We're baaaack

It's been really busy and depressing the last few months. But we're gonna be back with more regular and objective critical reviews of the student lending space.

We'll expand on a number of topics in later posts. But first, let's recap:

August 2007: Liquidity crisis begins. Most monoline student lending outfits aren't banks. They garner their money to make loans by borrowing on Wall Street. Once the borrowing on Wall Street tightens up, it starts getting difficult to acquire funds to make the loans. Even though the FFEL program is a government sponsored loan, the capital is acquired privately by the lender. The liquidity crisis has crescendo'ed into a colossal mess. The student loan industry has come to a crashing halt, especially in the past few weeks.

October 2007: Crippling legislation is enacted. Our benevolent legislators are convinced that it's the loans that have caused all the problems for students seeking a higher education. Never mind that these loans are merely a response to the ever increasing tuition rates dictated by the colleges & university's. Clearly, the best solution is to remove ALL profitability in the government sponsored loan program. Therefore, in the legislators warped sense of reality, if the profitability for making these student loans is removed....voila, problem solved. What everyone failed to understand is that abnormal profits weren't being realized by the private lenders. Much of the "abnormal profits" were returned to the borrowers in the form of benefits (reduced interest rates, cash back, etc). Competition is a wonderful thing...the involvement of for-profit entities in the FFEL program led to innovative and attractive adaptations of FFELP loans that ultimately benefited the borrower. All this is gone now.

The above confluence of events has resulted in most lenders exiting the FFELP business. Even the state run student loan authorities aren't making FFELP loans. So, perfect, our estimation is that the legislators have made a huge mess. But we predict more wackiness. It's an election year after all. Desperation will abound by the end of April. We don't dare predict exactly what will happen the next 90 days, but we assure you that the legislators, the Dept of Education, perhaps the Dept of Treasury, and possibly a few other far flung executive branch outfits will put together a really stupid solution in place that will turn the FFEL program into a Simpsons-esque made for TV cartoon fodder.

Keep checking back, because we haven't even begun to vent our spleens on the issue. We'll be naming names, highlighting absurd details, and allaying blame to all silliness that student lending has become.