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Sunday, Jun 16, 2024

Paying a Higher Price for Education

Congressman John Boehner told a gathering of bankers in December that he had some “tricks up my sleeve to protect you,” during a debate over student loans.

Late last year, the rabbit came out of the hat. At 3 a.m. on Dec. 19, 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. And because the provisions were buried so deep in this thousand-page bill, most members did not even know what they were doing.

This isn’t a new trick. “Protecting” businesspeople from competition and innovation is one of the oldest tricks in the book.

It used to be a popular trick as well: Airlines, telephones, doctors, lawyers, truckers, real estate lenders, and other industries all used to enjoy legalized protection from competition. No more. Except for one business, where competition is still often illegal: The $65 billion a year federal student loan program.

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, if Boehner is successful, they will have even more.

Sen. 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 rate or terms of 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 loan, 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 early last year, when the Department of Education ruled that borrowers looking to reconsolidate their student loans could sidestep the long-standing anti-competitive rule against it.

It was cumbersome, but effective. In May, the Department of Education set aside another long-standing anti-consumer rule and allowed students 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 floodgates 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.

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 students start defaulting because of their lousy terms and start costing the federal budget billions.

Columnist Dick Morris calls the anti-refinancing scheme an “obnoxious rip-off.” Terry Savage, the financial columnist of TheStreet.com, 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.

As for the students and parents paying artificially high rates for their student loans, that is another story , an old story about building a business by legislating away competition , that is still waiting to be told.

Dan Auld is a former recipient of the San Diego Regional Chamber of Commerce Business of the Year award and a mortgage loan specialist with Coldwell Banker Mortgage.


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