Chased Away from Student Loans—Some More Digging

This morning, April 17, I checked my inbox and found a message from a reader who had read the previous day’s column on the JP Morgan/Chase decision to discontinue lending to schools with low repayment rates.

 

I had pointed out that Chase’s spokesperson refused to list the affected schools, but that borrowers deserved to know. I also added that such information would end up becoming public anyway, as unhappy borrowers would eventually post it on the Internet. Finally, I stated that the government should provide borrowers, educators and lenders with a list of schools that have below average default rates.

 

This morning, the reader told me that the U.S Department of Education (DOE) already publishes such a list and it is available to the public. So, I went to their site to take a look. One thing I learned was that you needed to know their terminology in order to find the list. It took some digging to find. (For those who would like to read more, please go to http://www.ed.gov/offices/OSFAP/defaultmanagement/dmd002.html).

 

I appreciate the reader pointing this out, because I learned more than I expected. The DOE tracks cohort default rates. A cohort default rate, according to a PDF guide posted on the site, is based on a fraction: the number of borrowers who have defaulted on students over the past two fiscal years divided by the number of borrowers who begin to repay their loans over the past fiscal year. A cohort year is the same as a federal fiscal year, October 1 through September 30.

 

According to the DOE, A school is subject to sanctions, meaning the loss of Federal Family Education Loan (FFEL), Federal Direct Loan (DL), and/or Federal Pell Grant Program eligibility if the school has three consecutive official cohort default rates that are 25 percent or greater. Also, a school is subject to the loss of FFEL and DL Program eligibility if the school has an official cohort default rate that is greater than 40 percent for the most recent cohort year. The Web site also reported that no school had fallen under these sanctions since FY 2005.

 

And there is some good news: the national cohort default rate has dropped from a high of 22.4% in 1990 to 4.6 percent in 2005, the last year that the DOE has available data. Cohort default rates ranged from 4.5 percent to 5.4 percent between 2001 and 2005. That means that someone has done a better job of collecting the money from borrowers.

 

While I can’t draw firm conclusions from limited research, I have to believe that private lenders use their own methodology to decide who qualifies for a student loan, as well as the DOE statistics. A 4.6 percent default rate, along with government guarantees and subsidies suggests that student loans are not a risky business, though it is possible collection expenses and subsidized origination fees—charged to students in direct lending–cut into their profits. Even then, some lenders chose to make gifts to financial aid officers to direct students their way. I’d have to guess that the profitability of student loans for the gift-giving lenders depended on receiving preferential treatment.   

 

But my digging takes me back to my original question: how does Chase, or any other lender, choose the “haves” and “have nots?”

 

According to the DOE Web site, for example, Historically Black Colleges and Universities (HBCUs), Tribally Controlled Community Colleges (TCCs), and Navajo Community Colleges, as defined by statute, have been eligible for relief from the consequences of cohort default rates. As of September 2007, all 98 eligible HBCUs had official FY 2005 cohort default rates that fell below regulatory thresholds. No HBCUs are subject to cohort default rate sanctions.

 

 

 

 

While the federal government has provided relief, I must ask another question: How have the banks treated borrowers from these schools and others? I welcome any reader to answer.

Reading Is Fundamental Honors 25 Programs for ‘Linking Up for Literacy’ with Community Partners

Washington, April 16, 2008— Reading Is Fundamental (RIF) today announced the recipients of the third annual RIF Program Excellence Honors 2008, sponsored by MetLife Foundation. The 25 honored programs and their volunteers will be recognized by RIF during a celebration in Washington, D.C., June 16–18, for successfully partnering with outside organizations to advance children’s literacy in their communities.

“RIF commends these programs and their community partners for helping children and their families discover the joy of reading,” said Carol H. Rasco, RIF president and CEO. “Thanks to MetLife’s generous support, RIF can showcase the work of these great programs and share their best practices with other communities.” 

The 25 outstanding programs were selected from a pool of approximately 3,500 RIF programs nationwide. Partners include public schools, Indian reservations, sororities, fraternities, libraries, television stations, corporations, and law firms, among others. Children in these programs benefit from having reading role models that included NBA players, teen tutors, and grandparents.

“We are pleased to join RIF in honoring outstanding local programs,” said Sibyl Jaboson, president and CEO of MetLife Foundation. “As they spread the love of reading, they are changing lives, building community and sharing important lessons from their success.”

The partnerships vary in length from three to 29 years. For example, the Holland & Knight law firm has partnered with RIF for 12 years, expanding their relationship from Washington, D.C., to sites in Chicago, Jacksonville, Fort Lauderdale, Los Angeles, Portland, St. Petersburg, Tampa, Tallahassee, New York, Northern Virginia, and West Palm Beach. “RIF events draw volunteers from the law firm into the lives of underprivileged children throughout the country, creating excitement around literacy and learning,” said Angela Ruth, executive director of Holland & Knight LLP Charitable Foundation.

During a three-day celebration in Washington, honorees will be recognized at an awards ceremony, and participate in workshops and information sessions. They will also visit with congressional representatives to discuss the impact of RIF programs in their community.

RIF Program Excellence Honors 2008:

RIF Program, Partner Group, Location

1. Hopkins House Center, Northern Virginia Alumnae Chapter Delta Sigma Theta Sorority, Inc., Alexandria, Va.
2. Community Action Head Start Program, Western KY University, Bowling Green, Ky.
3. MS Band of Choctaw Indians Head Start , Mississippi Band of Choctaw, Indians  Choctaw, Miss.
4. Woodrow Wilson Magnet School, Writers’ Block International, Danville, Va.
5. Drop In Library – RCPL, Cooperative Extension Service, Eden, N.C.
6. Lansing School District, Riverwalk Theatre, Lansing, Mich.
7. RIF of Lockhart, Alpha Psi Beta Chapter of Beta Sigma Phi, Lockhart, Texas
8. Red Mtn. HS Club RIF, Salk Elementary School, Mesa, Ariz.
9. Phillis Wheatley Elementary School, Council of Small Business Executives, Milwaukee, Wis.
10. PACT Head Start, Beta Phi Pi Fraternity at WIU, Mt. Sterling, Ill.
11. RIF Nashville, Book’em, Nashville, Tenn.
12. Orange Children & Parents Together, Orange Public Library, Orange, Calif.
13. SIEDA Head Start, Iowa Public Television, Ottumwa, Iowa
14. Holiday Park School, Phoenix Suns, Phoenix, Ariz.
15. Reading Is FUNdamental Pittsburgh, Children’s Museum of Pittsburgh  Pittsburgh, Pa.
16. Volunteers In Providence Schools, Local branches of national corporations, Providence, R.I.
17. Ripley RIF  Ripley Women’s Club  Ripley, Ohio
18. Salt Lake Community Action Head Start  KUED Public Television  Salt Lake City, Utah
19. Salazar Partnership, Salazar Partnership (local foundation), Santa Fe, N.M. 
20. Page Ahead, The Boeing Company, Seattle, Wash.
21. Franklin Grande Isle Early Childhood Adv. Council, Franklin County Early Childhood Programs, Swanton, Vt. 
22. Holland & Knight Charitable Foundation, Head Start and Public Schools,  Multistate
23. Reach Out and Read of Northwest Ohio, Ohio Help Me Grow, Toledo, Ohio
24. Libraries, Ltd., Pascua Yaqui Tribe, Tucson, Ariz.
25. Verona R-7, Missouri Gas Energy, Verona, Mo. 

Best practices from these 25 programs will be added to an interactive web-based Portfolio of Excellence that includes narratives and pictures from past winners, and is available on RIF.org.

Chased Away from Student Loans

Today JP Morgan/Chase Manhattan, the bank that recently worked with the Fed to acquire the former Bear Stearns investment bank, announced that they will not be making student loans to entering or continuing students enrolled at schools that have a poor repayment rate. Yet their spokesperson refused to mention the schools that would be affected by the announcement.

 

When I checked out comments on the Chronicle of Higher Education online, commentors speculated that the affected schools would be community colleges and for-profit colleges. They gave no reasons for their speculation, though I can offer one of my own: low graduation rates, meaning, that if students did not finish their education they were less likely to repay their student loans. I guess that government guarantees were not enough for Chase to continue lending to students at these schools. No surprise, they weren’t good enough for Citibank 30 years ago during the Chrysler bailout.

 

I would understand the rationale of Chase’s decision better if I knew which schools were on their list. Without seeing the list, I have to wonder if they have something to hide, such as a lending methodology. The last thing prospective borrowers need to hear is that a money center bank is “redlining” by providing more favorable loan terms to students who attend some schools over others. The very next things prospective borrowers should do, if their college-bound student is sincerely interested in a “redlined” school, is to look at other schools or cease doing any business with that bank.

 

Lending officers have no qualifications to make academic judgments about loan applicants or the academic qualities of a school. If university administrators fear the growing importance of media rankings, I can only imagine their fears if lenders determine the schools that will be their “haves” and “have nots.”

 

Secretary of Education Margaret Spellings has assured schools and borrowers that there are still plenty of lenders who will make student loans as well as the capacity to expand direct lending, where the government acts as lender of last resort. But she should be concerned that Chase’s decision will have a ripple effect on other lenders. Even with no comments from Chase, word will get out on the Internet from prospective borrowers and that word will spread to other financial institutions as well. It’s difficult to say if other lenders will fill the void to offer, loans offer tougher terms or refuse to take the same risk with Chase’s targeted schools.

 

If nothing else, Chase’s decision has spurred a need for a new form of government intervention in the student loan markets: to publish an annual listing of “deadbeat” schools. There would be only one criterion for this list: a below-average repayment rate for government-supported student loans.

 

The federal government would make no judgment on the academic quality of the schools, nor their graduation and retention rates. This list would be made available to educators, parents, students and lenders so that each may make their own decisions. It’s true that the government would be taking the lenders off the hook; the banks would not need to disclose lending practices to the public if the government becomes the published resource.

 

However, government would be doing all parties: educators, lenders and borrowers an important service. And the federal government has every right to use such a list as a means to collect their money.

Trip to the ‘Ship Part 2: The Shade of Orange on the Game

I’m a New York Giants fan and a New York Yankee fan who is used to attending home games surrounded by the blue-ness of our colors. At Rutgers games real fans wear red; you could just as easily call our wave the Red Sea. But when I attended this year’s final game of the NCAA Women’s Final Four, there was a sea of creamy orange beneath my feet.  The colors and repeat choruses of Rocky Top made me feel as if I were at a Tennessee home game, even though we were in Florida, a state that prefers a different shade of orange. 

 

But that’s to be expected when a team has been as successful as Pat Summitt’s Lady Vols. Wherever they play, a regular crowd shuffles in. I had seen the Tennessee women play three times before the Final Four: once on Rutgers’ home court and twice in an Elite Eight series in Philadelphia and all three games drew a significant turnout of orange-clothed fans, considering the distance from Knoxville to Philadelphia and to Piscataway, New Jersey.

 

I can’t hate Tennessee; their home-town fans are nice in a neighborly way and they are the most loyal fans I have ever seen. According to unofficial attendance figures tracked by the University of Wisconsin, the Lady Vols average nearly 16,000 people per home game. UConn is second best with just under 11,000 fans a game, and they play their strongest opponents off-campus at the Hartford Civic Center. LSU, the Lady Vol’s opponent in the semi-final game, averages approximately 5,500 fans and Stanford, the remaining finalist this season, averages just under 4,000.

 

The Lady Vols are to women’s college basketball what Notre Dame fans have been to college football, a national cadre that always shows up when the team comes to town. And like Notre Dame fans, I have met many Lady Vols fans who are “subway alumni.” They root enthusiastically for the team, even though they might have never set foot on campus. Unlike Boston Red Sox fans who never pass up the chance to “share the love,” Tennessee fans don’t form personal opinions if your root for another team. Lady Vols fans not only love a winner; they also love a team that loves them back. You can’t help but admire a team that might bring enough fans along to help sell out your arena—and Tennessee basketball is very fan friendly. If nothing else, the mascot and band will get you to remember the words to Rocky Top.

 

The Tennessee faithful can legitimately claim that a Woman’s Final Four without orange and white is like a day without sunshine. They would also have claim to a title of America’s Team; five members of the roster hailed from the south, while six are northerners. Only two of Summit’s players come from in-state.  

 

Tennessee’s dominance of women’s college basketball has been astounding. The Lady Vols have played in 13 of 27 NCAA title games—not just the Final Four, but the final game—and won eight times. They have also made the semi-finals five times.

 

Although the regular season series has been cancelled, the Tennessee fans I met this Final Four weekend considered UConn–not an inter-conference school like LSU–their primary rival.   Tennessee has never won an NCAA final tilt against UConn in three tries and Geno Auriemma’s Huskies held an 8-7 advantage over Summitt’s Vols during the regular season games played between 1995 and 2007.

 

Then again, I was wearing a Rutgers shirt at the finals, not a UConn one. Throughout the three days I talked to Tennessee fans, I kept hearing about how much they wanted to play Rutgers in the final and how much they liked and respected our coach C. Vivian Stringer. There was no reason to question their sincerity, though Stringer has beaten Summitt’s teams only once in the past 13 years.

 

In some ways Tennessee’s dominance has been good for women’s basketball, in other ways it has not. Pat Summitt has won more college basketball games than any man or women still coaching and she earned every one of those wins (except I believe Rutgers won the infamous “clock” game in Knoxville this past season). Only John Wooden had won more college championships—ten—and Summitt has plenty of time to pass him. She is one of the most important women professionals in the country and an effective spokesperson for her game. If someone told me that Summitt has elevated the profile and respect for women’s basketball and women athletes in general, I wouldn’t argue.  

 

But one team’s dominance leads fans of the other teams to question the competitive balance of the sport and lose interest. This is an especially serious situation for women’s basketball as successful programs such as LSU, Maryland, North Carolina, Rutgers, Stanford and Old Dominion struggle to fill more than half of their seats at home.

 

Women’s college basketball can look to major league baseball as an example. From 1949 to 1953, major league baseball attendance dropped from 20.2 million fans to 14.3 million as the New York Yankees won five consecutive World Championships, against New York’s National League teams the Brooklyn Dodgers and the New York Giants. The decline was enough to make me wonder about the interest in baseball outside of New York City.

 

Women’s college basketball is a great game; it’s more team-oriented than the men’s game and the women are reported to be more successful academically than the men. The women’s game is also a young game; its pioneers such as Summitt, Auriemma and Stringer are still going strong as coaches or are working in athletic administration.

 

But I worry about the long term prospects of the sport when there is a dominant team and such a wide disparity in attendance figures.

Trip to the ‘Ship: My Visit to the NCAA Woman’s Final Four, Part 1

Prior to attending the 2008 NCAA Women’s Final Four, I had attended only one championship game of any kind: the last-ever United States Football League title match in the New Jersey Meadowlands. Back then, as now, with the Super Bowl and the NCAA basketball tournaments and college bowl games, the game was played on a neutral site. This year’s Women’s Final Four was held in Tampa in a hockey arena; the Saint Petersburg Times Forum, the host site, opened 12 years ago as the Ice Palace.

 

Going to the “ship” was fun, even though a few little things, like a torrential downpour on the day of the semi-final games, got in the way. This Forum is a fairly new arena, but it wasn’t built to handle the crowds that would be rooting for four teams, fighting to add souvenir t-shirts to their collections. All of the teams in this year’s final: UConn, LSU, Stanford and Tennessee had played in at least two finals before, three have emerged champions while the fourth, LSU, was making its fifth consecutive appearance.

 

There were a lot, and I mean a lot of people wanting souvenirs and the Forum’s staff appeared ill-equipped to handle them. They were more used to handling merchandise for the last place hockey team that plays there. I will say, however, that I am the proud owner of the last Stanford t-shirt that was sold on finals night; it just happened to be my size.

 

I also wished the Forum made some considerations on the food. For one thing, they didn’t make any changes from the fare you would get at a regular season hockey game, right down to the “High Stickin’ Chicken” which was every bit as rubbery as a hockey puck. A personal pizza was ten bucks, a ridiculous sum in any sports market, though the concession dropped the price to two for ten bucks by the halftime of the final game. But the cheese on the pizza was as rubbery as the chicken, so the two-for-one was no bargain.

 

Next year’s women’s final will be played in St. Louis at another hockey arena (there has been no pro basketball in the Gateway City since 1976), while the men will be playing at Detroit in a football stadium. I realized cities bid for the privilege of hosting a Final Four, but why can’t they play it at a place that regularly hosts a college basketball team? I’m sure there are fans who would love to see the more storied homes of college basketball like Bloomington, Chapel Hill or Duke, or in the case of women’s hoops, Charlottesville, Knoxville or Palo Alto. The colleges have plenty of experience handling little things like ticket sales, parking and tailgating.   

 

But to their credit, the Forum redeemed itself on finals night. There was beautiful weather, a band, plenty of free and accessible outdoor games, an ESPN broadcast of the final shown against the parking deck wall (you read that right, the wall) to help manage post-game pedestrian congestion and best of all, friendly fans of all teams, including those that were not playing the finals. I wore Rutgers shirts to both games, not only because I believed our Scarlet Knights should have been there, but also because I couldn’t root for UConn, our main arch-rival. Instead I rooted for Stanford; this was their first trip to the finals in 13 years and I could have never gotten into the school when I was shopping for a college.

 

To be fair, most of the UConn fans I met were better people than me, as far as sports loyalties go. Virtually every UConn fan I met at my hotel and the games said that we should not have played each other in the Elite Eight, and that they would have rooted for Rutgers if we had beaten them to get into the finals. I’m not only a Rutgers fan, I’m also a New York Yankee fan. For me rooting for UConn to win the Finals would be like rooting for the Boston Red Sox to win a World Series. I just don’t have it in my heart to do that, so sorry UConn fans. It’s nothing personal, just basketball.

An Astronaut for Second Chair on the Democratic Ticket

While I went out on a long limb to suggest that Rudy Giuliani may be the best running mate for Republican presidential candidate John McCain, I am at a loss to guess who would run with whom on the Democratic ticket. The highly competitive race between Senator Hillary Rodham Clinton and Senator Barack Obama has had more than it’s share of drama—and more than it’s share of barbs that will only help Republicans deflate the credibility of the eventual nominee. 

That’s one reason why I do not believe a Clinton-Obama or Obama-Clinton ticket can win. I can just see the Republicans using their own comments against each other. Combine that with McCain’s strengths on defense and national security, and it’s likely we’ll see Bush and McCain on the podium together on Inauguration Day. 

Obama and Clinton have also run very different campaigns, with Obama doing a better job at attracting new contributors and young volunteers. He’s also made better use of the Internet. Clinton has obviously done at better job at winning the larger states through a more conventional campaign. Obama has carried only one, his home state of Illinois. Neither has enough to be on-course to win the nomination outright. Even the uncommitted superdelegates in the states that Clinton and Obama have already won (excluding Michigan and Florida) go along with the popular vote in their state, Obama would have an additional 137 delegates and Clinton would have 91. That would put Obama at 1,759 delegates and Clinton at 1,576; neither close to the 2,024 needed to win the nomination. There are only 48 uncommitted superdelegates in the states that are yet to hold primaries; they are votes to be had, of course, but hardly enough to sew things up.  

It’s going to come down to Florida and Michigan for Obama more than Clinton; he has to prove that he can take better than 45 percent of two large states where his opponent has already won a popular vote. Or the fight’s coming down to the convention floor and one potential bargaining chip can be the vice presidential nod. And it should not go to the losing side.

It’s too difficult to imagine a former First Lady enthusiastically fighting to be further from the West Wing, while the Republicans use the bad old days from her husband’s presidency to defeat the ticket. She would be a stronger public figure if she remained in the Senate with a safe seat from an important state. Hillary Clinton could go down in history as one of the most effective Democratic legislators, like Ted Kennedy. Why should she compromise that legacy by running as the number two on Obama’s ticket? 

It’s equally difficult to imagine Obama as number two on a ticket led by the Clintons. Bill Clinton is one of the finest political minds of this generation and he is still the standard bearer of his party. Hillary would do better to run on the positives of his record—and compare the end results to Bush 43. Obama is charismatic, but can his charisma sway voters, especially the younger ones who volunteered for him, to a candidate he so soundly criticized?  

Which comes back to the notion of the vice presidency as a bargaining chip.  The Democratic vice presidential nominee should be Senator Bill Nelson of Florida.  

A Clinton supporter, Nelson comes from an important swing state. A former six-term Congressman, Nelson, like Clinton, is a second term senator and he was re-elected with 60 percent of the vote from a Republican state. Nelson not only comes from an important state, he lends an experienced contrast to Obama, should he emerge the nominee.  

Interestingly enough, Nelson has gone into space as a payload specialist on the shuttle Columbia. There may be some amusing comparisons between him and Larry Hagman’s Major Nelson from I Dream of Jeannie, but in the rough and tumble world of politics that might not be such a bad thing. Neither Clinton nor Obama would be hurt by Barbara Eden’s endorsement.  

Nelson has also been active in pressuring the Democratic National Committee to seat his state’s delegates; it was a Republican-controlled Florida legislature that moved up the state primary date. It would be wise for the Democrats to position Nelson as a hero from the convention and strong second chair in what promises to be a very tough presidential race.

A McCain-Giuliani Ticket? It’s Not So Far Fetched

I am not on the inside of any presidential campaign, but I consider myself to be a good student of politics. And as a writer, I have the luxury of going against the grain on campaigns and issues. I am also not a Republican—so I don’t expect the leaders of the Grand Old Party to take my advice. But as a political writer, I have an obligation to inform, and hopefully entertain my readers.  

And plenty of readers will find the idea of a McCain-Giuliani ticket entertaining, if nothing else.  

It’s no news that John McCain has locked up the Republican nomination and deservedly so. He was the most credible candidate on defense and national security and the best at making the case for long-term involvement in Iraq. He also holds no past shame in his votes on these issues. A debate between McCain and either of the likely Democratic nominees will undoubtedly be spirited. I cannot see either opponent taking cheap shots at McCain on military or foreign affairs; his credibility is far too strong. 

However, McCain has proven to be weaker than either Democratic candidate on domestic policy. He merely espouses the usual Republican agenda: less regulation, lower taxes and limited government. He appears uncomfortable answering questions on, for instance, education and health care, than either Clinton or Obama. I disagree with Republican pundits who say that Senator McCain should choose a running mate who is considerably younger and to the right of his views on social issues. For McCain to win, he will need to bring independents and Reagan Democrats into his corner. He will need swing states or to turn a large Democratic stronghold—like New York—into a swing state. He needs someone who could be entrusted on domestic policy, as defense and national security will be the first priorities of a McCain administration. He also needs an “attack dog” to confront Democratic positions on domestic policy. 

Under these circumstances his best choice for a running mate is Rudy Giuliani.  

I understand that Giuliani’s so-called conservative credentials could be questioned; his social issue positions were far more moderate during his two terms as Mayor of New York. He shepherded legislation granted gays and lesbians domestic partnership rights. There are also the “moral” concerns: he has been married three times and an affair contributed to the break-up of his second marriage. But I cannot see conservatives deserting the Republican Party or raising sufficient funds for a third-party candidate. McCain has inherited the Bush fundraising apparatus as well as the Rolodex. Conservative Republicans will not fracture their own party at the risk of seeing a Democratic opponent elected with less than a majority vote as Bill Clinton was in 1992. Giuliani has the perfect resume to be McCain’s running mate. Giuliani has been: 

• Chief executive of a culturally diverse city of over 8 million people, larger than 39 U.S states, including Massachusetts.
• The only Republican presidential candidate who has successfully defeated an African America opponent and a woman opponent in major elections.
• Credited with dramatic reductions in crime in the city he governed.
• Recognized as a hero on terrorism and national security.
• Connected to the Reagan revolution; in 1981 he was appointed by former president Reagan, to be Associate Attorney General, the third-highest position in the Department of Justice, overseeing the U.S. Attorney Offices’ federal law enforcement agencies, the Department of Corrections, the Drug Enforcement Administration, and the United States Marshals Service. 
• U.S. Attorney General for the Southern District of New York where his office amassed over 4,000 convictions, with heavy focus on insider trading, drug dealing, organized crime and corruption; his reputation as a crusader made him a mayor.
• Prepared to campaign against Senator Clinton; he was committed to run against her until he was diagnosed with prostrate cancer.
• Endorsed by Pat Robertson, who conservative credentials have been unquestioned; as I mentioned before, it’s foolish for conservatives to bite a hand that feeds them.
• An early opponent to endorse Senator McCain for the nomination; there is no animosity between the two men, as there is between McCain and Governor Romney.

 Giuliani is certainly flawed and he has a record that a good Democratic “oppo-man” would love to sink his teeth into. Then again, Giuliani lost his first mayoral race by less than 50,000 votes and won his second by approximately 53,000 votes. No doubt the “oppo men” worked overtime back then to keep a Republican from becoming mayor of a Democratic stronghold.  

Rudy Giuliani is the only Republican who could turn New York into a swing state, regardless of whether Clinton or Obama is the nominee. And nothing wins a presidential run like electoral votes.

The Basics of the Student Loan Mess

These past weeks there has been talk in the higher education press about private lenders and state guarantee agencies either withdrawing from the government-subsidized student loan market or refusing to underwrite new loans. These financial institutions cite either a cash crunch or a credit crunch, or reductions in the federal interest subsidy as the reasons for pulling back on such loans. 

 These are all legitimate reasons for the private financial markets to back out. Student loans were never meant to be a profit center when they were first proposed by the federal government under President Eisenhower. The purposes of student loans are to make college affordable and accessible to anyone who is admitted to college and to help them establish good credit early in the working lives.  

When I applied for my first student loan 30 years ago, I could borrow up to $2,500 and I didn’t need to pay an origination fee. Today, the maximum a college freshman can borrow under the subsidized loan program is $3,500; considering inflation it’s a lot less than I could have borrow 30 years ago and covers a much smaller share of the costs! The $2,500 I could borrow in 1978 would have covered more than half the cost of my freshman year at Rutgers. The $3,500 I could borrow today would cover less than a fifth of the freight—assuming I received the full amount after going through a means test! 

The federal unsubsidized interest (unsubsidized meaning the borrower or their families pay the interest while the borrower is in school) loans were a creation of the Reagan Administration. They were initially a means of providing loans for graduate and professional school students who could not qualify for the maximum amounts for subsidized interest loans.  

 During the go-go Eighties, a graduate or professional student could borrow up to $5,000 a year from the subsidized interest loan program—but had to prove financial independence or go through a means test along with their parents. Then they had to turn to the unsubsidized loans—popularly known as PLUS loans to make up the difference. Back in those days, the subsidized loan and the unsubsidized loan together with some employment could pay almost the full freight.

That’s not the case today. It’s easy to blame the colleges; their administrations make the tuition decisions, not the federal government. But they are just like other businesses that must deal with escalating health care costs (tenured college faculty are more senior level workforce than most government agencies and private corporations); fuel prices (larger schools own and operate as much housing as some medium and large-sized cities) and pensions. 

 There will need to be a major redesign of the student loan programs in the next presidential administration not only to reconsider outdated borrowing limits, but also the means tests and multiple government loan programs with their own set of regulations and bureaucracies. In an ideal society, students should not end their higher education owing more than their first year’s salary in their chosen field. That’s a lofty ideal, but one worth reaching for

On Moral and Charismatic Politicians

The media has passed enough judgment on former New York governor Elliott Spitzer and I agree with the pundits on all sides; there’s no possible defense for his extracurricular behavior and he is not above the law. 

But these past events show that we must consider the behavior that we expect from our elected officials in their public, and sometimes private, lives. If anything, Spitzer’s downfall amplifies that the phrase “moral politician” is an overused oxymoron. Neither of our two major political parties has cornered a market on morality.  

Maybe it’s time they stop trying, as Spitzer’s successor David Patterson has done. He broke the news of his past extra-marital affairs immediately after taking office. Given his predecessor’s past indiscretions, Patterson probably had no choice. It would have been a matter of short time before Republican “oppo-man” would have leaked the information to the press. It was a shame that an incoming governor had to confront notions of morality by admitting guilt on his first day on the job, but it was a necessary shame for him, so the ship of state could sail on.  

But don’t expect similar “touchy-feely” statements from members of the New York State legislature. Democrats hope to move on from Spitzer’s embarrassment and Republicans have about two and a half years left to take advantage of it. There’s no reason for other New York politicians to “expose” themselves if they don’t have to. 

Whether a candidate is a crusading attorney, a wealthy entrepreneur or an entertainer, Americans seek and want to elect leaders who have been successful in their prior endeavors, hopeful that they can successfully work their magic on a broken government. New Yorkers in particular like to vote for such candidates, even if they didn’t live in the Empire State before they declared their intentions to run for office.  But as the media likes to remind us, these would-be magicians are only human. After all, the crusaders, the rich and the famous are offered more temptations than the rest of us. Why do voters still expect them to resist? Do voters still expect them to be something more than human? 

I live in the neighboring state of New Jersey, though I’m fortunate to be represented by a very competent Congressman. He’s always gotten my vote for as long as I have lived in his district. He communicates regularly with his constituents by e-mail and answered every question thoroughly in the town meetings that I have attended. A physicist by academic training, he has held positions as a teacher, Congressional Science Fellow, and arms control expert at the U.S. State Department and assistant director of a research laboratory at Princeton. While I would not consider our representative to be charismatic, he does not talk down to the voters and he certainly listens. He’s also much smarter than me. He’s been deservedly re-elected four times and no one questions his character or intelligence. Nor does he preach how others should act or live. 

The next time you vote, pay less attention to a candidate’s comments on morality and more to their positions and their record on the issues that are important to you. Go out to a town meeting and ask them questions. Watch how they listen. You can’t judge a candidate’s character unless you know them personally, or you have been in their shoes; you can only judge them by their deeds. Unless a candidate has broken a law, his or her private life is none of our business, just as your private life is your own.

Good Student Credit Should Be a Corporate Social Responsibility

The March 18 USA Today had an interesting cover story in education politics: Colleges’ debit card deals draw scrutiny.

The purpose of these deals is to foster computerized cashless transactions on-campus, for example purchasing books, meals or tickets to athletic events through a debit card that doubles as a student ID. The students account balance may include monies received through financial aid. Under the agreements between the banks and schools, the schools receive revenue—up to $1 million or so a year—each time a student uses the card in an on-campus transaction.

The USA Today story alluded that the debit cards may be a good deal for the school, but not necessarily the best deal for the students, especially when it comes to overdraft fees. The article cites the a study by the Center for Responsible Lending, a consumer advocacy group that states that young adults ages 18-24 pay, on average, more than $3 in fees for every $1 overdrawn, compared with nearly $2 in fees paid by other adults.

The overdraft practices are reminiscent of the predatory practices of banks in their relationships with low-income customers: to levy the highest penalties on the customers who can least afford them. It is disappointing to see colleges buy into these practices, but easy to understand why: they have an opportunity to outsource transaction processing and student ID records to an outside provider. It is a means for an educational institution to turn a cost center into a revenue center.

The student debit card programs have become the latest higher education cause for New York State Attorney General Andrew Cuomo, following a successful investigation into the student loan lending practices of banks that among other things, offered perks to financial aid officers to direct students to use their products. Cuomo’s investigation is only in its infancy, but the attorney general’s office is concerned about excessively high overdraft fees, and that banks may use their relationships with schools to pitch high-interest credit cards to their students.

Unless Cuomo’s investigation finds new evidence of kickbacks to school officials, solutions to the problems of student debit cards can be worked out between the schools and banks without government intervention.

One solution is to not allow students to overdraw their account. The systems at the point of sale could tell a cashier or the bursar that the student has insufficient funds; a balance check would be unnecessary. This will work if a second solution is in place: student deposits clear in one day, instead of the usual three at most money center banks. Commerce Bank is one financial institution that markets such a service to competitive advantage.

Spokespersons for the banks and their associations have argued that the overdraft penalties force college students to manage their money responsibly. I would argue that preventing overdrafts will do the same, without putting students further behind the financial eight-ball or encouraging them to live beyond their means. They would also learn to have cash on hand for their coffees and mocha lattes.

My proposed solutions could be considered corporate social responsibility on the part of the banks and schools. No doubt it’s in their best interest for students to graduate with better credit and more income to repay student loans.