never get my business again.

Heidi, Colorado Springs

To learn about your state's deadlines and about the FAFSA in general, click here.

To get started with your application, click here.

Hello,

I'm writing this email to express my interest in your services. I'm looking for some legal help with the matter of my student loans with Sallie Mae. Basically my situation is that for the past 3 and half years I haven't been stable, financially or emotionally. I've also have had difficulty finding and keeping a job and I have not had a steady place to live, basically staying with different friends for a few months at a time. During this time I haven't contacted Sallie Mae about my loans. Initially I had talked to them a few years ago and they threatened to garnish my wages but at the time I wasn't working so there wasn't much I could say in response. I've changed addresses and phone numbers several times in the past few years and I've lost contact with them. My parents have mentioned that they've received calls and letters but without a stable place to live or work I didn't contact Sallie Mae.

Recently I started a pretty good job that I've had for the past 4 months and I'm doing well. I have a stable place to live and I'm making enough money to support myself. With what I make, it's about enough to pay my rent and utilities, but I still don't make much more than that to be able to start making the $400 a month payments they want from me. I would like to start making some kind of payments for now and increase that amount as my financial situation improves.

I'm afraid however to contact them because of threats they've made about garnishing wages in the past. They told me that they can take up to 25% of my pay, and frankly if I lost a quarter of my income I'd lose my place to live and be unable to get to work and be at square 1 again. I've read on the consumerist (www.consumerist.com) about Sallie Mae harassing people and causing them to lose their jobs. So I would prefer to have an attorney contact them for me initially to set up an agreement and to help me understand what they can and cannot do. I've also read about debt collection agencies illegally threatening and insulting people, and I'd to be informed about my rights in this matter.

I'd like to make an appointment for a consultation. Please let me know if you think you can help me and what you can do for me and what your rates would be. Thank you very much for your time.

Regards,
Jennifer

According to the Student Loan Borrower Assistance website, your private lender isn't required to offer you income based repayment like you would get if you had a federal loan. You should contact them, however, and ask them what income-based options they are willing to offer you.

Sadly, the best recourse for you may be to file bankruptcy. It's very difficult to get your student loans discharged through bankruptcy, but it isn't impossible. You'll need to prove that repaying your loan will cause you undue hardship:

Courts use different tests to evaluate whether a particular borrower has shown an undue hardship. A common test is the Brunner test which requires a showing that 1) the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for the debtor and the debtor's dependents if forced to repay the student loans; 2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and 3) the debtor has made good faith efforts to repay the loans. (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987). Not all courts use this test. Some courts will be more flexible.

If you can successfully prove undue hardship, your student loan will be completely canceled. Filing for bankruptcy also automatically protects you from collection actions on all of your debts, at least until the bankruptcy case is resolved or until the creditor gets permission from the court to start collecting again.

Assuming you can discharge your student loan debt by proving hardship, bankruptcy may be a good option for you. It is a good idea to first consult with a lawyer or other professional to understand other pros and cons associated with bankruptcy. For example, a bankruptcy can remain part of your credit history for ten years. There are costs associated with filing for bankruptcy as well as a number of procedural hurdles.

CHAPTER 13 and STUDENT LOANS

A case under chapter 13 is often called "reorganization." In a chapter 13 case, you submit a plan to repay your creditors over time, usually from future income. These plans allow you to get caught up on mortgages or car loans and other secured debts. If you cannot discharge your student loans based on undue hardship in either a chapter 7 or chapter 13 bankruptcy, there are still certain advantages to filing a chapter 13 bankruptcy. One advantage is that your chapter 13 plan, not your loan holder will determine the size of your student loan payments. You will make these court-determined payments while you are in the Chapter 13 plan, usually for three to five years. You will still owe the remainder of your student loans when you come out of bankruptcy, but you can try at this point to discharge the remainder based on undue hardship. While you are repaying through the bankruptcy court, there will be no collection actions taken against you.

Has anyone successfully negotiated smaller payments with Sallie Mae? Share your advice in the comments.

Student Loans & Bankruptcy [Student Loan Borrowers Assistance]

kevin.lightfoot@acs-inc.com, lynn.blodgett@acs-inc.com, tom.burlin@acs-inc.com , kevin.kyser@acs-inc.com, ann.vezina@acs-inc.com, tom.blodgett@acs-inc.com, john.rexford@acs-inc.com, john.brophy@acs-inc.com, lora.villarreal@acs-inc.com

Here's how to launch an executive email carpet bomb.

You can take the deduction regardless of whether you itemize. You may even qualify to take the write-off yourself if your parents paid the interest on a loan for which you were legally liable (your parents, however, cannot claim the deduction if they weren't liable for the loan).

"Deducting Student-Loan Interest" [Kiplinger]

RELATED
"Student Loan Interest Deduction" [IRS]
(Photo: Getty)

It said the College Cost Reduction and Access Act of 2007 "could possibly eliminate the profitability of new FFELP (Federal Family Education Loan Program) loan originations, while increasing our risk sharing from our FFELP loan portfolio."

The year 2008 looks much bleaker for Sallie May after its earnings forecast was lowered by more than 13 percent. That is a huge cut in earnings and the blame goes to a new law in effect which requires subsidies of the federal government to have more cash on hand to counterbalance defaulted loans.

Stock prices had already been falling since last July, so the cut in the forecasted earnings did nothing to help this student loan company. The falling prices initially began when a buyout of $25 million worth of stock fell through last July.

In an apparent reference to investors' anger, he said: "I can assure you, you will be going through a metal detector." He ended the conference call by saying "Let's go. There's no questions. Let's get the [expletive] out of here."

Sallie Mae spokesman Tom Joyce called the metal-detector remark "an attempt at humor" and the expletive "an unfortunate slip of the tongue." Mr. Joyce said the call had been intended for Mr. Lord, in his new role, to give investors a "broad overview" of the company's situation.

Sallie Mae: Expletive Included [WSJ]
Full Conference Call Transcript [Seeking Alpha]
(Photo: Susan Biddle)

Other types of consumer debt, which have nothing to do with housing and nothing to do with subprime, are going bad, too. The Wall Street Journal reported today that "about 4.5% of auto loans made in 2006 to top-rated borrowers were at least 30 days delinquent as of the end of September, up from 2.9% the previous month, according to a Lehman Brothers survey of companies servicing these loans." In October, Fortune's Peter Gumble warned that a similar plague may soon afflict credit-card companies. In October, credit-card giant Capital One Financial reported that the delinquency rate on credit cards for the third quarter of 2007 was 4.46 percent, up from 3.53 percent in the third quarter of 2006. "Given current loan growth and delinquency trends," Capital One reported, it "expects the U.S. Card charge-off rate to be around 5.25 percent in the fourth quarter."

The stock of First Marblehead, which has enjoyed explosive growth making private (i.e., not federally guaranteed) student loans, has been hammered in recent days because Moody's, the ratings agency, concluded that loans it had made "appear to be defaulting at a significantly higher rate compared to loans originated through school financial aid offices." The Wall Street Journal reported that "seventeen months after First Marblehead arranged one 2005 package of student loans, 2% had defaulted, according to the company's monthly reports to note holders. But last month, a comparable 2006 package—also 17 months after issue—had a default rate of 3.98%."

Debt Be Not Proud [Slate]
FURTHER READING: The Grapes Of Wrath [Amazon]
(Photo: Wikipedia)

When I went to check the statement on my wife's student loan through CitiBank for November, I noticed a late fee listed. As we signed up to pay via direct debit for the interest rate deduction, we get no paper statements. I checked my records, and our last payment had been processed for the full amount, on the due date. I asked my wife to call and find out why we were being charged a late fee. The representative told her that it was to correct an error from 2005. There is no explanation on the site, and when my wife asked to speak to a supervisor, the supervisor told her that there were no plans to notify people being charged these fees. My wife had to specifically request that a letter be sent detailing these fees.

Rather than the $175 dollars we usually pay each month, the automatic deduction this month will be $225. We have the funds available to cover this difference, but many people with tight budgets may not.

The only option to avoid this jump is to cancel the automatic payment (and lose the interest rate reduction). Of course, this doesn't help if they are going to report you as not paid-in-full or as delinquent to the Credit Bureaus. It seems very shady that they would suddenly up your payment, charge late fees from 2 years ago, and not provide any notification. From what my wife understood from her conversation with the CSR, this is something they've done with loans across the board, including some which may have been listed as paid-in-full.

I've attached screen shots of our October and November statements for comparison. (Looking at the November statement, it appears that they've actually already applied the late payment and reduced the amount applied to principal, so we're paying interest on principal that should have been paid with the October payment as well.)

-Sean

If you have a student loan with CitiBank, either current or paid off, might want to check and see if they plucked an extra Ulysses S. Grant from your account for November.

One of the things she does is send in more money than what is due when she has extra cash, a great tactic. But she has to be on her lender's ass to make sure they're using it to pay down her interest and principal. Instead, they prefer to "advance the due date" and simply apply the money to the next payment. This is no good, so she says to get on the phone with them to make sure they're applying the money the way you want.

How I'm paying off my student loans [Chief Family Officer]
(Photo: Getty)

A variety of factors could be at play, including the rising cost of college and more people going to college. But consider the cost increases thanks to the aggressive marketing of private student loans (a practice for which the NY AG sued several colleges and banks), which often carry higher interest rates than federal student aid. Many students turning to private loans haven't used of their full quotient of federal Stafford, Perkins, and PLUS loans, which have capped interest rates and are guaranteed against default.

Student Debt [GOOD]
RELATED: Shop Around for Student Loans

Sallie Mae's potential buyers gave the nation's largest student lender until Tuesday to consider their reduced buyout offer in light of what they said was "the new economic and legislative environment that faces the company."

But despite that pitch, Sallie Mae reiterated Monday that it isn't interested in the lower price.

In the latest development in a months-long dispute over what could be one of the world's largest private-equity takeovers, the lender filed a lawsuit to force the buyers to go through with their original $25 billion deal or else pay a $900 million breakup fee.

The buyers group, led by private equity firm J.C. Flowers & Co. and including Bank of America Corp. and JPMorgan Chase, has said student loan legislation signed into law by President Bush last month, and weaker economic conditions, makes the $60-a-share price agreed upon in April unacceptable.

The group sent a revised offer of $50 per share to the board of the company, formally called SLM Corp., last week. It planned to walk away if Sallie Mae didn't accept the new offer, worth about $21 billion, by Tuesday.

Sallie Mae Suit Seeks $900M Breakup Fee [AP]

Current Pell Grants top out at $4050, but the bill will gradually increase that to $5400 by 2012. The bill will also temporarily reduce interest rates on need-based student loans from 6.8 percent to 3.4 percent over the next four years (the reduction will expire two years after that).

"Lawmakers to Cut Subsidies To Student-Loan Providers" [Washington Post]

RELATED
Department Of Education Busts Student Loan Party Once And For All
Cuomo Goes After Student Lending Criteria, Is So Not Bored Of This Investigation Yet
Private Student Loans Are Potentially Evil
Department Of Education Sends Warning Letters To 921 Colleges
(Photo: Getty)

...has no oversight tools in place designed to proactively detect potential instances of lenders providing improper inducements—such as gifts to schools in exchange for preferred status on a school's suggested lender list—or schools limiting borrower choice of lender, two activities that are prohibited by law. Instead, the department primarily depends on external complaints to identify potential instances of non-compliance with these prohibitions.

The DOE does not dispute the report's accuracy.

US not policing college lenders, GAO says [Bloomberg]
Federal Family Education Loan Program: Increased Department of Education Oversight of Lender and School Activities Needed to Help Ensure Program Compliance GAO-07-750 [Government Accountability Office]
(Photo: Daveybot)

The Senate bill will:

• Cut subsidies to lenders by $18 billion;
• Boost direct aid to students by $17.4 billion;
• Raise the maximum Pell grant allowance to $5,400;
• Cap loan repayments at 15% of the borrower's discretionary income (read: beer fund);
• Automatically forgive loans after twenty years.
• 
  From the Washington Post:

  Lending companies said the legislation was a backdoor effort to drive some companies out of business and force borrowers to use a federal program, strongly supported by Democrats, in which the government lends directly to students.

  Yes, lending companies, the bill might undercut your business model of obscene interest rates and draconian collection practices. We think this is a great bill that deserves to be enacted into law, but before that can happen, the House and Senate need to meet in a conference committee to hammer out the few remaining details.

  Senate Approves Overhaul of Student Loan Program [Washington Post]
  H.R. 2669 - Higher Education Access Act of 2007 [THOMAS]
  Write Your Senator
  Write Your Representative
  (Photo: DanielVF)

Paying more interest causes cute kittens to die horribly. Do not harm the kittens. Consolidate your loans before July 1.

For more information, read this post:

It's Time To Think About Loan Consolidation

Thank you.

(Photo: Alcino)

Why? Because that's when the government recalculates the interest rate for student loans. If you wait, you will have to pay more interest. This would be bad for you. You need to look at your loans and make a decision about consolidation now.

Yes, it sucks. Yes, making important financial decisions is annoying and hard. You have to do it. If you don't, a cute kitten will die. Trust us. In addition, if you consolidate while you're still in your grace period, you may be eligible for a rate reduction.

Michelle Singletary, NPR's personal finance contributor, suggests several resources that will help you learn about loan consolidation:

• Direct Consolidation Loans
• FinAid.org
• Project On Student Debt

Why Consolidate?

If you have loans with a variable rate, consolidating can give you a fixed rate. You may also be able to get lower monthly payments (and a longer loan) by consolidating. It's not for everyone, so please don't assume that we're telling you personally to consolidate, but for some people it's a wise choice—MEGHANN MARCO

Interest Rising on Student Consolidation Loans [NPR]
(Photo: Rob Lee)

From the NYT:

Unlike federal loans, whose interest rates are capped by law — now at 6.8 percent — these loans carry variable rates that can reach 20 percent, like credit cards. Mr. Cuomo and Congress are now investigating how lenders set those rates.

And while federal loans come with safeguards against students' overextending themselves, private loans have no such limits. Students are piling up debts as high as $100,000.

Banks and lenders face negligible risk from allowing students to take out large sums. In the federal overhaul of the bankruptcy law in 2005, lenders won a provision that makes it virtually impossible to discharge private student loans in bankruptcy. Previously such provisions had only applied to federal loans, as a way to protect the taxpayer against defaulting by students.

While federal loans also allow borrowers myriad chances to reduce or defer payments for hardship, private loans typically do not. And many private loan agreements make it impossible for students to reduce the principal by paying extra each month unless they are paying off the entire loan.

Our advice to you high school kids out there: Do what we did. Avoid private loans and credit card debt by eating lots of cheap Snickers bars that you buy from Costco using someone else's membership, getting a job, and going to a school named after someone who a) was once kidnapped by pirates. b) said the following: "It is our duty to prefer the service of the poor to everything else and to offer such service as quickly as possible." This means that grant money may be available. —MEGHANN MARCO

Private Loans Deepen a Crisis in Student Debt [NYT]
(Photo: Andrew Shwegler)

Now, in light of the recent student lending scandal, congress is taking another look at that law, and legislation has been introduced that would extend some measure of protection to students who borrowed from private or non-profit lenders.

From Credit Slips:

Senator Dick Durbin made what appears to have been the first response to these hearings. He has introduced S. 1561. Under Senator Durbin's legislation, only student loans "made, insured, or guaranteed" by a governmental unit would be nondischargeable in bankruptcy (absent a finding of undue hardship). The legislation would allow loans from private or nonprofit lenders to be dischargeable in bankruptcy. The discharge of loans from nonprofit student loan lenders would be a change from the pre-2005 law and was prompted, as I understand it, from reports that for-profit private lenders were sometimes working through nonprofit organizations. Also, as I read the legislation, it would make loans from state, but not private, universities and colleges nondischargeable.

Rolling Back The 2005 Law On Student Loans [Credit Slips]
(Photo: aprilandrandy)

"What criteria are they using in the underwriting of these loans?" Mr. Cuomo asked. "Parental income? Student income? Student creditworthiness? How about the school you attend? How is that weighted?"

While lenders have the right to consider a borrower's credit record, he said, "there are also civil rights and legal ramifications to what criteria they use, and that's what we're looking at."

He suggested that students at historically black institutions were sometimes charged higher interest rates and fees than other students.

Cuomo Plans to Broaden Student-Lending Inquiry [NYT]
(Photo:AP)

• Colleges will be required to recommend at least three preferred loan companies to students;
  
• Colleges will need to explain how and why they chose their preferred lenders;
  
• Colleges can no longer accept computers or reimbursement for printed materials from loan companies at less than market rate;
  
• Loan companies would be banned from giving gifts or cash to financial aid officers;
  
• Loan companies cannot contribute to school-affiliated groups, like alumni associations.

  The proposed rules only apply to federally guaranteed student loans. If a loan company violates any of the rules, the federal government will no longer guarantee their loans. If approved, the rules will take affect next summer. — CAREY GREENBERG-BERGER

  U.S. Puts Limits on Lenders' Ties to Universities [NYT]
  (Photo: Rob Lee)

In related news, the financial aid director of USC Catherine C. Thomas, has announced her retirement today. USC said in a statement, "that Ms. Thomas' actions were "inconsistent with USC's conflict of interest policy" and that it was continuing to investigate."

The financial aid directors are still dropping like flies... —MEGHANN MARCO

Columbia Settles Student Loan Case [NYT via Gothamist]
(Photo:James Estrim/ NYT)

PREVIOUSLY: College Financial Aid Directors Are Dropping Like Flies

5 Money and Currency Facts Your Banker Never Told You [The Digerati Life] "Facts about money that are useful, interesting and could change how you look at money."

How High Do Gas Prices Have to go to Justify Getting a New Car? [All Financial Matters] "Short answer: $7.55 a gallon."

(Photo: Seawallrunner)

Fact or Fiction: Can a Rain Barrel Save You Money? [Get Rich Slowly] "For my birthday last year, I asked my parents for a rain barrel. After doing some research online, I went to our local nursery and paid $100 for a complete barrel set up. While it will mean a small savings on our future water bills, the upfront cost is really too high to justify it from a purely financial standpoint. Instead, I wanted to collect rainwater for several other reasons."

Ability to Pull an All-Nighter Can Be as Useful as a B.A. [CareerJournal] "In addition to expertise in a variety of academic fields, college provides "soft" skills that many employers seek. "Students have the ability at 2 a.m. to write a paper while instant messaging their friends and watching a TiVoed version of 'Grey's Anatomy,' " says Brad Karsh, president of JobBound.com, a career consulting group based in Chicago. And that's a skill that can come in handy at a company that values employees who can manage tight schedules effectively."

Food Stamps [Single Ma's Fabulous Financials] "I don't know about the people who live in Oregon or the perception of those who have never received food stamps — but when I was getting them, that was some of the best eating we ever had! Struggle? Puhleeze! We had steak, chicken breast, turkey, fruit, fresh veggies, dairy and LOTS OF CHEESE. :-) I may have been poor, but I sure wasn't hungry."

— FREE MONEY FINANCE

The post is full of scary terms like Consolidation, Delinquency and Forebearance. Terrifying! The Department Of Education has some helpful information and tools concerning loan repayment, so check them out as well. —MEGHANN MARCO

Advice for New Graduates: Student Loans [Make Your Nut]

Rapaying Loans: Editor's Picks [Department of Education]
(Photo: CarbonNYC)

• Get Federal loans First: Ask your financial aid office about Stafford, PLUS and Perkins loans. These are guaranteed by law protected against you defaulting and they have capped, low interest rates.
• Ask the bank that your family has a mortgage with
• Find state nonprofs that provide student loans, like the Education Finance Council.

Get your learn on, try and go for a private loan that acts as much as possible like a federal loan, and know whether the interest rate is variable, or some bank is going to be schooling you in the ancient art of usury for the next 35 years. — BEN POPKEN

Try Shopping Around for Student Loans [NYT]
(Photo: Morton Fox)

Sallie Mae is both a lender and a debt collector, making profits on both sides of its loans. Last year, the company earned $1.2 billion and generated a lot of cash that makes it attractive to private equity buyers. Even so, some Wall Street analysts believe that it is a poor candidate to be saddled with debt because its business relies on razor-thin interest margins and the use of derivatives to manage its exposure to interest-rate swings.
... Currently, the company is carrying $142 billion in private and guaranteed loans on its books, about 27 percent of American student loans in the United States.

While 85 percent of its business is currently federally guaranteed, the company could also shift into the higher-interest and faster-growing market for private loans, which unlike guaranteed loans, is not subsidized by the government.

Sallie Mae itself recently settled a case with the New York Attorney General and will pay $2 million into a fund to educate students and parents about the financial aid industry. —MEGHANN MARCO

Sallie Mae to Be Sold for $25 Billion [NYT]

From USAToday:

Cuomo says he believes cozy arrangements between colleges and the companies that lend their students billions of dollars are far more widespread than he expected. He wouldn't divulge where the burgeoning investigation is headed. But he said his investigation of the $85 billion industry could lead to criminal charges against high-ranking officials at lending companies and universities.

"This is like peeling an onion," Cuomo said. "It's more widespread than we originally thought."

Cuomo is investigating alleged kickbacks to school officials who steered students to certain lenders. His investigators say they've found numerous deals that benefited schools, financial aid officers and lenders at the expense of students.
...
Cuomo says he suspects that dozens of financial aid officers around the country have arrangements that he's called deceptive, unethical and at times, illegal.

"No one is even defending the situation anymore," he said. "When we first started, it was, 'Oh, this is just a few bad apples.' "
...
"Ninety percent of the students take the 'preferred lender,' " he said. "Why? Because that's the nature of the relationship. You trust the school. The school is in a position of authority."

Cuomo: Student Loan Corruption Widespread [USAToday via CL&P]
(Photo: foundphotoslj)

The revelations are the latest as the scope of NY Attorney General Andrew Cuomo's investigation into the conflicts of interest between colleges and loan companies expands.

Students often do not comparison shop and rely heavily on the lender recommendations made by their schools.

Yesterday The National Association of Student Financial Aid Administrators said it, "believes it would be inappropriate for a school to place a lender on a preferred lender list in exchange for shares of stock.." — BEN POPKEN

College Officers Profited by Sale of Lender Stock [NYT]

The universities in cahoots with Citibank include New York University, University of Pennsylvania, Syracuse University, St. John's, St. Lawrence University, Long Island University, and the State University of New York.

And this is only the beginning. Coumo's office is currently "in negotiations" with around 60 other schools, and with other lenders.

Such arrangements create conflicts of interest, and harm consumers.

"Going to college is hard enough. Students shouldn't have to worry about being exploited when they take out student loans," said Sen. Edward Kennedy (D-MA) — BEN POPKEN

Millions to Be Repaid After College Loan Inquiry [NYT] (Thanks to Molly!)

The FDSL just sent me a loan cancellation letter. They have decided that they will only take federal loans now to consolidate and Sallie Mae is primarily a private lender, and that is what they report my loan as. What the difference between a federal guaranteed loan and what they consider a federal loan through a private company is beyond me.

The advice given to me to try ed.gov was unfortunately wrong, or somehow I didn't say the right keywords when I applied so I was denied, even from the government. Or, as is to be expected, many still think that Sallie Mae is somehow a federal loan and I was given advice according to that assumption.

I Don't Know What I'm Going To Do Now [Sallie Mae Is Indeed Ruining My Life!]

A computer glitch apparently caused more than 3 million student loan borrowers to be billed hundreds of millions of dollars more than they owed, said lawyers who brought the class-action suit. It's unclear how much individuals were overcharged.

The suit, filed in U.S. District Court in Washington, says a complex billing problem affected Americans with consolidated loans that totaled more than $72 billion. The suit says the department essentially imposed late fees on borrowers even though their payments were made on time.

Pfeiffer, a former high school math teacher, said the problem is so complex that it took her more than 1 1/2 years to figure out what was going on.

Pfeiffer graduated from chiropractic school in 1994 with more than $90,000 in debt. In 1997, she consolidated multiple loans under a plan that required her to make payments by the 21st of every month.

The Education Department penalizes consolidated loan borrowers who fail to make all of their annual payments by June 30 by adding penalties to the principal of their loans, on which they then have to pay extra interest.

Pfeiffer discovered that she was being fined unfairly, her lawsuit says. She made her June payments on time and sometimes early. But the department was penalizing her for not making a separate payment for the days between her June payment and June 30, the suit says, even though her next wasn't due until July 21. The penalties were then capitalized — or added to the principal of her loan.

In 2002, for example, $368.76 was unfairly capitalized because of the accounting glitch, the suit says. Over the past five years, more than $1,000 was incorrectly charged to her. If the problem is not resolved, she will have to pay interest on that sum over the life of the loan.

Pfeiffer said she notified officials about the overbilling mistake at least 15 times over the phone and in writing. "Most of the time I was told that, yes, we realize that this isn't right, but that's the way the system is," she said.

Lawsuit Says Education Dept. Overcharged on Student Loans [Washington Post]

Concerned that guidance offered to students is tainted by conflicts of interests, Cuomo's office asks schools to disclose if there are financial relationships with lenders and if any favors were offered to individual financial aid officers.

"My office is seeking to ensure that students are being steered toward lenders offering the most competitive rates, not those who offer the best perks to schools or financial aid administrators," Cuomo said in a statement.

"When making recommendations on how to make tuition more affordable, there must be absolutely no conflict of interest at the expense of students and their families," he said.

Spokesman for Sallie Mae and Nelnet separately said their companies are cooperating with Cuomo's office.

New York expands student lending probe [Yahoo!]