Tag Archives: Tax exemption

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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Filed under 9.5 percent, 9.5 percent SAP, American Education Services, federal direct loans, federal financial aid, FFELP, for-profit colleges, for-profit schools, fraud, higher education, muni bond fraud, muni bond probe, municipal bonds, PHEAA, PLUS, Stafford, student loan lenders, student loan program, student loan scandal, student loans, Uncategorized

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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Filed under 9.5 percent, 9.5 percent SAP, federal direct loans, FFELP, PLUS, Stafford, student loan lenders, student loan program, student loan scandal, student loans

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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Filed under 9.5 percent, 9.5 percent SAP, federal direct loans, FFELP, PLUS, Stafford, student loan lenders, student loan program, student loan scandal, student loans