Tag Archives: PLUS Loan

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


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/


Class Notes Inc

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



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


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,



HedgeForum Renaissance

Education Finance Partners

Education Finance Partners ACS Inc
PHEAA/American Education Services Citibank


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/





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/


Bank of New York/

P Morgan Chase/


Studentloans.com ACS/


Wells Fargo

Bosque HEA AES/

Wells Fargo Bank/


Pecos Student Finacnial Corp AES/

US Bank

us Education Finance Corporation AES
US Contracting Corp PHEAA/


American Educational Services PHEAA/


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


HedgeForum Renaissance



Grad Partners Student Loan Xpress/

Education Lending Group

Cit Group


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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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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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Timeline-Student Loan Program

Federal Student Loan Program

The federal government began guaranteeing student loans provided by banks and non-profit lenders in 1965, creating the program that is now called the Federal Family Education Loan (FFEL) program. The first federal student loans, however, provided under the National Defense Education Act of 1958, were direct loans capitalized with U.S. Treasury funds, following a recommendation of economist Milton Friedman. But when Congress wanted to expand on that start, budget rules made the guarantee approach seem more attractive.[1]

A number of programs were introduced over the next few years, all with the purpose of making it easier to get an education. A few of those programs are:

  • The Health Education Assistance Act, 1963, which offered loans to medical and health program students.
  • The College Work-Study Program, 1964 (now called the Federal Work-Study Program). In this program, the federal government pays for most of students’ earnings so, in effect it covers their educational expenses.
  • The Educational Opportunity Grant Program, 1965, which was created specifically for low-income students who couldn’t afford college. No repayment was required.
  • The Guaranteed Student Loan (GSL) Program, 1965, which is also still in effect today. It’s name was changed in 1988 to the Federal Stafford Loan Program. This program provided more money for student loans through banks or lending agencies, to offset rising education costs.
  • The Middle Assistance Act, 1978, provided student loans to middle-class families. This act, in effect, removed the income limit on federal aid programs.
  • The Parent Loans for Undergraduate Students Program, 1981, allowed upper-income families to get student loans, but at much higher interest rates.[2] In the same year, Congress created the loan consolidation program so that borrowers could consolidate multiple loans into a single loan with a longer repayment term and smaller monthly payments
  • 1988—Guaranteed Student Loans were renamed Stafford Loans in honor of Senator Robert Stafford of Vermont.
  • 1989—Student Loan borrowers were first required to receive financial counseling from schools before borrowing.
  • 1991—Congress prohibited schools with high default rates from participating in the Guaranteed Student Loan Program.
  • 1992—Guaranteed Student Loan Program was renamed the Federal Family Education Loan Program (FFELP) in the 1992 HEA reauthorization. Today, FFELP is a public-private partnership that provides affordable private sector financing for students and their families seeking postsecondary education.
  • 1993—After one year as a pilot program in the 1992 HEA reauthorization, the Federal Direct Loan Program (FDLP) became a full-scale program in 1993. In FDLP, loans are financed by the federal government.
  • 1999    Direct Lending introduces loan discounts (1% reduction in origination fees and 0.25% interest rate reduction for auto debit) to compete with loan discounts offered by FFELP lenders. (June 16, 1999)
  • 2000    Lenders sue the US Department of Education to try to block the Department from offering loan discounts to Direct Loan borrowers without offering similar discounts to FFEL borrowers. The lenders also questioned whether the discounts are cost neutral, as required by the Higher Education Act. The Department believes that these reductions will save the government money by preventing defaults, save students money by reducing costs, and are necessary to level the playing field. Many lenders already offer similar discounts. (November 7, 2000)
  • 2002 Public Law 107-139 (February 8, 2002) changed education loan interest rates from variable rates to fixed rates for new loans issued after July 1, 2006. The interest rate on Stafford Loans will be 6.8%. The interest rate on PLUS Loans will be 7.9%.
  • 2005    Section 220 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), P.L. 109-8 amended the US Bankruptcy code at 11 USC 523(a)(8) to include an exception to discharge for “qualified education loans”. Previously only private student loans made by a nonprofit institution (as well as federal education loans) were excepted from discharge.
  • 2005    Higher Education Reconciliation Act of 2005 (HERA 2005) (part of the Deficit Reduction Act of 2005) cuts $12.7 billion from student aid: switches Stafford and PLUS interest rates to fixed rates of 6.8% and 8.5% (an increase from P.L. 107-139), keeps maximum Pell Grant at $4,050 for fourth year in a row, gradually reduces loan fees from 4% to 1%, increases some annual loan limits without increasing cumulative loan limits, changes financial aid treatment of prepaid tuition plans, allows graduate and professional students to borrow PLUS loans, eliminates floor income guarantee and some 9.5% loan recycling, adds SMART Grants for less than 10% of Pell Grant recipients, repeals early repayment status loophole, and adds restrictions to School as Lender, among other changes.
  • 2007 New York Attorney General’s investigation uncovered lender-college revenue sharing agreements, referral fees and other conflicts of interest lead to multi-million dollar settlements by the largest education lenders. Prominent financial aid administrators and a US Department of Education official accepted stock holdings and payments received from lenders.
  • 2008 Congress passed the Ensuring Continued Access to Student Loans Act of 2008 (P.L. 110-227), known as ECASLA, to help avert a crisis in the FFEL program. This legislation allows the US Department of Education to buy unemcumbered Stafford and PLUS loans originated from 10/1/03 to 9/30/09. The legislation also increased the annual and aggregate loan limits on the unsubsidized Stafford loan for undergraduate students and allows parents to defer repayment on the Parent PLUS loan while the student is in school and for six months afterward. Congress also passed the Ensuring Continued Access to Student Loans Act Extension (P.L. 110-350) to extend ECASLA to the 2009-10 academic year.
  • 2008 Congress finally reauthorized the Higher Education Act of 1965 after more than a dozen extension acts. The Higher Education Opportunity Act of 2008 (PL 110-315) added numerous new disclosure requirements including the Student Loan Sunshine Act. Other significant changes include veterans’ education benefits will no longer be treated as a resource starting in 2010-11, expands the cohort default rate from a two-year to a three-year window, establishes three new up-front loan forgiveness programs, requires education lenders to report repayment status information to all national consumer credit reporting agencies, authorizes a simplified EZ FAFSA form, requires standardization of the financial aid award letter, and softens the 90/10 rule.
  • 2010 The Health Care and Education Reconciliation Act of 2010 (P.L. 111-152) was passed by the House and Senate on March 25, 2010 along party lines and signed into law by President Obama on March 30, 2010. The bill eliminates the federally-guaranteed student loan program (FFELP), with all new federal education loans made through the Direct Loan program starting July 1, 2010. The savings are redirected to the Pell Grant program, deficit reduction, improvements in income-based repayment and a variety of smaller programs. Most of the Pell Grant funding was used to backfill a funding shortfall from the American Recovery and Reinvestment Act of 2009 (stimulus bill) and to make permanent the increased maximum Pell Grant from that legislation. The rest of the Pell Grant funding indexes the maximum Pell Grant to the Consumer Price Index for five of the ten years, with the maximum Pell Grant unchanged for the remaining five years. The legislation cuts the monthly payment under income-based repayment by one third from 15% of discretionary income to 10% of discretionary income, and accelerates the loan forgiveness from 25 years to 20 years, but only for new borrowers of new loans made on or after July 1, 2014.[3]

[1] New America Foundation Federal Student Loan Programs – History

[2] Financial Shopper Network The History of Student Loans

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