Public Law 108-409, which took effect October 30, 2004, prohibits lenders from using refunding and transferring as methods to increase the volume of student loans receiving the 9.5 percent guaranteed yield, but it allows lenders to continue to recycle repayments of existing 9.5 percent loans into new 9.5 percent loans. Those new restrictions are in effect through December 2005President Bush proposed to eliminate the loopholes in 2006, in other words no new sweet subsidized deals. Administration critics, quick to find greased palms in this mess argue the Educatio nDepartment could have closed loopholes with regulations, however the Department responds that its hands were tied, and Congress was better able to close the loopholes (GAO 2004 Report, page 6-7).
Tuesday, January 03, 2006
Lincoln Nebraska based Nelnet is the major player in the 9.5% subsidized student loan marketWashinton Post.com Nelnet Inc., a for-profit lender based in Lincoln, Neb., is a leader in (student loans). The company holds roughly $3.5 billion in student loans that qualify for a government-guaranteed 9.5 percent interest rate. Although Congress eliminated the 9.5% interest subsidy in 1993, federal government payments on subsidized loans went up last year The total federal payout in the first nine months of 2005 was more than $600 million, Education Department data show. Nelnet reported $77 million in profit during that time as a result of the subsidy. In 1993, Congress decided to end the 9.5 percent guarantee for loans financed with new tax-exempt bonds. The law enacted that year created an exception for loans financed with previously issued bonds. It was widely assumed that the subsidy payouts would dwindle and in time disappear. But a September 2004 Government Accountability Office report found that the opposite had occurred: The total value of loans qualifying for the 9.5 subsidy rose from about $11 billion in 1995 to more than $17 billion in 2004. In 2004 Congress eliminated some loopholes lenders used to keep drawing the 9.5% vig (CBO Report):
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