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UPDATE AND CORRECTION: The List Keeps Growing:The Student Loan Industry’s DIRTY Secret

A special purpose entity (SPE; or, especially in Europe, special purpose vehicle/SPV, in Ireland – FVC financial vehicle corporation) is a legal entity (usually a limited company of some type or, sometimes, a limited partnership) created to fulfill narrow, specific or temporary objectives. SPEs are typically used by companies to isolate the firm from financial risk. A company will transfer assets to the SPE for management or use the SPE to finance a large project thereby achieving a narrow set of goals without putting the entire firm at risk. SPEs are also commonly used in complex financings to separate different layers of equity infusion. In addition, they are commonly used to own a single asset and associated permits and contract rights (such as an apartment building or a power plant), to allow for easier transfer of that asset. Moreover, they are an integral part of public private partnerships common throughout Europe which rely on a project finance type structure-WIKIPEDIA

IF THIS REMINDS YOU OF THE HOUSING BUBBLE I.E. THE STOREFRONT ,MORTGAGE LENDERS THEN YOU’RE BEGINNING TO UNDERSTAND WHAT’S GOING ON AND WHY YOU’RE DEBT KEEPS GROWING AND GROWING AND GROWING AND GROWING!

Banks partnered with student loan guaranty agencies, student loan servicers, and other banks to create student loan brokerage firms aka student loan special purpose entities the majority of which were incorporated in State of Florida. For example, Student Loan Xpress, Goal Financial, K2 Financial, Education Finance Partners, US Education Finance etc. Kinda like the storefront mortgage companies and unlicensed brokers, think Enron’s LJM2, the Raptors, Chewco etc

The bank ffelp lenders, servicers and guaranty agencies used the student loan brokerage companies to access and repeatedly access students’ personal information, nslds, and credit reports for what they claimed were Marketing or Promotional Purposes. If you don’t believe me then just check your credit reports from 2006-2008. I bet you’ll have 3 ‘Promotional Purpose’ pages that are all student loan companies. Unfortunately, they weren’t accessing your reports for marketing purposes as they claimed. They were accessing the reports for your personal information which they unlawfully used to originate federal consolidation loans.

The Education Department’s Office of Inspector General found that American Education Services/Pennsylvania Higher Education Assistance Authority  (CLICK THE LINK I PROMISE IT’S WORTH IT!) received about $33 million in overpayments — and possibly much more — under an exemption in federal law that allowed lenders that financed the student loans they issued using tax-exempt bonds issued before 1993 to earn a government subsidized interest rate of 9.5 percent. Congress engaged in several aborted attempts to fully close the loophole throughout the 1990s and the early part of this decade, but some lenders continued to find ways to take advantage of it by recycling the pre-1993 loan funds, before Congress, as part of the Higher Education Reconciliation Act, finally closed it permanently last year.

Guess how they did it? You guessed it, by partnering with lenders to create student loan brokerage firms, special purpose entities and special purpose vehicles that unlawfully used your personal information to create federal consolidation loans. The lenders then used the fraudulent consolidations loans to replace loans that defeased, were repaid or discharged in their 9.5 percent floor loan securitized trusts and student loan revenue bonds. Consequently, because the federal consolidation loans were unlawfully created by the student loan brokerage firms (lenders + servicers + guaranty agencies) theft of your personal information they are not valid obligations; thus they are not enforceable! So, in protest of the nearly $1 trillion dollar student loan debt bubble and your ASTRONOMICAL student loan debt that’s growing bigger by the day pull your NSLDS report highlight that fraudulent loan, complete an UNAUTHORIZED SIGNATURE / UNAUTHORIZED PAYMENT false certification discharge form, and send it to fraudnet@gao.gov!

Don’t forget to name your lender, servicer, and guaranty agency on the discharge form and attach your NSLDS report with showing the fraudulent consolidation loan you never applied for or agreed to!

So without further ado here are a few of the Student Loan Special Purpose Entities that you should LOOK FOR ON YOUR CREDIT REPORTS. Please note this list is a daily work in progress and by no means complete:

National Collegiate Trust/                                                         PHEAA/American Education Services

American Educational Loan Services                               PHEAA/American Education Services


MRU HOLDINGS:                                                                             J.P. Morgan Chase, Key Bank, Morgan Stanley,

                                                                                                                       Lehman Bros, Assured Guaranty,

                                                                                                                        Global Securitization Service, LLC,

 Sallie Mae
J.P. Morgan Chase,

Bank of America,

J.C. Flowers & Co.,

Friedman Fleischer & Lowe.

First National Wachovia
First Savings Wachovia
Affinity Direct d/b/a Educational Direct Citibank Student Loans
Credit Card Protection Bain Capital Ventures

Bain Private Equity

CORTRUST Bank Citibank
Academic Funding Foundation Educaid/

Wachovia/

Class Notes Inc

Erie Processing Corp Wachovia
Xanthus Higher Education ABN AMRO
Student Loan Processors US Bank
K2 Financial Ceigis LLC

ACS-Education

Discover

University Financial Lenders Bank of New York
Educational Lending Group Citibank
Post Collegiate Financial First American Title Ins.

Wachovia

Federal Family Education Wachovia Securities
Goal Financial Cit Group/Bank of New York
American Educational Loan Processing PHEAA/

American Education Services

Student Loan Xpress Bank of Lake Mills,

Citibank,

AMACAR,

HedgeForum Renaissance

Education Finance Partners

Education Finance Partners ACS Inc
PHEAA/American Education Services Citibank

Wachovia

Academic Finance Corporation ACS/

US Bank

Amerifund Education Corporation ACS/

Fifth Third/

RBC Bank/

US Bank

Ardent Financial, LLC/NSL Direct Citibank
US Education Finance PHEAA/

AES,

ACS,

Citibank,

Wachovia

Academic Financial Services ACS
Acapita Education Finance Corporation ACS/

US Bank

AMS Education ACS/

Bank One/

Sallie Mae

Fleet National Bank

Student Capital Corporation ACS/

Deutsch/

Bank of New York/

P Morgan Chase/

Citibank

Studentloans.com ACS/

Brazos/

Wells Fargo

Bosque HEA AES/

Wells Fargo Bank/

ACS

Pecos Student Finacnial Corp AES/

US Bank

us Education Finance Corporation AES
US Contracting Corp PHEAA/

AES

American Educational Services PHEAA/

AES

Education Funding Resources Cit Group
Education Lending Group Cit Group
Education Finance Partners ACS/

Cit GROUP/

HedgeForum Renaissance

Wachovia

AMACAR

Grad Partners Student Loan Xpress/

Education Lending Group

Cit Group


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Student Securities! You and Your Student Loans Belong to an Investor!

Mortgage Backed Security

Image via Wikipedia

MUST READ Article @ N+1: Bad Education that fully explains Student Loan Asset Backed Securities;  why you’re loan balance is growing every month despite your payments and; why lenders prefer delinquent borrowers and borrowers who default over borrowers who pay on time.

“What kind of incentives motivate lenders to continue awarding six-figure sums to teenagers facing both the worst youth unemployment rate in decades and an increasingly competitive global workforce?

During the expansion of the housing bubble, lenders felt protected because they could repackage risky loans as mortgage-backed securities, which sold briskly to a pious market that believed housing prices could only increase. By combining slices of regionally diverse loans and theoretically spreading the risk of default, lenders were able to convince independent rating agencies that the resulting financial products were safe bets. They weren’t. But since this wouldn’t be America if you couldn’t monetize your children’s futures, the education sector still has its equivalent: the Student Loan Asset-Backed Security (or, as they’re known in the industry, SLABS).

SLABS were invented by then-semi-public Sallie Mae in the early ’90s, and their trading grew as part of the larger asset-backed security wave that peaked in 2007. In 1990, there were $75.6 million of these securities in circulation; at their apex, the total stood at $2.67 trillion. The number of SLABS traded on the market grew from $200,000  in 1991 to near $250 billion by the fourth quarter of 2010…..

Even with the Treasury no longer acting as co-signer on private loans, the flow of SLABS won’t end any time soon. What analysts at Barclays Capital wrote of the securities in 2006 still rings true: “For this sector, we expect sustainable growth in new issuance volume as the growth in education costs continues to outpace increases in family incomes, grants, and federal loans.” The loans and costs are caught in the kind of dangerous loop that occurs when lending becomes both profitable and seemingly risk-free: high and increasing college costs mean students need to take out more loans, more loans mean more securities lenders can package and sell, more selling means lenders can offer more loans with the capital they raise, which means colleges can continue to raise costs. The result is over $800 billion in outstanding student debt, over 30 percent of it securitized, and the federal government directly or indirectly on the hook for almost all of it.

If this sounds familiar, it probably should, and the parallels with the pre-crisis housing market don’t end there……”

Read the rest of the article at NPLUSONE MAG

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STUDENT LOAN DEBT PROTEST!

Texas Guaranteed Student Loan Corp. Image by D...

Image via Wikipedia

UNITED WE STAND, DIVIDED WE FALL! In protest of the nearly $1 trillion dollar student loan debt bubble and your ASTRONOMICAL student loan debt that’s growing bigger by the day!Apply for an UNAUTHORIZED SIGNATURE / UNAUTHORIZED PAYMENT false certification loan discharge  The nearly $1 trillion dollar student loan debt, the $1500/month interest only payment, the double in some cases almost triple outstanding principle amount owing, etc. is due to the following:

Bank FFELP lenders partnered with loan guaranty agencies and student loan servicers to create student loan brokerage firms aka special purpose entities the majority of which were incorporated in State of Florida. For example, Student Loan Xpress, Goal Financial, K2 Financial, Education Finance Partners, US Education Finance etc. Kinda like the storefront mortgage companies and unlicensed brokers, think Enron’s LJM2, the Raptors, Chewco etc .  The bank ffelp lenders, servicers and guaranty agencies used the student loan brokerage companies to access and repeatedly access students’ personal information, nslds, and credit reports for what they claimed were Marketing or Promotional Purposes. If you don’t believe me then just check your credit reports from 2006-2008. I bet you’ll have 3 ‘Promotional Purpose’ pages that are all student loan companies.

Unfortunately, they weren’t accessing your reports for marketing purposes as they claimed. They were accessing the reports for your personal information which they unlawfully used to originate federal consolidation loans. The consolidation loans were then purchased by student loan servicers/guaranty agencies from lenders on the Federal Family Education Loan Program secondary market.  The servicers/guaranty agencies issued tax-exempt bonds to obtain funds to acquire loans.  Billions of such bonds issued prior to October 1, 1993, were outstanding.  The servicers/guaranty agencies  bills the U.S. Department of Education for 9.5 percent special allowance payments on the loans it purchases, holds, and services.  

For example, in April 2003, Nelnet implemented a process (“Project 950”) to increase the amount of its loans receiving special allowance [taxpayer subsidy payments] under the 9.5 percent floor. . . . Nelnet repeated this process many times, increasing the amount of loans it billed under the 9.5 percent floor from about $551 million in March 2003 to about $3.66 billion in June 2004. PHEAA did it too! Guess how they did it? You guessed it, by partnering with lenders to create student loan brokerage firms, special purpose entities and special purpose vehicles that unlawfully used your personal information to create federal consolidation loans. The lenders then used the fraudulent consolidations loans to replace loans that defeased, were repaid or discharged in their 9.5 percent floor loan securitized trusts and student loan revenue bonds. Consequently, because the federal consolidation loans were unlawfully created by the student loan brokerage firms (lenders + servicers + guaranty agencies) theft of your personal information they are not valid obligations; thus they are not enforceable! So, in protest of the nearly $1 trillion dollar student loan debt bubble and your ASTRONOMICAL student loan debt that’s growing bigger by the day pull your NSLDS report highlight that fraudulent loan, complete an UNAUTHORIZED SIGNATURE / UNAUTHORIZED PAYMENT false certification discharge form, and send it to fraudnet@gao.gov!

Don’t forget to name your lender, servicer, and guaranty agency on the discharge form and attach your NSLDS report with showing the fraudulent consolidation loan you never applied for or agreed to!

UNITED WE STAND, DIVIDED WE FALL!!!

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The Root Cause of Your Student Loan Miseries….The 9.5 Percent Special Allowance Payment Subsidy

Intended to Cut Lender Subsidies, It Created a Windfall

In the guaranteed student loan program, lenders receive interest payments from both students and the government. Under the 1980 law, the government payments (known as “special allowance payments”) assured lenders a quarterly return on their guaranteed student loans equal to the average bond-equivalent yield on 91-day Treasury bills plus 3.5 percentage points. Any quarter when borrower payments were insufficient, the government would make up the difference. (Loans made today receive the 91-day commercial paper rate plus 2.34 percentage points during repayment.) For loans backed by tax-exempt bonds, the 1980 formula cut subsidy payments in half but guaranteed at least a 9.5 percent return. In other words, lenders receive the greater of either (a) one-half the regular subsidy payments or (b) the amount necessary to provide a 9.5 percent return.[1]

Example 1: In times of high interest rates, the formula reduces subsidies.

Under interest rates prevalent in 1979, the new formula cuts lender returns from 13.5 percent to 10.25 percent.10

 

Regular Loans:

 

Student Rate                                        Special Allowance:                       Lender Return:

7.0%                                                        6.5%                                       13.5%

 

Loans Made with Tax-Exempt Bonds:

Special Allowance:                                                                                  Lender Return:

3.25%                                                                                                   10.25%

Example 2: But with the lower rates that have been more typical in recent years, the 9.5 percent floor creates windfall profits.

In the second quarter of 2004, regular loans earned a 3.57 percent return, including only 0.15 percentage points in federal subsidies. Loans eligible for the 9.5 percent floor collected 25 times more in federal subsidies.[2]

 

Regular Loans:

 

Student Rate                                          Special Allowance:                 Lender Return:

3.42%                                                      0.15%                                      3.57%

 

 

Loans Made with Tax-Exempt Bonds:

Special Allowance:                                                                             Lender Return:6.08%                                                                                                  9.5%

 

 

The 1993 Attempt to Repeal 9.5 Loans

In early 1993, the borrower interest rate on regular new student loans fell to 6.15 percent, highlighting the absurdity of guaranteeing a 9.5 percent return on tax-exempt loans.12 Congress decided to try again to fix the problem.The Omnibus Budget Reconciliation Act of 1993 eliminated the 1980 formula for all loans financed with new student loan bonds. However, responding to arguments that bond investors need stable, assured returns, it kept the 1980 formula for loans backed by existing bonds, including loans made with collections from earlier loans. It seemed like a limited liability, confined only to pre-existing bonds, and involving non-profit and government entities.[3]



[1]Money for Nothing • Skyrocketing Waste of Tax Dollars • A Report by TICAS:The Institute for College Access and Success


[2]Author’s calculations based on U.S. Department of Education,“Federal Family Education Loan Program Special

Allowance Rates for the Quarter Ending June 30, 2004,” July 6, 2004.


[3] General Accounting Office and U.S. Department of Education, Final Report Regarding the Findings of the Study Group on the Feasibility of Using Alternative Financial Instruments for Determining Lender Yield under the Federal Family Education Loan Program, January 19, 2001, pp. 120, 123.

 

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Interlude-I Guess Crime Really Does Pay! Sallie Mae Albert Lord Made $$5.45 million in 2010

   By Melissa Korn
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–SLM Corp. (SLM) Vice Chairman and Chief Executive Albert Lord received a 2010 compensation package valued at $5.45 million, nearly flat with the prior year.

Lord was paid a base salary of $1.03 million, compared with $1.3 million in 2009. His bonus jumped 58% to $1.5 million, paid half in cash and half in restricted stock.

SLM, commonly known as Sallie Mae, said the student loan company’s leadership “continued to demonstrate its ability to safely guide the company through the unprecedented turmoil the company, the student loan industry and capital markets have experienced over the past several years.”

SLM had derived nearly one-third of its revenue from originating student loans on behalf of the federal government, but that revenue stream was cut off in July as the government brought the originations in-house.

Lord received stock awards valued at $1.24 million, compared with $560,500 in 2009. However, he received options awards valued at $1.56 million, 39% less than the prior year.

Lord’s employment agreement expired in December and was not replaced, making Lord an at-will employee going forward.

President and Chief Operating Officer John (Jack) Remondi, who had been vice chairman and chief financial officer until early January, saw his 2010 compensation fall nearly two-thirds to $2.84 million as he received no options awards in the latest year. Remondi claimed options valued at $5.94 million in 2009.

Remondi, who is also an at-will employee as of earlier this year, received $100,000 in use of the company aircraft to travel between his home and corporate offices. He also received $53,458 to cover an apartment near the headquarters in Reston, Va., as well as utilities, housekeeping and taxes.

Sallie Mae relocated its main office to Newark, Del., earlier this year.

-By Melissa Korn, Dow Jones Newswires

This makes absolutely no sense! While Sallie Mae is STEALING BILLIONS of DOLLARS from the government and the  taxpayers to IMPOVERISH the future generation….the CEO and CFO receive 7-figure compensation, a mid-five figure apartment allowance, 6-figures to use the company’s private jet to IMPOVERISH the future generation and commit fraud

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The Beginning of the End…Meet the Tax-Exempt Student Loan Bond

As part of the effort in the 1970s to ensure that loans would be available for all eligible students, provisions were included in the Tax Reform Act of 1976 to encourage states to issue tax-exempt student loan bonds. In the years that followed, states established more than 30 student loan authorities. These authorities sell both tax-exempt and taxable bonds and use the proceeds to make loans to students. Authorities also buy loans from banks to encourage them to make new loans, instead of lending directly to students, and thereby encourage banks to make new loans to new students.[1]

Congress made states eligible for full federal subsidy payments, the same as all other student loan providers, even though the loan authorities would have the advantage of raising capital to be lent out to students from low-cost, tax-exempt bonds. Congress also gave states relief from the “arbitrage” tax rules.

Typically, the federal government limits state profits on tax-exempt bonds by requiring state and local governments to rebate excess returns (above 2 percentage points for student loan bonds) to the federal government. However, in 1976 Congress excluded the federal payments from the arbitrage calculation.

Before long, states were issuing bonds at 6 percent interest while earning up to 16 percent interest on student loans. A Congressional Budget Office (CBO) study predicted that the bonds would cost taxpayers as much as $500 million a year, including both tax benefits and federal interest payments.

In 1980, Congress did just that. It halved federal subsidy payments to lenders on loans funded with tax-exempt bonds. States argued, however, that they make long-term commitments to bondholders. If interest rates dropped too low, they said the student loans would not bring in enough income to make payments on the bonds and to cover administrative expenses. So Congress guaranteed a minimum return of 9.5 percent.

Congress did not intend for the student loan bonds to be immensely profitable—only profitable enough so that states would participate. But almost immediately after they were created in 1976, the bonds were earning huge profits for the loan authorities. Ever since, the Federal government has been trying to rein in the problem, but the efforts have often failed or even backfired, compounding the initial error.[2]

P.S. The portions highlighted in red are a VERY IMPORTANT component of this story REMEMBER THEM….Just in case that slipped by everyone.


[1] Money for Nothing • Skyrocketing Waste of Tax Dollars • A Report by TICAS:The Institute for College Access and Success


[2] Money for Nothing • Skyrocketing Waste of Tax Dollars • A Report by TICAS:The Institute for College Access and Success

 

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Brief Interlude

I know the first two posts were pretty long and full of facts but I ask that you bear with me. In order to understand today’s massive ongoing fraud by the student loan lenders and the crippling debt it is causing first I need to explain the history of student loans. I promise you’ll thank me later!

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