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Removing the FFELP would dramatically alter the education financing landscape

I started wondering if Obama’s claim that doing away with the FFELP -  Federal Family Education Loan Program - would actually save taxpayers money, so I started doing some digging. Thankfully, someone did the leg work for me. I did a quick check through their numbers and seen that they were pretty accurate in their claims.

The administration claims that they will reduce costs by $4 billion dollars a year (read original article on munky.org here), mainly due to removing the subsidies. However, in 2006, when the same argument existed, America’s Student Loan Providers released a whitepaper outlining flaws in the math. The government had significantly overstated the cost of subsidies for FFELP and significant understated subsidies for the Direct Loan Program.

Now I could sit here and explain it, but the boys over at studentloanfacts.org have done a pretty good doing that for me. Quoting from the source, what is in the government’s version, and how it was changed:

 

 

• Count FFEL program costs for 1992 and 1993 – years in which the Direct Loan program did not exist – Eliminating them makes cost estimates fairer and more meaningful.

Effect on Subsidy Rates: FFEL program, reduced to 9.10 percent; Direct Loan program, increased to 1.76 percent.

• Include cost estimates for 2002-2004, years whose loan cohorts have yet to go into repayment – Eliminating them makes estimates more reliable and fairer.

Effect on Subsidy Rates: FFEL program, reduced to 8.66 percent; Direct Loan program, increased to 3.83 percent — cost differential is reduced to 4.83 percent.

• Do not include the Direct Loan program’s administrative costs – Counting them makes estimates more accurate and fairer.

Effect on Subsidy Rates: FFEL program, increased to 9.52 percent; Direct Loan program, increased to 6.23 percent — cost differential is reduced to 3.29 percent.

• Do not include tax revenues generated by FFEL program loan providers – Including tax revenues makes estimates more accurate and fairer.

Effect on Subsidy Rates: FFEL program, decreased to 7.62 percent; Direct Loan program, decreased to 6.17 percent — cost differential is reduced to 1.45 percent.

• Do not account for the risks to direct loans from defaults, consolidations or interest rate fluctuations – Adding a risk premium of 0.25 percent to the government’s discount rate makes estimates more accurate and fairer.

Effect on Subsidy Rates: FFEL program, remains at 7.62 percent; Direct Loan program, increased to 7.67 percent — cost differential is eliminated. 

As usual, the government does a half-ass job of figuring the true cost of things. All this in an attempt to look like they are doing something positive. Positive things lead to re-elections, we know how that story goes.

What the FFELP really does for us is give us expanded options for providing student loans. It creates competition, keeping rates in check, and provided a benefit to loan providers by offering special rate reductions. These rate reductions add up.

Plus the government is a poor manager of money, and is unqualified to act as a bank. Part of the reason I’m vehemently against the nationalization of banks.

Want the facts? Go to the Federal Student Loans Fast Facts page on studentloanfacts.org. Then write your congressman. Thankfully about.com has a good page with tips and how to find out who your congressperson is – just click here to find out more.

Anyone paying for college knows the feeling

FFELP? That’s short for the Federal Family Education Loan Program. If you have a federal Stafford or PLUS student loan, odds are you got it through the FFELP. It is the private student loan program subsidized by the federal government. It is also the program that came under fire a couple of years back for kick-backs to colleges for sending student borrowers their way.

Now it looks like the Obama may be cutting it out completely, leaving only the Federal Direct Loan Program (FDLP). While there are specific benefits to taxpayers by removing public subsidies (the administration believes it can save taxpayers $4 billion a year, and $47.5 billion in the first 10 years, mainly from subsidy removal), the benefits to borrows (students and their parents) aren’t so clear.

Why? Most FFELP lenders offer rate reductions for qualified buyers. Take for example the NC Advantage Program through the CFI (and endorsed through the College Foundation of North Carolina and the North Carolina State Employee’s Credit Union, etc.) offers savings for automatic draft. For loans before September 20th of last year, a student loan could get a 1% reduction for making your first payment on time, and another 1.5% off for using automatic draft. While not so glamorous, even its .25% discount for automatic draft is still worth it (bring the rate to approximately 6.55%, in line with many automobile loans).

The administration has not made it clear if it will offer any type of rate reductions or incentives. Overall, this could be a good move for students and parents if they decide it drop rates across the board. However, looking at the recent bubble burt reminds us of the dangers of easy money.

Being a college student who may need to get a loan after transferring, this is of particular interest to me. We’ll have to watch and see what the administration does. Although there are significant reasons that these types of loans should be moved to be strictly governmental, the move should be done not just to help the taxpayer, but improves the borrowing situation for students. These loans are for a very specific purpose, and their value should not be lost just to bean counters.

But while we are on the topic of paying for college, Congress needs to set its sight on another, maybe even more important goal. Cleaning up the Free Application for Federal Student Aid, better known as the FAFSA. Anyone who has ever filled it out knows that it nearly takes a postgraduate to fill out this thing. It may be a free application, but you pay for it in time and confusion. They did away with some of the confusion by moving it strictly online, but it is still painful and difficult. I have one out every year, and honestly, I look forward to finals week more. You can see more on the problems with the FAFSA here.

And for my final $0.02 worth, there is one change that I believe is worth of merit. Currently, individuals under the age of 24 MUST claim their parents’ and/or legal guardians’ income. While for a number of students this makes sense, given that they are only independent because they are off to college, but in the essential use, they are still dependents. However, there are students who are penalized hard with this requirement. Take for example myself. My wife and I were married young and had a child young (I was 21, she was 19). We were completely independent, owning our own home, raising our own child, and receiving very little financial from any relatives. The most we got was free child care. In our first year of marriage, we earned about $27,000. Guess what, neither one of us could get financial aid. A couple of years later I finally started going to school, and was paying completely out of pocket because I was still unable to collect financial aid. Thankfully community college is affordable, but books are still ridiculous. I was smart enough to scrape during the semester to have enough for the next. Finally, the year I turned 24, I was finally eligible for financial aid. I had to scrape and starve to pay for that fall semester, so when I found out I was getting a refund because I got aid, relieved would not cover it.

I made too much last year though, and I’m not eligible for the Pell Grant, NC Community College Incentive, or the NC Lottery grants anymore. Unfortunately, in order to get scholarships (I wouldn’t have been able to afford this semester without a scholarship), I still have to fill out that damned form. I’d rather do my taxes again.

Raptor hanging out with an F-16

After checking through my email, I noticed that my twitter was now being followed by RaptorJobs. I’m not going to begin to wonder how they caught my feed, but I’m thankful someone noticed.

I guess I have a soft spot in my heart for the F-22 Raptor. Aviation in general. I’m still a college student, and I plan on transferring next year for Aerospace Engineering. One day I’d like to see myself working on designing the next Raptor: the fastest, stealthiest, deadliest plane in the sky. A truely start of the art aircraft that is light years ahead of anything else that spends its time in the sky. Well, unless you believe in UFO’s, because I don’t know if we’ll advance to that in my lifetime (one can only hope).

Beyond the practical and defensive reasoning behind supporting the Raptor, there are other, pragmatic reasons as well. If we shelf the Raptor, we might not hurt only our own defensive/offensive capabilities, but we may also stunt the science behind it. America is suffering from a loss of brain power. We are educating foreign students at our schools so they can become the top in their field back in their home. Unfortunately, kids nowadays are not as interested in science as they once were.

We’ve been sufferring for a long time under an education system that only prepares kids for a standardized test. Education fails to understand the point. It’s not about getting the answer, it is about how to get it. Sure, we can teach kids to use the calculator for math. At some point though, they can’t go any farther. Because once you reach a certain level, you don’t have a pretty little formula to plug the numbers in and make it work. You have to figure that out. Kids aren’t getting that.

They only thing outside of competitive education (where some kids are going to fail) that can inspire today’s youth to become something more is by seeing the results of others inspiration. That F-22 is an inspiration. If you can’t give the kids science fairs, if they are too busy “learning” to be able to have fun with school, then please don’t take away the only hope we have of the future.

So what drove me to want to grow up and be a “rocket scientist”? Space, although far removed from the time of the Apollo missions, was still cool. The Shuttle program is only slightly older than I am. I used to look up to the stars at night. I was the nerd with the telescope and the book of constellations, trying to make them out in a city sky far too bright to make out a fraction of those crystal specks in the universe. I would build and launch model rockets, even making my own one time out of a wrapping paper tube. My first try didn’t turn out that well, but after a couple of goes I made a pretty damn good rocket.

Kids need that nowadays. And schools need to realize that standardize testing is a farse, it only hurts more than it helps. Standardized testing means we are to be standardized people, and we are not. Give the kids a hands on approach to learning, that’ll help the drop out rate. Some kids are going to fail, we can’t help that. Lowering your standards (i.e. Dallas) only makes matters worse. If a student fails a test the first time, he failed the damn test. End of story. We don’t get second chances in life, and if we raise them to think there is always a do over, then we’ve failed them.

So to Obama, if you ever read this, don’t kill the Raptor. You’ll kill the spirit.

F-35 Lightning II Joint Strike Fighter

In a final note to this though, I’m including an image of the F-35 Joint Strike Fighter. You will notice similarities between it and the F-22, although they are no identical twin. The F-22 is older though. See what daring breakthoughs bring you? Unfortunately, the F-35 is not a valid consideration at this time, as it is not production ready. Yet had the government scrap it’s spending on the F-22 in the first place, we would’ve never had it’s little brother.