Friday, February 03, 2006

Boehner, Katz brothers and the student loan industry

i've mentioned before that i'd been working on a post about Boehner and the Katz brothers and the student loan industry - but have been too busy.

Here is the RAW data that i had collected in case any of you find it interesting/useful. Apologies if it is unreadable/unusable/incoherent

Exhibit A
" December 22, 2005

Congressman John Boehner told a gathering of bankers earlier this month that he had some "tricks up my sleeve to protect you," during a debate over student loans.

This week, the rabbit came out of the hat. Monday morning at 3 a.m. the House of Representatives, passed the single most anti-competitive, anti consumer law in America today.

They outlawed the refinancing of student loans. This trick is going to stop consumers from getting lower rates and better terms for their student loans.


The student loan business is now one of the most profitable in America, says Fortune magazine. And it did not get that way because student loan bankers are smarter, better or less expensive than bankers in other industries.

It is more profitable because they have always had more protection from competition. And this week, if Boehner is successful, they will have even more.

Senator Lamar Alexander of Tennessee said it best: The problem with higher education is not under-funding; it's over-regulation.

Because of Boehner, if you have a student loan and find a lender with a better rates or terms or service, most likely you are not allowed to change bankers. That is called the Single Holder Rule and is the only law in America that bans
competition for financial services.

If you are one of the few who can refinance your student, you can only do that once. If rates then go down and you want to refinance, that is illegal. Imagine the outcry if someone tried to pull that stunt with your home loan.

Thank you, Congressman Boehner.

That is the way it was until earlier this year, when in January, the Department of Education ruled that borrowers looking to reconsolidate their student loans could sidestep the longstanding anti-competitive rule against it.

It was cumbersome, but effective. In May, the Department of Education set aside another longstanding anti-consumer and allowed student to take advantage of historically low interest rates and convert their variable rate student loans into fixed-rate loans.

These two policy changes opened the flood gates for borrowers looking for a better deal. While borrowers celebrated, consumer bankers plotted.

Enter Boehner. Buried deep in legislation to raise prices on student loans are provisions that will largely outlaw the reforms that introduced so much competition into student loans earlier this year.

If passed in the Senate, student loans would once again be the only thing sold in America that cannot be freely refinanced. These policy changes would add billions to the cost of college that will never be counted by the bean counters over at the Congressional Budget Office. Not until the student start defaulting because of their lousy terms and start costing the federal budget billions.

Columnist Dick Morris calls the anti-refinancing scheme an "obnoxious .. ripoff." Terry Savage, the financial columnist of, says there is "no way" borrowers should support this plan." The New York Times calls it "Robbing Joe College to Pay Sallie Mae," the country's largest student loan provider. The Times Union of New York, calls plans to outlaw refinancing a "student loan shame.'

The student newspaper at Columbia University says Boehner's scheme to crush competition is far more important than plans to raise rates. And recently Fortune documented how the largest student loan lender, Sallie Mae, depends on Boehner to protect them from competition to ensure their record results.

As some of Boehner's largest contributors, the executives at Sallie Mae are suitably thankful, reports the Chronicle of Higher Education and the Cleveland Plain Dealer." (link)

Exhibit B
Radley Balko : "To make matters worse, government then grants monopolies on the lending side, and puts all sorts of restrictions on refinancing. It amazes me that if a private institution wants to let me consolidate my private and public loans by paying them off, then taking me on as a client on terms more preferable to me -- a transcation that would benefit both me and the lender -- the government won't let it happen.

The provision Boehner slipped into the education bill as a sop to the student loan industry didn't kill off any idea so radical as to let debtors and lenders transact as they please without government interference. The subtle shifts in regulatory policy Boehner lopped off at the knees would merely have made life for some student loan debtors a bit more manageable. But Boehner would have nothing of it." (link)

Exhibit C
William Anthony Hollin
chairman/president/ceo, Edamerica/EDSOUTH (link)
( i was gonna look into his donations too)

Exhibit D
"In the Chronicle of Higher Education, writer Stephen Burd reveals a suspicious connection between a Sallie Mae lobbyist and a government watchdog group, Citizens Against Government Waste. The group recently put out a press release opposing legislation that calls for cost-effectiveness in the federal student loan programs. It was an odd position for a self-described budget watchdog group to take--until Burd uncovered the fact that one of Sallie Mae's lobbyists serves on the organization's six-member board of directors. "According to several loan-industry officials, Sallie Mae, the nation's largest student-loan provider, has bankrolled a major public-relations campaign this year" to protect its government subsidies, reveals Burd." (link)

Exhibit E
"In an extensive report in The Plain Dealer, journalist Stephen Koff describes how Sallie Mae executives showered a key congressman with campaign contributions at a dinner at the home of a Sallie Mae lobbyist. The congressman claims that the money does not buy his support. But any suggestion of alternatives to Sallie Mae's current government subsidies is "laughable to me," the congressman is quoted as saying. Even if official government figures and budgets show that taxpayers are paying too much, "well, their calculations are wrong, he says," according to Koff." (link)

Exhibit F
* full koff article
" Four weeks before last November's election, Rose DiNapoli, a lobbyist for student loan giant Sallie Mae, held a dinner in her Arlington, Va., home for John Boehner. He's the congressman from West Chester, just north of Cincinnati, who holds considerable sway over education matters in the U.S. House of Representatives.

The dinner's purpose was to raise money for Boehner's political action committee, and 34 Sallie Mae executives -- including more than half the senior management team -- wrote checks, most for $1,000 apiece. Sallie Mae clearly likes Boehner, chairman of the U.S. House education committee, and for good reason: He's a firm believer in the government giving subsidies to the private sector in exchange for the private sector giving students loans to pay for college.

It's a system that benefits Sallie Mae, its shareholders, its million-dollar lobbying team and its chief executive, who made $3.75 million last year. The subsidy system also has helped millions of students pay for college.

But it could be preventing billions of dollars from flowing to financial aid for even more college students. If the federal government would cut back on the subsidy-hungry middlemen and just hand out more money, directly, for colleges to lend, it could come up with substantially more for debt-burdened students.

So suggest figures from, oddly enough, one of the biggest foes of big government: President George W. Bush's budget office. The fact that Bush's own budget supports the assertion is not lost on critics of the subsidy system, many of whom are Democrats.

"We waste billions of dollars in corporate welfare every year on student loans, and we cannot afford it any longer," Sen. Ted Kennedy of Massachusetts said in March. "We should use scarce dollars to help students, not banks.""

Exhibit F
"Group Takes Aim at Federal Direct-Loan Program

The federal direct-loan program is coming under attack by Citizens Against Government Waste.

The group, which bills itself as nonpartisan, has started an investigation to determine why the program "has not delivered on its promised savings" to taxpayers, and plans to publish a report on its findings this spring.

Elizabeth L. Wright, the group's vice president for government relations, said it had decided to take "a fresh look" at direct lending to see if it had lived up to the billing it received 12 years ago, when it was put in place. "We are not convinced," she said, "that the direct-loan program has been the panacea that some people had hoped."

But some direct-loan supporters are raising questions about the group's motives.

They note that Vin Weber, a Republican former member of Congress who has been a top lobbyist for Sallie Mae, sits on the advocacy group's six-member board. According to several loan-industry officials, Sallie Mae, the nation's largest student-loan provider, has bankrolled a major public-relations campaign this year to discredit the direct-loan program.

Federal lobbying reports indicate that Mr. Weber has advocated on behalf of Sallie Mae for at least seven years. During that time, the company has paid his firm, Clark & Weinstock, $1.6-million for its services. Mr.Weber did not return telephone calls seeking comment." (link)

Exhibit G
* "
Student Loan Corporation (The) (STU). The Company's principal activity is to provide student loans. The Company provides subsidized Federal Stafford loans, unsubsidized Federal Stafford loans, Federal Parent Loans to Undergraduate Students (PLUS) and Federal Consolidation Loans. In addition, the Company offers Supplemental Loans for Students (SLS Loans)." (link)

Exhibit Ga)
* STU is up from by 5x in 5 years. mkt cap $4+bn

Exhibit H
"(Vin Weber) is a member of the Project for the New American Century (PNAC) and was one of the signers of the January 26, 1998, PNAC Letter sent to US President Bill Clinton.

Currently, Weber is managing partner of Clark & Weinstock's Washington, D.C. office, where he provides strategic advice to institutions with matters before the legislative and executive branches of the federal government." (link)

Exhibit I
mark brenner COLLEGE LOAN CORP./GENERAL COUNSEL has donated $35k since 2002. the usual suspects
6/30/2005 $2,500 National Republican Congressional Cmte
$12,000 to Freedom Project John Boehner (link)

* david hawn - coo -gave one donation only 6/23/2005
National Republican Congressional Cmt

* govt relations person paid $25,000 Democratic Congressional Campaign Cmte july 04, and teddy kennedy
"Acocella comes to College Loan Corporation from the Education Finance Council, an industry trade association, where she directed Government Relations for more than two years. Before joining EFC, Acocella spent nearly a decade at Sallie Mae, where she handled virtually every aspect of the student loan business"

Exhibit J
""Washington - In an 8-1 decision tday the Supreme Court ruled that the dead cannot escape repayment of student loans. " (link)

Exhibit K
" And the government forgives these loans if the recipient becomes incapacitated or dies." (link)

Exhibit L
" Private student-loan volume amounted to $10.6 billion in 2004, a sevenfold dollar increase since 1996, according to the College Board, and it doesn't look like growth is slowing.
Mark Brenner, vice-chairman of College Loan Corp., the nation's No. 7 education lender, predicts that by 2012 private loans will actually overtake the federally guaranteed variety in annual market share. Private loans only constituted 11% of total education loan dollars in 2004. " (link)

Exhibit M
"The borrower's bankruptcy options on student loans have shrunk to a very few. Changes to the Bankruptcy Code in late 1998 made student loans non dischargeable, regardless of the age of the loan, unless the borrower can establish substantial hardship. Changes in 2005 will make even private student loans non dischargeable." (link)

Exhibit N
Student Load Watch
The federal government currently ensures that students have access to loans for college and graduate school in two ways: by guaranteeing bank loans, and by lending directly to students.

The Federal Family Education Loan Program (FFELP) takes the government-guaranteed approach. In this program, the government provides financial incentives to banks and student loan companies that provide student loans. The lenders keep the profit from students’ interest payments as well as subsidies they get from the government. The government also guarantees the loans against default, using taxpayer dollars to protect lenders from financial risk. Congress sets the fees, interest subsidies, and guarantee rates that the government pays banks, loan companies, and other vendors and intermediaries that participate in this system.

The other program takes a different approach. Through the Federal Direct Student Loan Progam (FDSLP), the government provides low-interest loans directly to students, then uses their interest payments to help cover the program’s costs. The direct lending program uses market competition to determine the appropriate price to pay for loan capital and for private sector services to administer the loans. Instead of fixed fees and rates of return, it can pay the lowest price that the market will bear.

In both programs, taxpayers are responsible for virtually all of the default costs, as well as much of the interest rate risk. However, the returns are distributed differently. In the guaranteed program, lenders get to keep student interest payments along with taxpayer-financed fees and subsidies. In the direct loan program, the government uses the income earned by the loans to minimize taxpayer costs. (link)

Exhibit O
albert lord from sallie mae gave $200k since 02. mostly rnc and nrcc (some Dccc) and Federal Victory Fund and Freedom Project (link)

Exhibit P
" Originally created by the government to create a secondary market for student loans, Sallie Mae is now the largest private holder of federal student loans. According to the company's disclosures to the Securities and Exchange Commission, the government assumes virtually all of the risks on guaranteed loans, making them "high quality assets with very little credit risk." While taxpayers bear the risk, Sallie Mae earns record profits from the returns, ranking in the top 12 most profitable companies in the Fortune 500. " (link)

Exhibit Q
"For the record, the president's budget reconciliation at the end of 2005, did indeed cut $12.7 billion from education programs and also fixed the interest rate on student loans at 6.8 percent, whether or not the prevailing market rates go lower.

In addition, Senate Republicans in October killed a measure by Ted Kennedy (D-MA) -- S.AMDT.2213 -- that would have raised Pell grants by a measly $200." (link)

i hope there's something useful in there...

for my other katz posts, see here, here, here and here


Anonymous said...

employee update

mark brenner is no longer with clc.

Does history repeat itself? Enron was doing well; but then, off shore companies were opened. CLC was doing well; but then, CLC Home Loans is opened in a questionable market. Before the collapse of Enron a top executive, Jeffery Skilling, left the company. Before the collages of CLC a top executive, Mark Brenner whom started CLC, left the company.

Anonymous said...

I have no idea why CLC would open a mortgage company in this market. If the house of cards is going to fall soon, the honest hard working bees will be the last to know…wait, the honest hard working bees of New Century mortgage were the last to know, I guess forget Enron.

Anonymous said...

CLC Home Loan closes. Out of the mortgage business.

Anonymous said...

1. General Council calls it quits
2. CLC Home loans calls it quits

I guess I need to get my resume together before CLC calls it quits with all the talk in the news about the student loan industry!

Anonymous said...

I have known Marcus Katz since late 1979 or early 1980 and was around during the "feast" and the "famine".
One of the most outstanding memories is getting a call from Marcus wanting me to ride with him somewhere...That somewhere was a meeting with a charity that fulfilled last requests for terminally ill children...He was always giving back to people less fortunate...he spent quite a while asking questions of the directors, it wasn't til later it dawned on me he was trying to get an idea of how MANY he could fulfill, not what the most imminent case needed. Marcus was always there in the 'streets' with the common folk no matter how wealthy he was, even after his 'fall' in the late '80's. He took a genuine interest in so many students...encouraging them and personally contacting potential employers trying to place graduates when he had at least 50 people that could have done it instead...50 people who combined didn't have the passion or tenacity to follow through with the placement of graduates while taking into account each students personal situation ie...transportation, childcare needs, support system or not, because he would network say 2 single moms who logistically could back each other up if one had a car and the other needed childcare, they could barter their needs. I remember being genuinely moved by his personal commitment and surprised at the same time, I was 17 when I met him never fully realizing at the time just how busy he was or wealthy. He always had me working somewhere and worked me until I eventually grew up and married. He would call me after a job and give me feedback from the employer, good or bad, and ask for my opinion of the client and working conditions.
I also remember his commitment as a parent and how he rarely missed anything Cary & Ryan were involved with, sports, school etc...
My point being...
usually when someone talks about someone else...they are talkng about themselves...why are so many so determined to drag the Katz family through the mud? Guilt or jealousy...

Anonymous said...

I just want to say Thank You to Cary for giving me many happy years of employment and being fair to all his employees.

You all need to know that today about half of the employees were laid off. Times are changing in the student loan industry. But when you read so much negative about Cary Katz, just know that even when we were getting our final papers, the employees clapped in appreciation of his kindness and that should tell you how much we all respect Cary. Thank you Cary. Good luck with the company from here.

Anonymous said...

Fool me once, shame on you. Fool me twice…

Guilt, guilt, guilt…