The Audacity of Citi & The Student Loan Corporation

By: Abhas Gupta

Like other Citi student loan holders, I got an email over the weekend entitled, "Citi: Learn about legislation that impacts you". Words cannot describe how offended I am by this email... and I hope you are too. I'm frankly surprised that Citi would even consider such an inflammatory email, particularly after taking billions of public tax dollars just to stay afloat.

The email asks its recipients to support an online petition challenging the Obama administration's plan to directly administer student loans (through Direct Lending) and eliminate the middlemen (banks like Citigroup). The email provides several reasons to garner your support, but each of them is dishonest and intentionally misleading:

• "[Direct Lending] will eliminate your ability to choose a student loan provider" - to start, choice is not a factor when selecting student loans; instead, availability and the cost of borrowing are the factors students care about. As an aside, Sunstein and Thaler argue that the current system for choosing student loans is grossly inefficient¹. Furthermore, nothing is stopping Citi from offering students loans after such legislation; Citi knows it simply can't be competitive without government guarantees and subsidies


• "[Direct Lending] will substantially increase the national debt" - amazing. Citi itself has taken $45b of US funds, made available by increasing the national debt. The top 10 student loan lenders have taken a total of $85b in bailout funds. I have no doubt that if all of the presently outstanding student loans were to default, they would not even come close to the $130b national debt courtesy of the financial industry


• "A variety of borrower benefits that lower your cost of borrowing" - I presume Citi is talking about direct-deposit discounts and such. Although I'm just speculating, I feel confident that Direct Lending will drop its interest rates to near the prime rate, so our cost of borrowing is going to be significantly better (tens of thousands of dollars cheaper) with Direct Lending than with private providers


• "Financial literacy programs that educate you on how to borrow responsibly" - the irony is staggering--Citi educating us on responsible borrowing. Much of the work of educating students is handled by financial aid departments, so I don't even know what value Citi adds for students


• "Web-based tools and resources to advise you about your financing options" - there are hundreds of free tools available online and with a single provider, I'm sure these free tools will become even more useful and easy to use


• "Default prevention services to help you pay back your loans" - these services are heavily subsidized by the government, not to mention that defaults are paid by the government, so we don't need to fear any negative change in our benefits. These subsidies will now to go towards providing other students with loans

Direct Lending should improve our cost and ease of borrowing significantly. To quote the email, "This proposal impacts you as a citizen - both as a taxpayer and as a borrower", so please know the facts and don't get conned by your current provider. Here are two articles that describe the Direct Lending program and why Citi and others are putting up this ridiculous charade:

http://www.nytimes.com/2009/02/27/washington/27web-edu.html
http://www.nytimes.com/2009/04/13/us/politics/13student.html

Please share this with other medical students. It kills me that a few students may actually fall for this garbage and sign the petition.

References:
1. Thaler, Richard H. and Sunstein, Cass R. Nudge: Improving Decisions About Health, Wealth, and Happiness. 2008, Caravan Books