I've uploaded a copy of the letter our source received and the Q & A PDF from MHELSA's website. On page 2, under "Michigan Students First", it refers to the benefit program, i.e., the 0% interest incentive. Another lesson for those attending school in the fall that you cannot trust these lenders, even if they promise you a low interest rate in your contract.
You know, you start to get the sense that someone flushed the toilet when they really shouldn't have. We're circling the drain.
I have attached a letter I received today from one of my lenders. Here are the basics:
One of my federal lenders in Michigan offered a borrower benefit program by which you could obtain a 0% interest rate if you made so many payments on time and signed up for direct withdrawal from your checking account. It was a reason why I decided to go with this particular lender. It was even recommended to me. At the time, in 2003, of course, these banks were doing everything they could to get student business, and for these guys, this was part of their pitch. And, to be sure, the prospect of 0% interest is a great pitch. But, today's letter says in part:
Originally, announced in 2002, this subsidy known as a 'borrower benefit' was achieved by meeting certain payment conditions. Under the program, MHESLA's ability to offer the borrower benefits was contingent upon sufficient funding. MHESLA obtains the funds to make or acquire student loans by borrowing money through bond issuances. The borrower benefits programs began at a time when it was less costly for MHESLA to borrow and excess interest earnings were available. Recently though, the severe and ongoing credit crisis has forced MHESLA to pay more in interest costs for its funds. Changes in federal laws, including the College Cost Reduction and Access Act of 2007, have also resulted in a decrease in MHESLA's available funding for borrower benefits programs.
Basically, they're exercising their opt-out on one of the carrots they dangled in front of us to get us to sign up with them. Now, I get the concept of opt-out provisions, but this smacks of over-reaching. It's absolutely infuriating that credit cards do this kind of shit. But, really, that's way more arms-length than student lending is. You can discharge credit card debt in bankruptcy, and so, there is some risk for the lender there. When you're bending over backwards to get students to sign up with you, though, these kinds of illusory promises (That's exactly what it is here.) are wholly abusive. There is absolutely no risk for the lender here. If you had to justify not being able to discharge student loans in bankruptcy, the lender, of course, would argue that almost any college or graduate student in need of a loan could not be offered one if it decisions were made on the basis of credit-worthiness. They're unsecured debt! That may or may not be true, of course, because the lenders would seem to be adequately protected by either the government guarantee or the inability to discharge the debt in bankruptcy. They don't really need both, though they want them; but I digress again.
Anyway, I completely disagree with the kind of practice used here. It's not appropriate for student loans. Not even close to appropriate. As far as I was concerned, this was a right I had under the agreement, and, if they want to end the program going forward, that's fine. But that should apply to new loans, and not to existing promises they've already made. How is the cost for funds to run the program my problem? Other than the abusive practices and contract language (which you know was going to be nearly uniform across the industry), why are their profits my concern? The fact is, if you wanted to go to law school, you most likely needed a loan. All the lenders used the same language, or close to it, and the only difference was in the "benefits" they offered and MARKETED to students so that they could get their dirty little hands on federal dollars. Now, it turns out the promises were illusory. The contract is changed, and what they once did discreetly, they're now doing openly: making profits off vulnerable students backs.
I'm either going to try to consolidate them and do Income Based Repayment and/or default on them, so, there's not much point. My objection has to do with the fact that as a student you never really deal with these people, and it's not an arms-length transaction by any stretch of the imagination, especially when you consider the percentage of students who have to take loans to attend law school. All you have, really, is your school's financial aid officers, their recommendations, and the material they produce that lists advantages of certain lenders and the disadvantages of others. If anyone claims that these law school administrators sat them down and set out - in specific detail - the benefits the borrowers can take advantage of against the things the lender was irrevocably promising to provide them, then they're lying. It is redeeming that MHESLA is not ending the program for those who made the requisite number of payments before they ended it, but they sure as shit got my business as a direct result of offering a program whereby the interest fell to 0% if you paid on-time for three years. That's a great incentive, and to rip it out from under us years after the loan was made is pretty under-handed.