[Note: Higher Education Washington Inc. (HEWI) is an information resource company that supports the education, business and policymaking communities through independent publications, conferences and other information services. Its mission is to provide up-to-the-minute information on all policy and community developments concerning higher education with a focus on student financial aid.

In April 2006, HEWI conducted an interview with the President and Founder of OneSimpleLoan, Paul Simino. Mr. Simino's company is the lead plaintiff in a lawsuit filed against the Secretary of the Department of Education. Following is that interview.]

Paul Simino is founder and president of OneSimpleLoan. An alumnus of Jesuit High School of Tampa, Florida, Simino graduated with top honors from Nova Southeastern University with an Associate's Degree in Business Management. He has been in sales for over 18 years, with specific expertise in advertising and direct marketing sales. Before going out on his own, Simino rose through the ranks of GTE Directories to become one of the company's top producers as Advertising Executive in Telephone Sales. Prior to establishing OneSimpleLoan, he founded ALU Promotions, a very successful telephone lead generation company within the vacation timeshare industry. At ALU, he built the company from a two-person office to a 150-person staff generating millions in annual revenue. As a result of the market for vacation travel experiencing a severe drop in business due to 9/11, Simino redirected his marketing abilities to his present company, OneSimpleLoan, which was founded in March, 2003. Simino currently serves on the Debt Management Committee of the National Council of Higher Education Loan Programs, Inc. (NCHELP) and is also actively involved in NCHELPs Personal Financial Management Task Force, a group whose goal is to educate students and their parents on finance basics beyond education loans, such as savings, borrowing, and smart credit card use and repayment.

OneSimpleLoan is an independent student loan marketing and consulting firm assisting college students and/or their parents in the acquisition, consolidation and repayment of Federal student loans, offering a full suite of student loan products including, student loan consolidation, Federal Stafford and Plus loans, as well as Private/Alternative loans.


Tell us a little bit about OneSimpleLoan. How old is the company? How many full time employees do you have? What was your volume of consolidation loans last year?

We are a Dun & Bradstreet listed professional consulting firm located in Palm Harbor, Florida. ALU, Inc., dba OneSimpleLoan, is insured and bonded with a $1 million per occurrence Errors and Omissions Policy through Lloyds of London. We have been in business since June of 1999 and are members of the Tampa Chamber of Commerce, Better Business Bureau (BBB), and the National Council of Higher Education Loan Programs (NCHELP). We've got about 50 to 60 employees here in the Tampa Bay, Florida area. We kind of call ourselves, if you will, the advocate of student loans borrowers. We try to look out for the better interest of the borrower, and certainly try to give objective and unbiased opinions on the best consolidation loan package for them and also offering student loans and private alternative loans. So we kind of offer the whole suite of products.

I believe our loan volumes last year were $250 million.

You have sued the Department of Education challenging its recently announced decision to enforce the single holder rule as of March 31. Why do you think the Department has decided not to extend the Dear Colleague Letters?

We need to be clear on what we are talking about. You have really asked three different questions. The March 17th Dear Colleague Letter goes beyond supposedly enforcing the single holder rule when it comes to a borrower's consolidating a FFEL loan with a Perkins or Direct loan. The Dear Colleague Letter also ends the ability of an education loan borrower who has only a FFEL consolidation loan to refinance that consolidation loan through the ED two-step reconsolidation process by which the FFEL consolidation loan is refinanced by reconsolidating it into a Direct consolidation loan and then, in the second step, the Direct consolidation loan is reconsolidated into a new FFEL consolidation loan.

To answer the first part of your question, we sued to ask the courts for an injunction to get the Department to maintain that two-step reconsolidation opportunity for FFEL consolidation loan borrowers until at least June 30. The HEA clearly allows a FFEL consolidation loan borrower whose loan is held by a single holder to reconsolidate into a Direct consolidation loan. Also, the only holder of Direct consolidation loans is the Secretary and the HEA clearly allows a Direct consolidation loan borrower to consolidate into a new FFEL consolidation loan. Our lawsuit is not a question of extending Dear Colleague letters that said they were going to expire on a certain date. Our lawsuit is about the Department's issuance of a Dear Colleague letter that prematurely ended the ED two-step reconsolidation opportunity for borrowers with only a FFEL consolidation loan.

The second part of your question deals with the application of the single holder rule to what some call regular two-step consolidation in which a Perkins or Direct loan is consolidated into a FFEL consolidation loan. That is an entirely different process than the one that is the focus of our suit. The background to your question on this, from my understanding and my remembrance of it, was the Dear Colleague Letters started coming out and they deemed a two-step consolidation as raising single holder issues back in March 2004. After that there was some maneuvering, if you will, and another Dear Colleague Letter came out saying Sorry, we're just kidding. We're not going to stop that particular loan process and through a series of extensions they extended it to September 30, 2005. Then another letter came out saying H.R. 609 was supposed to take care of the single holder rule, therefore it would be considered a traditional application instead of a two-step application or consolidation. When H.R. 609 didn't get passed then they said, Listen, we need to extend it again, which they did. So they extended it to March 31st thinking that definitely by then H.R. 609 would be passed, or at least listened to and at that point the single-holder rule should be eliminated and two steps would not be an issue. Well they were kind of right. H.R. 609 did get passed in the Subcommittee and in the House however they didn't make it a law effective until July 1. Why they didn't extend it from March 31 to June 30, in my personal opinion and from other experts have said, is because they think larger lenders out there who have a large portfolio and have lots of lobbyists are trying to protect their portfolios as much as they can.

The third part of your question asks why the Department did what it did. I must admit that the decision to end refinancing of FFEL consolidation loans through the ED two-step process, and to do it three months earlier than the date set by the Deficit Reduction Act, makes no sense whatsoever. Concerning the decision to end regular two-step consolidation, I do not know why they did that either.

Prior to filing your action with the Department of Education, did you discuss the decision on the Dear Colleague Letters with the Department and get a refusal from them to consider reinstating the pre-March 31 guidance?

Me, personally? No. There certainly was, to my understanding, other folks in the industry, lenders, who have asked the Department to reconsider March 17 Dear Colleague Letter.

Do you expect other companies specializing in consolidation loans will join or otherwise support your litigation?

In view of the many thousands of education loan borrowers that have been hurt by the Department's decision, we expect that there will be substantial support for our lawsuit. I have received numerous phone calls and emails from some of the larger lenders and smaller lenders supporting our litigation.

Let's talk a little bit about who will get hurt by the Department's decision. Are there student loan borrowers who will not be able to get a consolidation loan as a result of the decision? Who are they?

Great question. Yes. Borrowers who have only FFEL consolidation loans and as we all know there are many who have such loans with noncompetitively high rates and little or no borrower benefits cannot refinance into a FFEL consolidation loan. To clarify, we are talking about refinancing a FFEL consolidation loan through ED two-step reconsolidation, so these borrowers have already consolidated their loans, but have a need and a right to refinance in order to take advantage of better lending terms provided by competition Two of them are plaintiffs in the lawsuit. There are undoubtedly tens of thousands of others. To use a specific example, one of the plaintiffs is a substitute school teacher who teaches reading in elementary school. She consolidated her loan, I believe, in 1999. I believe Sallie Mae was her lender at the time. Unfortunately, she needs to refinance her loan because it is fixed at a very high interest rate, also, she was not subject to any borrower incentive programs available currently. Because they prematurely ended ED two-step reconsolidation, borrowers like her, who's a substitute teacher who's got about $71,000 in student loans, she would be subjected to, over the term of the loan, upwards of an additional $69,000 in interest. So she would save that amount if we were able to refinance her.

How big a factor is the lost business opportunity to OneSimpleLoan in your decision to litigate? What is your estimate as to what the Secretary's action in not extending the Dear Colleague Letter guidance cost your company?

The lost business opportunity is a big factor in the decision to litigate. We provide a service and borrowers who have only a FFEL consolidation loan who can benefit from competitive refinancing will benefit from our service. It's not the major part of our business, but it is a fruitful area of lending which will be lost. More importantly, the termination of this vital refinancing opportunity has a negative impact on many thousands of borrowers who will be forced to continue to pay high interest rates or lose benefits on their consolidation loans at a time when free market competition should make them better able to carry the financial burden of their college education. Really, what we used it for was to assist borrowers who were unable to reconsolidate their loans and offer them a solution. How much does it have influence on our filing for the injunction? Lost business opportunities are obviously a factor, but I'm not going to give estimates on monetary impact. I would say more of a factor is that we really honestly truly believe it's in the best interest of the borrower, and the majority of the community, from what I understand, agrees with that philosophy.

Some traditional FFEL lenders suggest that any borrower eligible for consolidation can get a loan from their current holder or from the Direct Loan program and that, because of this, it is not accurate to suggest that any type of major harm will come to borrowers as a result of the Department's action. What benefits does OneSimpleLoan offer that go beyond what borrowers are likely to get from their lender?

If lenders are making that suggestion, it is mistaken. This lawsuit is about reconsolidation where the borrower has only a FFEL consolidation loan and would benefit from refinancing it. It's not about a borrower going and choosing between a Direct Loan from the Federal Direct Student Loan program or the government or a FFEL lender. What this injunction is about is stopping the Department from moving the reconsolidation deadline up by three months. Where we, or anybody else, would be able to offer better services on a financial side, borrowers should be able to take advantage of those better offers. The fact that somebody can obtain a better loan, can refinance once again after they have already consolidated, at a lower rate or because of the repayment incentives, as well as potentially choosing a better company that offers them better service, is an opportunity that should be continued.

As you know, although it was widely expected that the Higher Education Reconciliation Act, Public Law 109-171, would repeal the single holder rule, the provision was not included in the Senate version of the bill or in the conference report. Press reports suggest it was deleted to assure compliance of the legislation with a Senate procedural rule prohibiting the inclusion of amendments that do not save or cost money in a budget reconciliation bill. Do you have evidence suggesting this is not the case?

That is really irrelevant to our lawsuit. Also, any questions of evidence are really more the province of courts and lawyers than someone like me who is trying to help borrowers refinance so that they are better off. The Deficit Reduction Act of 2005 has multiple components to it. The part I'm most interested in is the HERA [Higher Education Reconciliation Act]. What I'm concerned about is the new rate formula they have for interest rates and what the law is going to do to borrowers in the future. I supported a lot of the bills that were in the House and the Senate last year, particularly one from Sen. Enzi that offered the borrower the opportunity to choose between a variable rate consolidation and a fixed rate consolidation with the 1 percent origination fee. It was very similar to that of a refinancing of a mortgage. I thought that was on the right track. I don't know what happened to those bills. They are certainly not laws.

Do you expect Congress to repeal the single holder rule later this year?

I believe H.R. 609 has already been passed. I believe the single holder rule has been repealed. As far as I understand, it's supposed to take effect this July 1.

Obviously, you are very frustrated with the drafters of the Higher Education Reconciliation Act. Do you see these legislators former Chairman John Boehner (R-OH), current House Chairman Howard McKeon (R-CA), and Senate Health Education Labor and Pensions Committee Chairman Enzi (R-WY) as hostile to borrowers or otherwise misinformed on the issue of the single holder rule?

I'm not frustrated. I don't know which particular Congressmen had what particular role in the specific decisions of the DRA. I would like them to re-look at some of the formulas at work in the Deficit Reduction Act, specifically on the student loan side. I really don't know how much they had to do with this particular decision with the Department of Education and the March 31 deadline.

Both the House and the Senate reauthorization bills opted not to give borrowers the opportunity to reconsolidate their consolidation loans unless they received additional qualifying loans eligible for consolidation. Would you like to see the statute permit multiple reconciliation similar to the options available to borrowers of home mortgages?
Yes.

Should every borrower eligible for a consolidation loan consolidate?

I think that, in the majority of cases, consolidation makes sense for most borrowers. There may, however, be situations where a borrower would not want to consolidate. It would have to certainly be up to the borrower. I think there are more benefits than there are caveats. I also think that many borrowers who have only a FFEL consolidation loan may benefit from refinancing it, if the court restores the ED two-step refinancing process that the HEA allows.

Are you concerned about life of the loan interest costs, which increase as a result of a longer amortization period?
Certainly. That is one of the major reasons why we filed for this injunction so that we can help borrowers with the interest rates on their student loans and give them a lower payment and keep them out of default. The two-step reconsolidation opportunity that is the focus of our lawsuit is a tool to help borrowers manage their debt. I'm on the Debt Management Committee for NCHELP and that's one of the main focuses of that organization is default prevention and default aversion.

How would you describe your changes of winning on the challenge to the action on the Dear Colleague Letters? Why?

You're asking me for a crystal ball over here, but I don't see how anyone who took a good look at the unfairness of the Department's decision would not also question why what it did could be legal. I think any reasonable person would look at this complaint and would certainly agree and certainly understand the angst of myself and some of the other lenders who agree with us. As far as how good our chances are? I really wouldn't know because I'm not a lawyer, there is a lot of different variables involved here. I think we're going to find out soon.

Your second challenge challenging the enactment of the Higher Education Reconciliation Act itself is based on constitutional grounds similar to at least two other cases we know of that argue that the President signing PL 109-171 was not valid because the bill was not passed in identical form in both houses of Congress. Do you expect to win on this ground?

That's a tough issue for me to answer, because it asks about constitutional law and I am not a lawyer. As an ordinary American citizen, though, I don't understand how a bill can become a federal law if the identical version is not in fact passed by both Houses of Congress. I think that what we are trying to accomplish here is an overall re-look at the Higher Education Reconciliation Act. I think that gives them an opportunity to do so. Our case is different from the other two because education loan borrowers will be really harmed if the courts don't act by July 1. I don't think that the other cases have this kind of urgency.
 

Source: Hewi.net