Posted On: 2006-01-13
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Good Friday, January 13th, 2006 episode, 160 of the Financial Aid Podcast. My name is Chris Penn, welcoming you back to the Financial Aid Podcast. If you're a triskaidekaphobia, be careful today; it's Friday the 13th. If you don't know what 'triskaidekaphobia' means, it means someone who's afraid of the number thirteen and all of its incarnations. We got a lot to talk about today. We have some, uh, reallocating of pie stuff, talking about, uh moving money around, making sure that you get, uh, the share, the limited share of the financial aid that is available. Uh, more talking about the, uh, budget reconciliation, a scholarship for K-12 students and a new segment called, "Things I Didn't Know About...", uh, this, today's topic will be uh, lenders and banks. And, of course, some pod safe music today from Matthew Ebel. So, let's get started with the news.
Incidentally, by the way, you might notice a change in the Financial Aid Podcast on Monday, uh but uh, um, I'm not gonna tell you what it is. I'll, we'll see if it, if it comes to pass. Starting off in the news today, um, schools around the country are now with uh, reduced financial aid and uh, with reduced budgets are looking at reallocating, uh, as much money as possible; rejiggling their financial formulas, uh, on a state level. Here in Massachusetts there's been talk, for example, about um, moving money from the, uh, certain grants to other grants and essentially, giving more, um, financial aid to poor families at the expense of middle class families. So, um, one thing that's important about this news story, it's not really a story in and of itself as it is a meta-story, a whole bunch of stories collected together. Is that if you are a student or a parent, or a member of a family, and you are not involved in participating in the school's financial aid process or, uh, getting involved with the governess of your school or your state, it's very, very important that you do so. Now, more than ever and for the foreseeable future really, um, schools and governments and things are going to be working with an increasingly small share of money, uh, when it comes to financial aid. Uh, especially when you compare it to the amount of, uh, non, when you compare it to, you know, loan aid vs. non-loan aid, uh, the non-loan aid it just keeps getting smaller and smaller in proportion to loan aid. So, if you're not involved by voting, by participating, by you know, voicing your, voicing your opinion in public forums that schools and states have, you need to get involved with that; if you want, uh, your interests to be represented. And it's very, very important. One of the most important things that you can do, uh, in terms of participating is to make sure that you are registered to vote and you vote in available elections as they come around. Local elections happen almost every year. State and, uh, federal elections happen, uh, pretty much, uh, every two years. Mid-term elections and then presidential elections and it is vital, absolutely vital, that uh, you not only vote, but also understand who and what it is you're voting for.
Get involved, uh, take a look at sites like Rock TheVote.Com if you need to learn how to register to vote. Uh, look at OpenSecrets.Org. This is a great site for, uh, federal and state officials; to look at uh, what it is they're doing; more importantly, who's donating money to them so you know who, uh, has some control over them. And if uh, if you're not, uh, if you're clear about something, you know obviously there's a lot of public forums and places that you can ask for helps. But, definitely get involved. Um, also, on the budget reconciliation act, our, one of our favorite topics here, interesting quote from OSU assistant director of record management and loan processing, Cathy Byrd, who is saying that the impact of the interest rate increases, eh, does not affect students until they start paying off their loans so it's nothing that students need to worry about, according to, uh, eh, this person. I, I think that's, that's very strange to hear something like that coming from a school official; it's very, very possible. This was, in uh, MSNBC. It's very possible that she was misquoted, possibly very badly. Umm, because it is something that students need to be worried about; uh, they're, they're not necessarily making payments in school, while they're, while they're you know, in school; but, that doesn't mean, uh, you just sign every sheet of paper that gets put in front of you, umm, because you could end up signing yourself into a tremendous amount of trouble. A little bit later, we're going to talk about, uh, a certain lending company named 'Sallie Mae' that makes loans up to 28%, uh, interest rates. Eh, if you don't know what it is you're signing, wow, you could really get yourself into a lot of trouble. So, uh, just an interesting quote on the budget reconciliation and why interest rates do matter even for if you're in school; you need to pay attention to the fine print. All right, let's move on to the scholarship update for today.
Today's scholarship is the Children's Scholarship Fund, which is actually a fund for, uh, students at K-12 schools. Founded in 1998, the Children's Scholarship Fund provides partial children's tuition assistance for low-income families to send their children to private schools. Uh, more than 67,000 children have benefited from scholarships across the U.S. Um, the, right now, the scholarship foundation hands out about 23,000, uh, scholarships a year, uh, for about $1,227.00 a piece. Um, these scholarships, it's important because, um, in, in some areas, private schools may only be the real viable choice for education and in other areas it's, it's to try and bring uh, some measure of equality between the uh, uh education that public schools give and the education the private schools give. So, giving lower income families the ability to gain access to private, uh, schools is uh, sort of the goal of this scholarship program. Eligibility for the scholarship is based on, uh, the requirements, uh, federal financial aid requirements as measured by standards similar to the Federal School Lunch Program. So, it takes into account family size, it takes into account, uh, what your family's income level is and if, basically if you qualify for the Federal School Lunch Program, uh, reduced or free lunches, you will probably qualify for this scholarship program. You would then need to apply. Uh, you can find that information and the link to the application on our free scholarship search website at StudentsScholarshipsSearch.Com; making today's scholarship update the Children's Scholarship Fund for K-12 students. All right, on to the last piece of the, uh, program: "Things I Didn't Know".
This is a very interesting article. In, uh, the December 26th issue of Fortune Magazine, which I just happened to find laying around in, uh, in the office here. Um, I didn't, you, one thing that's always been confusing to me is why there are so many little, you know, lenders and services and things like that in the student loan industry. And it was, it's been really confusing to me because, you, you have, uh, one organization like Sallie Mae, for example, but they have all of these different names that they operate under and all of these different banks and all this different things that, places that they operate in. And, I could never figure out why. Would it make more sense to consolidate everything; to centralize everything? It would be easier to organize and easier to run as an organization. And, it turns out that there's a very, very good and real reason why they, they are set up this way and why a lot of the big, uh, lenders are set up this way through the small, little regional banks and stuff like that. It's to take advantage of legal limits on debt interest rates and lending practices and this is a very interesting thing. And, this is a very interesting thing, um, there's an example here in the magazine, uh, for students at Lehigh Valley College in Pennsylvania. Uh, what uh, what the article talks about is that Sallie Mae actually will, does not issue loans directly to the students who attend this school. What they do instead is they issue them through a college called, uh, a bank called uh, Still Water Bank, which is a bank out in Oklahoma. Let me find the exact place in the article here. Here, according to the article, uh, last spring a local newspaper in the morning published a string of recounting to him the countless experiences of students who found themselves paying double-digit interest rates and discovering that they owed as much as $100,000 on their student loans because of compounding interests. At an informational meeting called by Pennsylvania House Consumer Affairs Committee, Sallie Mae admitted that it charges LVC students an average uh, interest rate of 13% on their private loans and it sends the loans through Still Water Bank because the legal interest rate limit is 21% in Oklahoma compared with 18% in Pennsylvania so, apparently the reason why you would have all of these different little lending branches and banking branches and stuff like that is uh, really to uh, take advantage of interest rate uh, limits and uh, it's really a terrific article goes um, another really interesting point here that I did not know about the federal student loans is that while federal student loans, their interest rates and, and guaranteed fees are set by the federal government, it turns out that once you, um, excuse me, once you go into things like, uh, default or being late on payments, the fees on those, um, can be as much as 18.5% of the outstanding value.
These guaranteed fees and these uh; default collection fees are not necessarily federally regulated. Or at least they're not, um, they're not mandated by the higher education; they're left up to the discretion of the collections agencies. According to this article, Sallie Mae now, uh, makes 18% of its revenues, uh, on fees, uh for defaulted student loans. It's a very, very interesting article. I definitely recommend if you have the opportunity to pick up the, uh, December 26th article, uh, issue of Fortune Magazine you do so. Uh, one thing, one other thing that the article mentions, I thought was also interesting, something else I did not know, or did not know this in terms of seeing it in print and something that you can hold in your hand is that Sallie Mae's private loans uh, have interest rates of, uh up to 28% and that's not counting the things like uh, fees and the uh, late fees and stuff like that. Twenty-eight percent; that's more than most credit cards. I, It's amazing, you'd actually be better off applying for a credit card than applying for a Sallie Mae signature loan if you get that 28% interest rate. I guess that would have to be in a state where the legal limit is 28% so clearly not Pennsylvania or Oklahoma. Um, as a benchmark of comparison, by the way, you knew I was gonna do this, uh, act education loans by the Student Loan Network are, we state our interest rates pretty clearly on the website. They are the uh, BB8 liable rate plus a margin of 4.65-7.25%, depending on your credit, so uh, that's pretty straight forward. You know, you know what the minimum and you know what the maximum is and those are the limits. Whenever you take out a loan, folks, this is, it's so important and it's something that can't be said enough. Whenever you take out a loan; whenever you explore getting a loan, read the fine print, read the paperwork, read what it is you're getting into before you sign it because once your signature is on that paper, you have made an obligation. And, even if you decide not to go ahead, uh, with the loan, if you've submitted the application and it's got your signature on it, the lender has, um, really indisputable proof that, can demonstrate indisputable proof that you intended to take out the loan in a court of law. So, don't sign it unless you're sure; do your shopping around before you sign a loan. Make sure you read, read, read the paperwork, please because uh, you don't want to find yourself with a 28% interest rate loan and $100,000 in um, compounding interests you know, five years down the road. So, that was things I did not know. It is Friday. It is so very Friday. We're going, uh, head out, uh, get ready for today and then head out into the weekend and I figure there's no better way to head out into the weekend with, then with uh, some fun weekend music and of course, that means Matthew Ebel's, "Drive Away".
"Drive Way" from Math Ebel from the Pod Safe Music Network at Music.PodShow. Com. One of the uh, one of the Pod Safe hits of 2005; a terrific song, Math Ebel is also a terrific guy; a lot of fun to talk to and really just fun, fun stuff so great way to head off into the weekend. I hope yours is a great one. I'm going to be having a good time with uh, visits from some family this weekend hope and uh, possibly playing with uh, some new stuff that uh, you might see in Monday's podcast. Until uh, until Monday, stayed tuned, stay subscribed. If you're not subscribed, get subscribed, it's very easy. Go to our website FinancialAidPodcast.Com and uh, learn how to get subscribed there, but like I always say, it boils down to install iTunes and click on the "Add to my iTunes" link. You'll get a copy of our Scholarships Secrets e-book and anything else that we throw into the RSS feed as well and you'll never miss an episode. If you have questions or comments about anything in today's show, uh, email me: email@example.com is the place to send all of your feedback; audio, video, you know, texts, email, carrier pigeon, I suppose, uh, I don't know how Google'd handle that, but uh, whatever. Of course, show notes for today's show and links everything that we discussed also on our website at FinancialAidPodcast.Com. You can check out the show notes there. That's, I think the link is like, near the middle of the page. So, until, um, Monday folks, I hope you have a terrific weekend. Take care.