Wednesday, March 22, 2006

Student loans are a great investment

especially when you have a Congressman in your pocket:

Duke Cunningham, the former American fighter ace and national hero, landed on CHANCE and drew the dreaded GO TO JAIL card this past Friday for admitting that he broke the rules related to acceptance of gifts from companies looking for congressional favoritism. In this case, what he did was correctly labeled as bribery.

Meanwhile, Kevin Madden, Tom DeLay's former communication director, who moved over to John Boehner's office after DeLay was indicted, was quoted by the Cincinnati Post last Friday as saying that the heavy criticism Boehner has received since he became House Majority Leader is correctly labeled as "frivolous."

See if you agree.

One of the areas where Boehner has taken the most criticism are his "fact finding" trips aboard private jets of companies that had business before his House Education and Workforce Committee.

And among his favorite "fact-finding" trips were the Boca Raton golf junkets sponsored by Al Lord, the Chairman of Sallie Mae, which is far and away the nation's largest holder of student loans.

Boehner has adamantly defended these types of trips, saying, "Lawmakers must be able to see what's going on around the country first hand," but everyone knows that the only fact about Boca Raton that's unknown at the beginning of these trips is who's going to shoot the lowest golf round after the plane lands.

But, that's how Boehner keeps up his tan, and getting him there is how Sallie Mae keeps up its profits.

Not sure what to make of all this yet? Then keep reading.

Al Lord is building his own private golf course and trying to buy a professional baseball team with his share of the profits, a good part of which can be traced back to the high margins resulting from the restriction-of-trade laws that have dogged the student loan industry for decades.

In fact, Sallie Mae's margins are so high, Fortune Magazine recently dubbed them as America's second most profitable company.

And the situation, according to the Free Market News, is going to get worse because when the newly passed laws affecting student loans go into effect this July, there will be far less competition than ever before.

Even before the latest legislative changes, student loans were already subject to one of the most anti-competitive laws on the nation's books. It's known as the "Single Holder Rule", which says that students and parents whose loans are owned by one lender cannot shop around for the best terms when they consolidate their loans.

For those not familiar with higher education matters, students and parents consolidate college loans for the same reasons homeowners refinance their mortgages -- to take advantage of low fixed rates and to lower monthly payments to a more affordable level.

But under the new laws, the vast majority of students and parents who have already consolidated, or do so in the future, will be legally barred from ever refinancing again, no matter what other lender later offers a lower rate.

Many would think it impossible that Sallie Mae could have pulled this off, especially under a Republican Congress that claims to support free trade. But think again -- it's the new law of the land.

Make no mistake about it; this is completely different from the Cunningham situation. In this case, no one's going to jail because everyone involved has followed the rules Congress set down.

But that doesn't make the rules right.

National columnists like Terry Savage, Dick Morris and Froma Harrop are calling the anti-refinancing scheme a rip off, shameful or abusive. The San Diego Union Tribune reported that Duncan Hunter (R-Ca), Chairman of the House Armed Services Committee, plans to propose a rule requiring the House Ethics Committee to verify that each privately funded trip that congressional lawmakers take is a genuine fact-finding mission, not a junket designed to win favor.

If Congress actually passes that rule, there may be less favoritism going forward, but that is not going to reverse the special interest legislation already on the books. Reduced competition will mean higher interest rates, and higher interest rates will result in students and parents having to pay billions of dollars more than an open market would dictate.

The cost of college is simply too high to allow Sallie Mae to keep collecting excess profits every time around the board.

Cunningham draws Monopoly's GO TO JAIL CARD - but Sallie Mae is still landing on FREE PARKING.

You former students out there--did you know that Sallie Mae was a private company established by Congress to get rich off those student loans you are struggling to pay off?

To learn more, visit

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