Posts Tagged ‘usury’

People Were Right: The Next Round of Default Will Be Student Loans

 

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 I have had a few conversations with other ‘educated’ people in different fields regarding student loans. It’s pretty much the same: I’ve been paying for this amount of time, payments don’t make a dent, I am using up all of my deferments and forbearance and the balance keeps growing, and I or my spouse is unemployed. Looking at this article, it sounds like SLM operates its business identical to the housing market:  

Student Loan Corp. Plans to Issue $855 Million of Asset-Backed Securities – BloombergJune 29 (Bloomberg) — Student Loan Corp., the lender majority-owned by Citigroup Inc., plans to sell $855 million of asset-backed securities, according to a person familiar with the offering. 

The loans are guaranteed by the U.S. government, said the person, who declined to be identified because the terms aren’t public. Bank of America Corp. is also selling $1.23 billion of bonds backed by government-guaranteed student loans. SLM Corp., known as Sallie Mae, is marketing a $1.7 billion offering tied to private loans, or those that don’t carry the guarantee, a person familiar with that offering said. 

This year, $8 billion of asset-backed securities tied to student loans have been sold, compared with $10.4 billion during the same period in 2009, according to data compiled by Bloomberg. Sallie Mae hasn’t issued debt linked to private student loans, which is harder to sell because it lacks a government guarantee, since the Federal Reserve ended its program to thaw credit markets in March. 

It’s usual business practice to sell off high risk, potential bad debts or debts the lender perceives he won’t get payment on. It’s kind of like the sinking ship, when people are throwing off the heavy load, but as it’s still sinking they think throwing off ropes, socks and buckets will keep it afloat; it will for a short extended period of time. Unless the actual hole in the boat is fixed, it’s going under. OR… 

I wonder if SLM selling those securities to a company it will later buy? So if these are considered high risks, sell them to another company and let them have those debts as part of their assets, then buy them back or buy the actual company which is holding the debts. Similar to when debtor consolidate your loans with one company and leave SLM, SLM buys that company and though you have a consolidated loan, SLM has you back into her economic grip (I have personal knowledge of this) 

Look at the description of the bonds, sounds like securities sold with the promise that the individual will be in debt forever so whoever buys will have a recurring revenue stream upheld by the ‘educated’, unemployed who purchased a bad bill of goods. 

Also being marketed this week is a $650 million sale backed by auto loans from Richmond, Virginia-based CarMax Inc. World Financial Network Bank is issuing $450 million of bonds backed by credit-card payments, and a leasing unit of Sydney-based Macquarie Group Ltd. is selling $500 million of securities backed by auto leases from Australia. 

Whether it be mortgages, home equity loans, student loans, car loans or credit cards, these corporations are literally banking on the fact that the consumer is willing to incur debt with exhorbitant interest. While you struggle to make payments, your debt is repackaged into a new ‘product’ for others to “invest” and have a slice of the interest pie, with their second homes and yachts…this is very interesting. 

p.s.: Here’s some news about Sallie Mae from this past month:  

Starting this summer, Uncle Sam will be your banker for federal student loans: Families can expect a streamlined process and some other perks: May 30, 2010, http://articles.baltimoresun.com/2010-05-30/business/bs-bz-ambrose-student-loans-20100530_1_federal-student-loans-direct-lending-parent-loan 

Woohoo, it just gets better! This article was published in the New York Times on May 28, 2010: Placing the Blame as Students Are Buried in Debt [http://www.nytimes.com/2010/05/29/your-money/student-loans/29money.html?pagewanted=1&ref=business&src=me ] 

UPDATE:Sallie Mae ‘Interested In Exploring’ Citi’s Student Loan Ops, May 19, 2010, http://online.wsj.com/article/BT-CO-20100519-711314.html?mod=WSJ_latestheadlines 

Sallie Mae sells center to Aegis “saving jobs”: http://www.businessweek.com/ap/financialnews/D9FPF5H81.htm 

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Sallie Mae: Make Interest Payments While at University & Save!

Commerce Bank teams with Sallie Mae on new student loan product | Dollars & Sense June 22, 2010:

Commerce Bank teams with Sallie Mae on new student loan product This title looks a bit truthful, I see the usage of the word “product”, these corporations are trying to sell you something. With any product companies have advertising and marketing to induce a potential consumer to buy, but what is its value-to you-not them?!

Commerce Bank is offering the Smart Option Student Loan to help students pay off their college debt faster.Smart Option, which is provided through student loan lender Sallie Mae, allows students to make interest payments while in school. Because we know an average college student makes so much money that they can afford interest payments while enrolled full-time, providing for housing and shelter. Hmm, many obtain higher education to increase their salary potential, so what makes you think they can afford interest only payments, even though the principal is deferred? Maybe they can use some of the student loan money to pay interest, though it’s supposed to help pay for tuition, fees, books and what they need to survive while in school.

According to Commerce, a typical freshman can save more than 50 percent in interest charges over the life of the loan and it off in seven years after graduation instead of the standard 15-year term offered by other loan products. A typical freshman is 17-18 years old, where will they get this money? Their summer jobs paid minimum wage, please elaborate.

Students who enroll in the plan and make all their monthly payments by automatic debit may be eligible for a 0.25 percentage point rate reduction. In addition, students can take advantage of the Smart Reward program and earn 2 percent of their scheduled monthly payment as a reward in a Upromise account. Any percentage rate deduction is good, but what are the terms and conditions, like if they missed one payment does Sallie Mae terminate the entire program? With the latter 2% earned, I doubt the extent of benefit since the entire time inflation is rising and the student may not have been able to negotiate a fixed interest rate on the loan itself

The loan also allows customers to apply with a creditworthy co-signer, which can mean a better chance of approval and a lower rate. Students may also be eligible to apply to have the co-signer removed from the account after they graduate and make 12 consecutive loan repayments on time. We give you permission to get someone else in debt on your behalf, how gracisous of you. With many parents who have lost retirement accounts, receiving pink slips;  and wondering when they will be able to retire, why not add the high risk of their child’s student loan default. One should seriously consider whether he or she should really purchase this product; especially when college graduates, let alone some professionals are unable to find jobs with degrees.