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Indiana’s Sen. Evan Bayh continued his farewell tour yesterday, kicking it off the day with support for reform of the filibuster during an interview with Andrea Mitchell on MSNBC. This was a surprise to many who find the current state of gridlock immensely frustrating and who also believe Bayh to be a key part of that gridlock.
But by afternoon he was his usual ConservaDem self, pleading for student loan firm Sallie Mae and the jobs Sallie Mae provides in his home state. Student loan financiers have been under fire for their expense and hassle which discourages students and locks them into a debt-spiral, while acting as an expensive middleman at the estimated cost of $89 billion over ten years. President Obama made it a priority to change this situation, declaring himself ready to fight for reform of the student loan system. The fight has made it through the House with the passage of H.R. 3221, Student Aid and Fiscal Responsibility Act of 2009 in September of this past year. The bill is now facing the usual Senate evisceration in the Senate Committee on Health, Education, Labor, and Pensions.
Indiana is deservedly gun-shy about job losses; the state has taken a beating over the last several years with layoffs and terminations due to the downsizing of the automotive industry. One might think Bayh’s concern about the 2,356 workers employed by Sallie Mae in Muncie and Fisher, Indiana locations was reasonable.
But the jobs at Sallie Mae are likely attributed to servicing student loans, not originating them. The loans won’t go away altogether, they’ll merely be funded on a more direct basis with loan origination handled by the government, rather than through private sector firms reimbursed by the federal goverment. Sallie Mae will probably always service student loans since they have the best software for doing so. So these Indiana-based jobs won’t go away simply because Sallie Mae can’t originate loans any more.
Which begs the question: what kind of jobs are these and why will taking loan origination — not loan servicing — away from from Sallie Mae hurt these jobs?
And then there’s all the jobs and the students in Indiana which will be impacted if the Senate does not pass this bill; let’s look at the numbers.
Total estimated faculty 13,437
Total estimated staff 20,000
Total estimated students 148,307
| School | Faculty | Students | Notes |
| Indiana University | 2,007 full time, 354 part time | 40,354 | [1] |
| Purdue University | 6,614 | 39,697 | [2] |
| Indiana State University | 436 | 10,534 | [3] |
| Vincennes University | 301 | 4,522 | [4] |
| Ball State University | 955 | 20,423 | |
| Univ. of S.Indiana | 821 | 10,576 | |
| Univ. of Notre Dame | 1241 | 11,733 | |
| DePauw University | 254 | 2,350 | |
| Earlham College | 97 | 1,194 | |
| Valparaiso University | 220 | 3,874 | |
| Univ. of Evansville. | 137 | 3,050 | [5] |
[1] Unclear whether this is total faculty and enrollment for all (10) campuses or only Bloomington.
[2] Unclear whether this is total faculty and enrollment for all (15) campuses or only West Lafayette.
[3] Unclear whether this is total faculty and enrollment for all (4) campuses or only.
[4] Estimated number based on student per class ratio provided by school.
[5] Estimated based on overall state average student to faculty ratio.
There’s a sizable economic benefit per student to each of the communities in which these schools have campuses. (There may be community colleges which are impacted as well, but not listed here; you get the drift.) There’s also a magnet effect generated by colleges, stimulating growth; a study in neighboring Michigan revealed that the greatest economic growth occurred near college towns, with the largest schools having the greatest growth. If school loans remain challenging for students, one would surely expect a negative affect on college communities’ economic growth as students are challenged financially to stay in school.
So why would Bayh place a premium on a nebulous number of jobs affiliated with a single industry in a small area of the state of Indiana, at the risk of jobs and economic growth across the entire state? Why would he ask the rest of the states to protect an unidentified number of loan origination jobs at the risk of their own economic growth and the additional $89 billion expense over a decade?
Perhaps we ought to ask Earl Goode, who has served as chief of staff to the governor of Indiana since 2006, and served as deputy chief of staff from April 2006 to November 2006, and who coincidentally serves on the board of Sallie Mae. Would Mr. Goode be able to shed any light on this tradeoff?
36 Comments
Sounds like a fair question to me.
Assuming the federal government moves from guaranteeing student loans to issuing them, the only benefit to student borrowers would be a slight decrease in interest rates, right? And at least a portion of any decrease in the cost of borrowing is going to be eaten up by the inevitable tuition increases that follow.
I am not saying that the move from guarantor to originator is a bad thing, only that the gains to students will be marginal at best. Student debt is a crushing burden primarily because tuition is so expensive, not because of the 1-2 extra points of interest added by private lenders. I think a real solution is to (a) aggressively fight tuition increases at public institutions and (b) stop encouraging middle class kids to borrow tuition to attend insanely expensive private schools. Bankruptcy reform permitting good-faith discharge of student debt would help as well, but it would be best to avoid insolvency in the first place by encouraging reasonable student debt-loads.
To figure one, that’s anecdotally only the IUB figures. To figure 2, and likewise anecdotally, the faculty column is likely right but the student column is probably only PUWL.
There’s also the strange animal that are statewide combination regional institutions, comprising programs plucked from IU and PU. IUPUI is foremost, but there are a number of others. In some cases, the extensions even have extensions.
Needless to say, IU and PU have had effective government affairs representation.
Say the student borrows $100k for five years of college.
What’s the difference between 9% interest and 5.25% over the life of that loan?
What is so special is that Citibank and SallieMae are charging like 4 points and 7.5, 7.75 and now 8 percent interest on congressionally mandated fixed interest rate parent plus loans. And if you want to pay them off early, good luck finding out how to do so. (Hint, google the web for the magic address because you wont find it on their website, nor get it from more than 1 out of 3 of their tele servicers).
Also understand, they and Wells Fargo seem to have sold every loan they generated in 2008/2009 to the Department of Education at a yet to be determined mark up, ( no doubt after they pocketed the 4 points ).
What do you think their cost of funds is from the bailout?
All great points.
What’s the repayment term?
Assuming 20 years, I think you get something like ~$54,212, although you need to discount the later payments into present dollars to get the current value of the interest cut.
Regardless, that 3.75% cut (which I think is larger than the actual cut that would occur, the Federal government is still going to be lending to unemployed youngsters with no assets, the interest rates won’t come down that much) reduces the student’s repayment obligation by about 25%, it’s sizable, but will still be an unmanageable burden for many students.
um, what kind of jobs are these?
what is the minimum wage in Indiana? In WA our min wage is $8. something an hour, and these kind of call center jobs can sometimes get up to 12 or 14 or 16 bucks an hour …
and then they ‘outsource’ the whole thing, and, sayonara CRAP health insurance, CRAP retirement… crap hours… crap job.
obviously 8 or 10 bucks an hour is better than living under the bridge, begging with a piece of cardboard box… thanks fascist economy.
rmm
Uh how many jobs will his state lose servicing those loans vs how many millions will his voters save with cheaper government loans?
How much more money will be freed to be spent in the economy by consumers if student loans become cheaper?
This is simple economics heck its a greater less than question we learned in grade school.
Citizen IllinoisLibertarian:
It’s pretty cute the way you tie “a slight decreaase in interest rates” to “the inevistable tuition increases” as though government initiation and decreased interest rates cause “tuitin increases”. Try again slick!
Citizen ThingsComeUndone:
Don’t feed the trolls Brother TCU.
That means higher taxes or cuts in military spending with the boomers retiring Social Security cuts are off the table. Me I’d rather cut military spending first but I am open to higher taxes for the rich.
Well, a quick check of google I found this where the various rates appear to run from 3.4% to 10.55%, depending on the type of loan received (direct from the government, private banks, etc).
So my use of a 3.75% difference seems not only reasonable but conservative.
The fact that the loan is being given to a college student with nothing is precisely the point. It is one of the good times to incur debt – to use as a means of bettering your life.
So yeah, that difference between the rates charged under the government originated, government guaranteed student loans versus the loans through private banks and the higher rates is quite significant and should be encouraged.
But apparently you think the private banks actually need to screw the student in order to get ahead.
My 9 was my first comment I haven’t even read the comments yet.
So you don’t think that decreased borrowing costs have correlated in the past, and will correlate in the future, with increased tuition?
Nice Catch I’m done that argument is over nothing I say will top your comment:)
A bunch. Without doin’ the math.
Look, I’m not saying that there’s any benefit to the use of private lenders. I’m just saying that causing the government to originate loans will (a) leave the vast majority of student debt unchanged and, (b) likely lead to increases in tution as borrowing becomes more affordable. At the end of the day, i’d rather feed Harvard’s, or UW-Madison’s endowment than Sallie Mae’s, but I think the benefit to students of government originated loans has been exaggerated.
You are asserting that debt would remain essentially the same (even with a much lower cost to repay over the life of the loan) AND that there’s a direct correlation between affordable loans leading directly to the higher tuition costs? Is that what you are asserting?
You think that the college administrators just sit there and watch the loan rates get more affordable and say “Oh YEAH! Now we can jack up the tuition rates?”
I take it Andrea Mitchell never asked Evan about that.
I had to use student loans my last 2 years in college, 1999-2000. The first 2 years I used the money I had put into the VA pension and got back when I quit, not retired, in 96. The majority of the loan came from the government and the rest from BoA. Interest rate was pegged to the prime rate. Still is on my loan, with a max of 9%. $24K over 10 years. 1 year to go. No complaints. Has been serviced by Sallie Mae the whole time.
Citizen darkine01:
Great comment Citizen, you should be a ringmaster, you ken get the animals to roll over and fall into line with jest a few words…look at how the troll at #18 dances away from his original argument. The corruption of the student loan program was one of the biggest social crimes before the Bush tax cuts and the subsequent collapse of the stock market.
Citizen SouthernDragon:
It’s all in the terms, I can handle any size loan if the interest rate is pegged to prime and the repayment terms are long enough…as long as you take the usury and larceny out of the loan business it ain’t such a bad business.
How many colleges raised rates because their endowments lost a ton of cash in the market because Bush never enforced regulation of the markets? Certainly Summers Obama’s aid lost Harvard a ton gamboling.
And without the bank bailout the colleges would have lost more money in the market. The Libertarians need to understand that it was the free markets not the government that needed the bailout.
The banks should have been allowed to fail sure and if that happened we would have had another Great Depression.
Who cares what Bayh thinks about anything? He’s retiring. He never accomplished anything positive while in office. He was part of the obstruction that kept what little might have been enacted of the agenda Democrats ran on from getting done. He’s just another Blue Dog corporatist. His support of Sallie Mae is the typical hypocrisy of that breed. Nothing surprising. Aren’t his 15 minutes of fame over yet?
Well done piece, thanks Rayne.
Mr. Wellpoint. what more is there to say?
Unfortunately, this “simple economics” masks the real problem with all special-interest legislation and carve-outs. The concentrated political power of corporate masters to get their special interests catered to outweighs the diffuse political power of the general public, for whom the cost-per-person of the special interest legislation is just one relatively small insult in the game of life. And, even in the present example, where thousands of students are losing big bucks, they just don’t have the organized economic power to counterbalance the ability of the loan sharks to buy a politician.
That’s why special interest legislation so frequently wins out against what “simple economics” tells us is the greatest good for the greatest number. My First Rule of Economics is “If it doesn’t make sense, it makes dollars.” It makes no sense for the general public but it makes big dollars for the special interests.
Dude. Re-read the piece.
The point was that the number of jobs in Indiana which might be lost through reform are highly questionable, because they are dedicated to SERVICING the loans, not to ORIGINATING the loans.
If the government takes over originating the loans, how many jobs in Indiana are going to be lost — really?
I wondered whether Bayh might be telegraphing his next job. Wonder if he ends up lobbying for Sallie Mae?
For 10 years at 9 percent total cost of the loan is, um, about 152,000. At 5.25 percent it is, um, about 130,000 so 20k over 10 years is, um, $2000 per year or about 190 a month. Put another way, payment on 9 percent is like $1275 and payment on 5.25 percent is about 1085. Either way it’s a hell of a lot of money for someone just out of college. I don’t recommend it to everyone but I went to community college for two years and got a lot of the requirements out of the way for a lot less money. That said, the main advantage of going to a 4 year college is the connections, not the education. In fact I found the education for the first two years is actually better at a community college, because you get an actual professor instead of a dumb grad student who is likely still in school because they are afraid of the real world or too dumb to figure out how to graduate. I transferred into a well known 4 year university on the West Coast so it’s not like I was at a second tier school (although some at our arch-rival might say so). I think pretty much all 4 year universities use grad students to teach their undergrad classes, otherwise the profs would actually have to do some work and we can’t have that.
The government doesn’t do loan origination. That is done by the school. See Sallie Mae’s last 10-K, filed March, 2009, page 2:
From page 7:
Not surprising – the very payola Mr. Bayh complains of in the Senate is what Sallie Mae is expert. Not to mention, the Chief of Staff for the Governor of the State of Indiana sits on the Sallie Mae Board. This isn’t about eduction – Purdue, Indiana, and Ball State all switched out of the FFELP system (meaning NO Sallie Mae) into the Direct Loan Program (meaning better service for students at a full 75 basis points cheaper).
This is about Sallie and their long reach and long dollars. The FFELP system is so corrupt, there is a 275 page report compiled by the Senate in 2007 outlining the fraud and corruption in this system.
The following student aid administrators got into more than a little hot water for taking kickbacks and other inducements from the student loan industry – most lost their jobs:
Ellen Frishberg – Johns Hopkins
Catherine Thomas – USC
David Charlow – Columbia
Lawrence Burt – University of Texas
Walter Cathie – Widener University
Tim Lehmann – Capella University
Daniel Pinch – Emerson College
In the investigations of 2007, many Universities were fined for revenue sharing schemes. Specifically, University of Pennsylvania, New York University, Syracuse University, Fordham University, Long Island University and St. John’s University have agreed to reimburse students a total of $3.27 million for inflated loan prices caused by revenue sharing agreements.
And it just seems to never end. In May of 2009, “District attorney’s investigators raided City College of San Francisco on Wednesday, seeking evidence that college officials had illegally spent public money on donations to education-related political campaigns. A copy of a search warrant served on the college shows that investigators are scrutinizing the actions of former Chancellor Philip Day, who left the college last year to work for an education lobbying firm in Washington, D.C.” (from San Francisco Chronicle) Mr. Day happens to be CEO of the NASFAA, the organization that represents financial aid directors.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/07/MNJQ17FTEQ.DTL
CHOICE? Choice is a myth or a lie depending on how you look at it. In 2008, more than 100 Universities were under investigation for more than 90% of their FFELP loans going to one provider. The notion that there is competition in this “market” is ridiculous – the student loan companies induce schools for preferred lender status resulting in nearly all loans at any one school going to one provider. From “School as Lender” to call centers to printing – the institutional inducements to schools are great and the payoffs for the middlemen even greater.
Don’t forget the greed underlying the corruption.
The Sallie Mae CEO has taken nearly a half billion dollars personally as a middleman. He now owns three mansioned estates (annapolis, MD / Harwood, MD / Naples, FL), one with a private 18 hole golf course – although an old photo and the golf course is still under construction, you can see where taxpayer subsidy dollars go via Google Maps at coordinates 38°51’38.52″N, 76°40’4.47″W
Sallie Mae owns two private jets – they used to own three. The jets are tail numbered N50FD and N188AK.
You can see these jets at the following links:
http://www.airliners.net/photo/Israel-IAI-1125A-Astra/0523432/L/
http://www.airliners.net/photo/Israel-IAI-1124-Westwind/0841982/M/
That is where the taxpayer subsidies are going, private golf courses and private jets.
FFELP Corruption and Scandal never seems to end.
In May of 2009, the San Francisco D.A. served a search warrant on the former office of the head of the National Association of Student Financial Aid Administrators, Dr. Philip Day. This resulted ultimately in Mr. Day being indicted for eight felonies of misappropriation of funds during his previous tenure as Chancellor of a small community college. The NASFAA has been a constant and vigilant supporter of the FFELP program and obstinately opposed reforms such as allowing reconsolidation. It is only due comeuppance that their CEO resigned in disgrace.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/07/MNJQ17FTEQ.DTL
Scandal seems to surround most FFELP supporters.
Recently, controversial Lobbying firm Qorvis began a campaign for the FFELP programs. Funded by the FFELP lenders and being fronted by a few of their leaders – most notably, Mr. Rene Drouin of the NHEAFF (a supposed non-profit that generates FFELP loans and provides philanthropic grants and scholarships to residents of NH, but only after they pay their CEO. In 2008, the CEO was paid nearly 40% more than the organization gave out in total.
In the CBS News report Below – Mr. Drouin is cited as one of many Education “professionals” with “fake degrees.” Schools Mr. Drouin lists as his “alma mater” have been shut down by state or federal authorities for being unaccredited diploma mills. (Mr. Drouin also claims a law degree from Drexel – the reputable Drexel Univeristy in PA does NOT offer a law degree; however, the Drexel diploma mill in Louisiana that was shut down by Federal Authorities did offer a law degree)
http://www.cbsnews.com/stories/2004/05/10/eveningnews/main616664.shtml
Mr. Drouin’s is also a subject of scrutiny for his pay being so high despite the NHHEAF (a “non-profit” organization) being a tiny player among the student loan middlemen.
http://www.newamerica.net/blog/higher-ed-watch/2009/guaranty-agency-compensation-12515
Wow, fascinating content you’ve posted. Thanks for that bit about Purdue, Indiana and Ball State moving to FFELP. That must have been an owie to Sallie Mae since Ball State is just up the road from the Muncie site.
Would you consider writing a post at The Seminal to summarize this, linking back to Evan Bayh’s lobbying-while-senator efforts? It might get more visibility.
I like how you are explaining that money that doesn’t go into fat corporate subsidies would instead be directed into the schools (and therefore the communities) that the students attend.
More direct money means more money to hire quality staff. If at minimum, it means more money will be spent locally around college towns.
I have a hard time understanding why these student lenders are somehow “private industry”, just because someone at Sallie touches the government-guaranteed check just before it goes out to the school. If it was really private industry, wouldn’t these lenders be making the loans WITHOUT government backing at all? For courses of study that they felt would generate the most likely paybacks?
Having the government distribute the money directly insures choice of programs and that the money will always be there, at a reasonable rate.
I don’t think Sallie could ever guarantee that.