Student loan reform

This is real reform, and was added to the passed health care expansion bill. Well done, Obama and the Dems in Congress. I have no qualms with this (can you believe it!?!), except that it is long overdue. There is absolutely ZERO reason why private banks and Sallie Mae (top lender managing >10M loans) should serve as the middleman between students/colleges and the federal government underwriting the loans, while of course increasing the cost of the loan for their own profits (another "subsidy for the banks"). The industry is huge (total US student debt is $527B) and their cut is not insignificant (~$6B/year), which is why the banks were fighting the reform so much (Sallie Mae alone spent $3M on lobbying/ads). The government will use that money to increase the size and number of Pell grants (need-based college grants) to keep up with inflation, and also support the hurting junior college system that has seen its funding pillaged by cash-strapped states. Since the Clinton administration, a number of direct student loans were available (~23% of all loans, and about 7% CHEAPER than Sallie Mae), and public schools like UC Berkeley have been using them for years. During the Bush presidency, multiple attempts to close that program were made, but fortunately failed. Direct loans have worked at places like UCB, so there's no reason why they can't work nationwide.

Pells used to cover most of a college education, but now that costs have soared almost as much as health care, the $6k/year grant doesn't go very far, but under Obama government spending on Pells has doubled (almost a million more grants will be given out by 2020). As my last email described, college is one of the best ways that poorer immigrants and the lower classes can advance themselves in US society. And if we're excluding talented, motivated people from quality higher education just because of financial hardship, then that impairs our overall economic and social well being.

This education reform demonstrates why we needed the private option in health care, possibly on the road to single-payer. This will keep student loan interest rates down. It's not putting the private lenders out of business (it will of course force them to shrink), but serving as a check against extortion. The direct government loans will offer an APR of 8% for professional schools, versus 12% in the private sector. It's not like banks will go under because they lose that extra 4% on a medical school loan, but now they have to offer competitive rates to earn our business.

Banks counter that customer service will suffer now that a "federal bureaucracy" is servicing loans directly instead of your "friendly community bank". I'm not defending government customer service (try speaking to a human at the IRS), but that's a load of crap. Sallie Mae (SLM) is a for-profit entity, and JP Morgan, Bank of America, and some private equity firms tried and failed to acquire it for $25B in 2007. If SLM is just a friendly lender trying to help our America's students, why would the sharks show so much interest? The same big bank sharks who destroyed the economy with mortgage trading are the ones servicing student loans too. When the credit crisis hit, worthy students couldn't get college loans because the greedy, paranoid banks weren't loaning. Then why are they even involved when they're not fulfilling their function? Republicans (often from states that are home to the HQ's of these banks) criticized the legislation, saying that it will cost thousands of jobs and is actually a clandestine way to help fund the health bill. Well, the first count is true, but so what? Aren't they the ones against subsidizing failing industries like auto (or are they just against union-heavy industries)? The private student loan industry is obsolete and now needs significant retooling. It's a free market and America is the land of opportunity, right? Sink or swim. No one cried when thousands of Lehman and Enron workers found themselves on the street, even though they weren't responsible for the transgressions of their execs.

And as you would expect, like in other credit industries, abuses abound on private student loans. NY sued SLM, Citi, Nelnet, The College Board (the SAT a-holes), and others for deceptive lending practices in 2007, and SLM settled for a $2M donation to a NY student loan information program. There is another class action suit pending against SLM for discrimination against black and Latino customers (charging them higher rates). In 2007 (apparently a very bad year for the industry), scandals abounded across America involving bank reps offering gifts and favors (even stock options!) to college financial aid officers to promote their banks as the "preferred lender" to students, which led to firings for those who were caught. In addition, unlike with other types of loans, the 1965 Higher Education Act allows student loan providers to also handle collection duties. So they have a financial interest to maximize defaults, which in many cases can lead to more money for them than the borrower keeping up with payments. Just your friendly neighborhood lender huh? I don't think the Feds will be that evil. 

http://thecaucus.blogs.nytimes.com/2010/03/30/obama-signs-bill-on-student-loans-health-care/?8au&emc=au
http://en.wikipedia.org/wiki/SLM_Corporation
http://www.thenation.com/doc/20070521/loan_abuse
http://www.kqed.org/epArchive/R201003310900
http://campusprogress.org/tools/788/crib-sheet-direct-loans
http://www.npr.org/templates/story/story.php?storyId=9803210&ft=1&f=1001

Business news

Would you take a loan out on your IRS refund?

http://seattletimes.nwsource.com/html/businesstechnology/2003534092_stupidinvestment21.html

Apparently enough people are doing it to cause concern for the government and consumer advocacy groups. Early filers with tax preparers take out "refund-anticipated loans" on their future tax refunds because they are desperate for the cash pronto and can't wait for Uncle Sam. H&R Block and others offer very high-interest loans on money that doesn't even belong to them. This encourages accountants to over-estimate the refunds to taxpayers, so that they can take out larger loans from the company. That worries the IRS of course, which doesn't want to get short-changed. Consumer advocacy groups are also crying foul, as this new predatory practice is similar to sub-prime mortgages and pay day loans. In our free market, you can even use your tax refund to get yourself more in debt!

Intel pulls out of One Laptop Per Child (OLPC)

http://news.yahoo.com/s/ap/20080104/ap_on_hi_te/intel_one_laptop_per_child

Some altruism. The chief corporate sponsor behind OLPC (or the $100 laptop project) has decided to bail out over disagreements on the sister product version which Intel will market independently. The "XO" devices currently cost about $188-250 to make, but it was hoped to sell at the $100/unit level if foreign governments bought enough of them (on the scale of millions of units - good luck!). Intel might have felt snubbed because the program management favored a cheaper processor from rival AMD. Intel is trying to market its own version of the cheap laptop called the "Classmate". They claim that it's good for customers to have some choice in the cheap PC market. Meaning they don't want AMD to enjoy all the spoils.

http://www.un.org/ecosocdev/geninfo/afrec/vol14no2/educat.htm

To me, the whole program is commendable but misguided. If we gave the XO laptops (or even used computers) away for FREE to poor children, who may not even know how to read/type or have access to reliable electricity, that is one thing. But expecting impoverished, debt-ridden governments to fork over $100-200 per computer is shameful, when they are plagued by corruption and have many other national priorities languishing due to tiny budgets. Primary education spending in Sub-Saharan Africa is around 3-4% GDP, so how can they afford computers? America spends over 6% GNP according to the CATO Institute; we're the richest nation and many of our schoolchildren lack modern computers or even books! Some NGOs are only asking for $20 donations to support a Kenyan student for a year ( http://www.onehereonethere.org/about/howitworks/ ). That's books, pencils, and maybe assistance to teachers or classroom improvements. If you've ever seen or read about a typical rural Third World school, you know they need a lot of other stuff more critically than they do laptops. Look at what else $100 could buy for poor nations:

76 units of Viread anti-HIV/AIDS medication (at $1.30/dose)

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2003/04/04/BU301031.DTL

22 insecticide-treated bed nets, good for 5 years, that greatly reduce the risk of malaria ($4.50/each)

http://www.anglicanmalariaproject.org/in_depth.html

100 second-hand eyeglasses (at $1/each)

http://eyesonafrica.info/

By the way, malaria and AIDS are both top 5 killers in the Third World, and international organizations estimate they cost poor nations over $10B in medical expenses, containment, and lost productivity. The WHO estimates that a billion people who need corrective lenses are lacking them.

Actually getting kids to school is already a challenge, since poor families may prefer to keep their children at home for labor, and many nations don't have enough teachers, classrooms, and supplies for all the kids who want to learn. I know Professor Negroponte at MIT and the OLPC project mean well, but the involvement of Intel or other big-money corporations suggests that this may also be a strategy merely to create more computer customers in an untapped market. These kids will get exposure to PCs at an earlier age, and will want to be "plugged in" for the rest of their lives, like Western kids. And computers are boring by themselves, so they will want to buy software, peripherals, iTunes, and better computers down the road, if they can afford them. Some families don't even make $100 a year. Yes they will get a better education, learn marketable skills and computer literacy to be more competitive in the global economy, but remember there are very few white-collar, computer-based jobs in the Third World. If all of them immigrate to rich nations to study, work, and consume, then Africa will be even more brain-drained and worse off!

Gotcha Capitalism

http://www.npr.org/templates/story/story.php?storyId=17898418

Inside the world of all the hidden or subtle fees/surcharges/etc. that utility, banking, or other companies levy on the US consumer (on average about $1,000/year).