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Obama Asks for SBA Loan Expansion, Franchisees Agree

WASHINGTON - President Barack Obama announced plans Wednesday afternoon to shift some of Wall Street’s bailout funds over to community banks in order to spur lending to small businesses, which has slowed to a trickle. With SBA administrator Karen Mills and Secretary of the Treasury, Tim Geithner, flanking him, President Obama made several announcements to boost small business.

The President’s speech took place with the backdrop of Metropolitan Archives, a family-operated records storage company in Landover, Maryland.

President Barack Obama, who as a high school student served ice cream in a Honolulu Baskin Robbins franchise, described how small business owners and their tireless work ethic form the backbone of the American economy. “Hewlett-Packard began in a garage. Google began as a research project. McDonald's started with just one restaurant,” he said.

The president went on to say that although small business creates 65 percent of all new jobs, small businesses have been some of the hardest hit by the recession. “From the middle of 2007 through the end of 2008, small businesses lost 2.4 million jobs,” said the President. “And because banks shrunk from lending in the midst of the financial crisis, it's been difficult for entrepreneurs to take out the loans they need to start a business. For those who do own a small business, it's been difficult to finance inventories and make payroll, or expand if things are going well.”

The White House is requesting that Congress increase Small Business Administration 7(a) and 504 loans, used by small business owners to typically buy equipment, land and buildings, from the current cap of $2 million to $5 million.

“These larger loans will help more small business owners and franchisees grow,” Obama declared.

The Administration plans to bring together regulators, congressional leaders, lenders and small businesses to discuss what steps are necessary to get the small business credit pump flowing again.

“I'm confident that the steps we announced today will do that for small business owners across the country, men and women we hear from every day,” said the president.

Franchisee Help

International Franchise Association CEO Matthew Shay thinks the loan cap increase is a good idea. During the year, the IFA has lobbied Congress, the Treasury, Small Business Administration and Federal Reserve to help change the lack of capital access for franchise chains.

“There are over 400 different franchise brands in the United States that have an average initial investment requirement of $750,000 to $2 million per unit,” observes Shay. “These franchised small businesses reach the SBA’s current loan limit of $2 million by the time they want to build the second or third store. By increasing the loan limit to $5 million, at an annual growth rate of 5 percent, these businesses could create 450,000 to 650,000 new direct and indirect jobs within the next 12 to 18 months.”

The International Franchise Association, representing the needs of some 1,100 franchisors, arranged for franchisor members to have their franchisees attend the meeting. Franchisee Vinay Patel of JAI hotels, Meineke dealer Chris Schmitz, and other franchisees were in attendance, many are members or leaders of franchisee associations.

Franchisee Chris Schmitz, also president of the Meineke Dealers Association, an independent franchisee association, said, “Ken Walker [CEO of franchisor Meineke] asked me to represent franchisees on behalf of the IFA.”

Ken Walker is scheduled to be the next chairman of the International Franchise Association.

Schmitz says that President Obama's message was good news for all franchisees. "Including those looking for capital to make ends meet, expand their current operations, acquire additional units, or even those looking to sell or divest," he states. He adds, "Increasing the availability and flow of credit can be an integral part of revitalizing a down economy and stemming the tide of rising unemployment, provided the Congress follows through with the initiative.”

Dunkin’ Donuts franchisee Andy Cabral was also in attendance, and was pointed out by the President.

“Andy started his business on an SBA loan and now runs 10 stores across Maryland and Virginia that employ 130 people,” President Obama stated in his speech. “And Andy has already seen one loan fall through the cracks because of the financial crisis and he's hit the cap on his SBA loans. But the measure we're announcing today will help Andy and other franchisees pursue their plans to expand and create more jobs.”

“Administration officials noted that the desire to increase the size of the SBA loans was driven in part by meetings with large franchise corporations like Dunkin' Donuts,” reports BusinessWeek. "’What drives them is when they can get top-notch people that want to start four to five franchises at once,’ the official said. Ware says he thinks this reasoning is sound. ‘It is not Dunkin' Donuts that will be getting the money, it will be the owner of the franchise out there in Nebraska,’ he said.”

President Obama concluded the meeting, saying, “I know that times are tough and I can only imagine what many of you are going through, in terms of keeping things going in the midst of a very tough economic climate, but I guarantee you this: This administration is going to stand behind small businesses. You are our highest priority because we are confident that when you are succeeding, America succeeds.”

Tuition Is Up, Loans Are Shifting

To no one's surprise, tuition is up this year, with the largest percentage increases coming at public institutions that face significant cuts in state appropriations.

The College Board released its annual studies on tuition and financial aid trends Tuesday, and tried to put a non-alarmist spin on numbers that are scary to many students and their families. For instance, board officials noted that, after adjusting for inflation, the average net price paid for tuition and fees by public four-year college students is lower in 2009-10 than it was five years ago. But whether those figures will comfort parents writing checks -- or legislators hearing complaints from those parents -- is doubtful.

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Here are the overall figures for the 2009-10 academic year:

Tuition and Fees by Sector

Sector	2009-10 Tuition and Fees	One-Year Dollar Increase	One-Year % Increase	Previous Year's % Increase
Private, nonprofit four-year colleges	$26,273	$1,096	4.4%	5.9%
Public four-year colleges, in-state residents	$7,020	$429	6.5%	6.4%
Public four-year colleges, out-of-state residents	$18,548	$1,088	6.2%	5.2%
Community colleges	$2,544	$172	7.3%	4.7%
For-profit colleges	$14,174	$859	6.5%	4.5%

The changes show that the private colleges tended to moderate their tuition increases this year. Many private institutions were worried about sticker price scaring off families from even finding out about aid possibilities, so many of these colleges said that they were committed this year to minimizing increases.

The biggest percentage increase comes in the sector -- community colleges -- where charges are at the lowest levels. But as College Board officials noted, the national average figures for community colleges are skewed seriously by California, where 17 percent of all community college students are enrolled. Because California's economic free-fall has led to unusually steep increases in charges, and the base there was quite low to start, the national figures understate average costs and overstate the percentage increase for everyone outside California. For the rest of the country, average tuition and fees total $2,917 this year, 6.2 percent more than last year.

For residential students at four-year colleges, room and board are also key parts of the total bill. Public institutions reported an average of $8,193, up 5.4 percent. Private institutions reported average charges of $9,363, up 4.2 percent.

One of the recurring frustrations of educators about discussions of college costs is that so much public attention goes to the relatively small share of institutions (elite privates) where total costs now top $50,000. Even though many of these institutions are among the most generous in giving aid, the high sticker prices are terrifying to many. One set of data released by the College Board Tuesday shows the percentage of four-year college students enrolled in institutions with various levels of tuition charges. Nearly three-fourths of undergraduates at four-year public colleges and universities attend institutions where tuition and fees are less than $9,000.

Distribution of Four-Year College Students by Tuition and Fees Totals, and Sector

Price	Public	Private
$39,000 and up	0%	7%
$36,000 to $39,000	0%	13%
$33,000 to $36,000	<1%>	7%
$30,000 to $33,000	<1%>	9%
$27,000 to $30,000	<1%>	14%
$24,000 to $27,000	2%	12%
$21,000 to $24,000	2%	11%
$18,000 to $21,000	2%	8%
$15,000 to $18,000	3%	6%
$12,000 to $15,000	4%	4%
$9,000 to $12,000	13%	2%
$6,000 to $9,000	41%	2%
$3,000 to $6,000	32%	5%
Less than $3,000	1%	0%

"Net price," what students pay after they receive aid, is significantly lower than sticker price, reflecting the reality that at many institutions, relatively small percentages of students pay the advertised full price. The College Board data for this year show that students at private colleges receive an average of $14,400 in total grant aid and federal tax breaks, meaning that the net price of tuition is about $11,900 on average.

At public four-year colleges, average grant packages and tax breaks total about $5,400, reducing average net tuition and fees (for in-state residents) to about $1,600. At community colleges, the average grant and tax breaks total about $3,000, meaning that the funds cover tuition costs (on average) and leave about $500 for living expenses.

Much of the information about student aid provided in the report (which generally covers data a year older than the tuition data) illustrates the vast sums that the state and federal governments and institutions spend on assistance to enable students to enroll. But notable in the data is continued evidence that significant portions of student aid go not to those at the lowest levels of income levels, but to families with incomes in the six figures -- in many cases to attract students who might otherwise attend other institutions.

At public four-year institutions, for example, only about one-third of institutional aid was need-based. And among non-need based aid, the average award at public institutions was higher for those in the highest income brackets than the lowest, $730 vs. $570.

The annual release of the College Board data prompts most higher education associations to release statements regretting any increase in charges but praising their particular sector for hard work at minimizing tuition and providing student aid. One group in higher education on Tuesday issued a statement criticizing higher ed -- and drawing particular attention to how grant aid is used and the equity issues raised by providing so much to those who may not need it.

Lauren Asher, president of the Institute for College Access and Success, noted that two-thirds of public four-year colleges' aid is distributed without considering financial need. "Economic constraints can lead well-qualified students to lower their academic aspirations or give up on college altogether without adequate aid. It is particularly disturbing that public colleges are using such large share of their financial aid resources for so-called 'merit aid' in these tough times," she said.

In terms of student loans, the big shift in 2008-9 was away from non-federal loans. As credit markets tightened, borrowing dropped significantly and federal borrowing increased. The College Board estimates that non-federal education loans declined by almost 50 percent from 2007-8 to 2008-9, while total education borrowing increased 5 percent. In dollars, that means a federal loan increase of $15 billion and a non-federal loan decline of about $11 billion. While the loss of some lenders was unnerving to those who relied on them, many aid experts have for years been worrying about the growth in private loan volume, given that these loans give student borrowers far fewer protections than they receive in the federal program (and many students don't understand the differences between the programs).

Among other highlights of the report on student aid and loans:

• From 1998-99 through 2008-09, grant aid per undergraduate increased by an average of 3.4 percent, adjusted for inflation, while loans increased by 4 percent a year.
• About 8.5 million taxpayers benefited from education tax credits and deductions in 2008.
• While many policy discussions on federal aid policy focus on the value of the maximum Pell Grant, only about one fourth of Pell recipients in 2007-8 received the maximum grant. In 2008-9, the average Pell Grant was $2,973, while the maximum was $4,731.
• Of 2007-8 bachelor’s degree recipients, 34 percent graduated without student loan debt, while 10 percent had borrowed at least $40,000. At public colleges, those figures were 38 percent and 6 percent, respectively. At private colleges, only 4 percent had no debt, and 24 percent had at least $40,000 in debt.

USA Funds Prevents $23.7 Billion in Student Loan Defaults

Nation's leading student loan guarantor maintains 93 percent default aversion
success rate


USA Funds®, the nation's leading education loan guarantor, reports that it prevented $23.7 billion in defaults on more than 1.5 million past-due federal student loan accounts during the fiscal year ending Sept. 30. USA Funds' default prevention efforts were successful in averting default on more than 93 percent of loan accounts on which payments were reported by the lender as being 60 days or more past due.


USA Funds' default prevention efforts saved U.S. taxpayers an estimated $22.5 billion and student loan borrowers a projected $7.8 billion in additional costs associated with student loan default.


"The severe economic recession has generated a significant increase in student loan payment delinquencies," said Carl C. Dalstrom, USA Funds president and CEO. "Despite these challenges USA Funds has worked hard to maintain its default prevention success rate to spare taxpayers and student loan borrowers the expense of default."


As part of its default prevention efforts, USA Funds supports a team of 250 full-time professionals who work to contact student loan borrowers who have fallen behind in their payments and counsel them about the options for resolving their payment issues. Those options include scheduling a payment; flexible repayment plans, including income-based repayment options; and deferment and forbearance to temporarily postpone or reduce a borrower's monthly payments.


Last year this default prevention team made more than 85 million phone calls and sent 2.7 million pieces of correspondence to borrowers to assist them in resolving their student loan payment issues.


To promote successful student loan repayment, USA Funds supports additional services, including online borrower counseling programs, personal finance education for college students, as well as default prevention support to higher education institutions.


If, in spite of these efforts, borrowers default on their loans, federal law requires USA Funds to continue to pursue recovery of outstanding amounts owed taxpayers. During the past fiscal year, USA Funds recovered more than $1.2 billion from borrowers in default on their loans. This figure includes more than $459 million in rehabilitated loans, which permit borrowers who previously defaulted on their federal student loans to restore their accounts to repayment and improve their credit record.


Headquartered in Indianapolis, USA Funds is a nonprofit corporation that works to enhance postsecondary education preparedness, access and success by providing and supporting financial and other valued services.

Can’t afford your student loan payment? Maybe you should push pause

You have a $120,000 college degree and no job. That won’t stop your student loan bills from arriving. The grace period on student loans for the class of 2009 is about to expire. One option for anyone in a bind is deferment or forbearance, which allow for the postponement of payment under select circumstances. Here’s what you need to know.

Eligibility: Most people know federal loans can be deferred if you enter graduate school or the military. But you can also get a deferment for unemployment or economic hardship. To qualify for the latter, you can’t earn more than $16,245 a year. You’re eligible if you get public assistance or volunteer with the Peace Corps.

If you don’t qualify for a deferment, you might be able to postpone payments if you’re dealing with health issues or other circumstances. The government calls this a forbearance. Patricia Christel, a Sallie Mae spokeswoman, said the company is trying harder to work out payment arrangements rather than immediately using forbearance.

Economic hardship deferments are granted one year, while unemployment deferments are granted in six-month increments. You can reapply as needed for a total of three years each. Expect less leniency with forbearance on private loans.

Drawbacks: These measures should be used as a last resort, since interest continues accruing. One way to minimize the impact is to pay the interest costs while your loan is in deferment or forbearance. Otherwise, it will be added to the loan amount.

The exception is if you have a subsidized loan, which is when the government covers the interest while you’re in school. The government will also pick up interest during a deferment.

Other options: A relatively new option for federal loans is the Income-Based Repayment program. The program caps monthly payments at 15 percent of your earnings above a certain threshold, currently around $16,000. Those who earn less than that may not have to make monthly payments. Any debt remaining after 25 years is forgiven. You can also change payment plans with private loans. Or your lender may be willing to rework the terms of your loan.

Ignoring bills: The benefit of getting a deferment or forbearance is that your loan remains in good standing, and there is no impact on your credit report.

Otherwise, federal loans usually go into default if you don’t make payments for nine months. Sallie Mae says its private loans typically go into default after seven months. In default the entire balance of your loan becomes due. Your loan might be turned over to a collection agency, and you’ll be liable for the costs of collection. Your wages could also be garnished, and your tax refunds could be intercepted.

Student loans typically aren’t discharged with a bankruptcy. And once in default, you can’t get a deferment or forbearance. So don’t let it reach that point