Banks Don't Belong in the Student Loan Business

Since I arrived in Washington, I've been looking at every line item in the budget of the U.S. Department of Education with two questions in mind: Is this program helping students learn? And is it a good use of taxpayer money? In the case of the Federal Family Education Loan (FFEL) program, the answer to both questions is no.

Under the current FFEL program, banks make loans to students. While those students remain in school, the federal government pays the interest on their loans; otherwise the interest accrues. Once the borrowers leave school or graduate, the lending agency collects on the loans. But if the student defaults, my department pays back the loan—plus the interest owed. The FFEL program, in short, is a great deal for bankers but a terrible one for taxpayers.

Over the next decade, according to the Congressional Budget Office, the Education Department is slated to subsidize banks to the tune of $87 billion to enable them to make federal student loans. All of this money would be put to better use providing financial aid directly to millions of needy students who want a college education. The Education Department will be able to accommodate the new loans through an existing federal public-private partnership, Through that partnership, the federal government makes loans directly to students and uses companies that will provide better service to borrowers at a lower cost to taxpayers

Critics contend that the government is trying to nationalize a private industry and do away with competition. Our real aim is to simply stop using banks as the middle man for student loans.

The banking industry would continue to compete in the marketplace to finance mortgages, business start-ups, and other forms of credit. But we are intent on stopping subsidies to bankers who make student loans at no risk because they know the federal government will bail them out in case of default.

By working with private sector companies with expertise in the field, we are prepared to initiate all new student loans in the existing federal Direct Loan program. Right now, the Education Department already owns and services 80% of the student loans made last year. It owns such a high volume of loans chiefly because it had to take emergency action in 2008 to ensure students had access to loans when lending in the nation's credit markets was frozen.

Our experience handling the bulk of student loans makes me confident in our capability. This year alone, an additional 500 colleges and universities joined the Direct Loan program. Just last month, the department's independent inspector general's office issued a report documenting that the Education Department had taken the right management steps so that all loans can be serviced by the Direct Loan program.

In a recent survey by the National Association of Student Financial Aid Administrators, schools that have made the switch to direct lending overwhelmingly reported the conversion was easy and quick. That is just one reason why that association of financial aid experts, along with organizations representing the nation's largest public and private universities, community colleges and college students, support the department's Direct Loan proposal.

The private sector would continue to play an important role in servicing loans. Last summer, the department's Federal Student Aid Office awarded contracts to four companies to service federal student loans, following an intense competition among the best companies in the loan servicing business. These companies are paid more when borrowers are in good standing, and those that keep defaults down and provide the best customer service will be given the most work.

We are preparing to make the switch to direct loans as easy as possible for colleges and universities. We appreciate their feedback, and their ideas will help us transition smoothly from FFEL to direct loans once Congress has passed a bill authorizing the switch to 100% direct loans

As for the $87 billion we'll save from ending the troubled FFEL program, the administration seeks to use that money for important programs that will improve our economic future. We propose to substantially increase scholarships in the Pell Grant program and other financial aid for low-income students. We would start new programs to raise college graduation rates and strengthen our community colleges. We will expand our investment in early childhood education. Plus, $10 billion would be set aside to reduce the deficit.

Now is the time to allocate resources to students—not to banks—so they have access to college and other educational opportunities. We cannot in good conscience let $87 billion in subsidies go to banks when our students desperately need financial help to realize the dream of getting a college education.

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Business owners air loan complaints

HAGERSTOWN — They’re designed to help struggling small businesses stay open, refocus and get their cash flow back on track in the struggling economy.

But local business owners complained Monday night at City Hall that special loans for businesses through the U.S. Small Business Administration are slow to get approved.

Provided under the American Recovery and Reinvestment Act, the interest-free loans are for up to $35,000. They are intended for established, viable businesses that need short-term help with their debts.

But Al McGarity said he and six other people were turned down for the loans even though they met all the program’s qualifications.

McGarity, owner of Robbies Billiards and Game Room Outfitters in Williamsport, said the bank told him and the others that the Small Business Administration turned down their loan requests.

McGarity told Edward Knox, lender relations specialist for the SBA, that the bank claimed that the SBA did not give a reason for the loan rejections.

Knox said the SBA will give reasons for rejecting loans, including that the borrower was not a U.S. citizen or that the person had too much money on hand to qualify.

Knox said the fact that McGarity was told that the SBA did not give a reason for the loan rejections did not give him a “warm and fuzzy” feeling.

Banks are saying the loans are not lucrative enough for them because no upfront fees can be charged, according to Knox.

One woman in the audience of about 20 people wondered if President Obama knew about the drawbacks of the loan program.

Knox said he is sure Obama would flip a switch to correct the situation if he could.

“But there is only so much he can do. There is only so much Congress can do,” Knox said.

Brent Bailey of Interstate Communication Services, an information technology company, stood up during the meeting and walked to the front of the room.

Bailey told Knox to let him know if some kind of incentive is offered to banks to stimulate the flow of loans.

“Then I’m in,” Bailey said.

“Without it, it’s just talk,” said Bailey, who left the meeting.

“It sounds like our banks are stopping us at the door,” said another woman in the audience.

The City of Hagerstown hosted the meeting so people could share their experiences with the program and offer ways to improve it.

Knox offered possible solutions, like going back to a bank again after an initial loan rejection. The bank might have changed its mind about the loans, Knox said.

Business owners can let banks know they are not happy about their decision not to offer the loans, Knox said.

Business owners also can take their business to another bank, although there might be a waiting period with the new bank before a loan can be considered, Knox said

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Can Twitter Rake in the Ads to Justify $1 Billion Valuation?

The question about Twitter used to be, "Is it a business?" Now, the question becomes "How big can it be?"

And the answer is: It better be big. CEO Evan Williams confirmed last week that the microblogging service had finalized its new funding, reported to be $100 million, giving Twitter -- which now has no monetization program in place -- a whopping $1 billion valuation. Prior investors Spark Capital, Benchmark Capital and Institutional Venture Partners doubled down, and late-stage investors T. Rowe Price and Insight Venture Partners joined up.

With the funding, Silicon Valley and the venture community are once again setting their sites on the marketing budgets of American business to support another free "cloud" web service, in this case 140-word bursts of text. Indeed, they're counting on the exponential growth of advertising revenue in a flat market for a company that -- while certainly useful to marketers -- has yet to earn its first dollar.

"I think they can build some kind of ad business, but the more relevant question is can they build an ad business worth a billion plus dollars," said Warren Lee, VC at Canaan Partners. "That would require tremendous volumes of impressions and reasonable conversions. Lots of execution will be needed. Not impossible but unlikely."

The cash infusion (on top of $55 million already raised and the estimated $25 million Twitter has left in the tank), puts the pressure on Twitter to earn its first $100 million within the next year or two, and sparked cries of "bubble!" from the cheap seats, but that was true of AOL, Netscape, Google and Facebook.

'No precedent'
Yet Twitter is quite different. "It's the first one that's not a destination -- it's a distributed service," said Seth Goldstein, CEO of SocialMedia and investor in early Twitter backer Union Square Ventures. "There is no precedent for how to monetize it. "

Like Facebook, businesses already use Twitter to communicate with their fans and don't need to pay Twitter a thing to build followers or communicate with them. "What we see is a move away from brands using broadcast media to more engagement media," said Zephrin Lasker, CEO of sales-lead exchange Pontiflex. "If you have engagement on a one-to-one basis, extremely scalable, that's valuable."

Valuable to marketers, but is it valuable to Twitter? With the money comes an expectation of corresponding revenue, and while verified accounts, corporate services and analytics are interesting, advertising is the business that scales. While co-founder Biz Stone said there are no plans to start an ad business this year, it seems inevitable Twitter will be going toe-to-toe with Facebook in the ad market.

"What is interesting from an advertising perspective is the same thing that is interesting about Facebook: It is one of the only platforms of scale that has two-way messaging potential," said Michael Lazerow, CEO of Buddy Media, which sells ads on Facebook widgets. "But are they a $50 mil or a $1 bil business?"

Twitter could turn on revenue immediately, but appears to be in no rush to do so. Observers have, for example, long wondered why Twitter didn't start running contextual or keyword ads next to tweets, like Google. Twitter could run the ads based on the content of tweets combined with what Twitter knows about the user from their profile and registration details.

Outside factors
The problem with that is that more and more users access Twitter from third-party apps like TweetDeck or Tweetie not owned by Twitter, and those services, too, need a business model and may also incorporate advertising.

Mr. Stone said that ads won't come before 2010 and Twitter's early-stage venture backers have told Ad Age the ad business, narrowly defined, isn't that interesting to them. On its site, Twitter touts marketing success stories from Pepsi, Jetblue and Dell, which consist of the brands using the service to connect with fans.

The cash could allow Twitter to make some acquisitions; perhaps one of the URL shorteners like Bit.ly, one or more of the Twitter applications, or one of the many, many firms now making dashboards to manage Twitter for corporate clients.

With a valuation of $1 billion, Twitter's investors believe one or more of the following outcomes are likely: an IPO or an acquisition at a healthy price. Already Twitter has reportedly turned down bids from Facebook, Google and Microsoft.

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Palo Alto: business tax foes step up campaign

Foes of a business tax ballot measure in Palo Alto are stepping up their campaign with a new "fact sheet" calling the proposal unfair.

"Measure A will create a business license tax in Palo Alto written by the city to benefit large corporations and will unfairly burden our city's small businesses," says the document, paid for by the committee Small Business Against Taxes.

The measure would charge multi-billion-dollar corporations a lower rate per employee than small businesses, it goes on. For instance, manufacturing firms would pay $34 per employee while professional service businesses would pay $95 per employee. And the city's largest corporations will pay lower rates than medium-sized businesses, it says, because of a cap on the size of the tax.

The line of attack is in keeping with the official ballot argument against the tax, which also focuses on the disparity in tax rates between large and small businesses. Both documents have the endorsement of the Palo Alto Chamber of Commerce.

The Palo Alto City Council put the tax on the Nov. 3 ballot in hopes of raising $3 million annually for the city's general fund. If approved, businesses would pay between $75 and $30,000 per year based on their line of work and number of employees, with the majority paying $200 or less. The first payments would be due in 2011.

The official ballot argument in favor of the tax says it would benefit the city's libraries, parks and schools and help
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pay for new infrastructure. It notes that Palo Alto is one of only two cities that do not have a business license tax.

A rebuttal to the argument against the tax combats the claim that the tax rates are skewed. "The tax is more than fair. It will reach lawyers, accountants, venture capitalists and other service providers who don't pay sales tax. They will pay $95 per employee, as compared to restaurants and retail outlets that will pay only $40 per employee."

Many California cities have flat fees for business licenses, while some have employee-based taxes like the one proposed in Palo Alto. Of the two models, Palo Alto's actually charges big corporations far more while charging the smallest companies less.

The tax will go into effect if more than half of the city's voters support it.

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Business Highlights - Disney Buy Marvel

Disney to buy comic book powerhouse Marvel for $4B

LOS ANGELES (AP) - The Walt Disney Co. is buying Marvel Entertainment Inc. for $4 billion in cash and stock, bringing such characters as Iron Man and Spider-Man into the family of Mickey Mouse and WALL-E.

Under the deal, which was announced Monday and is expected to close by the end of the year, Disney will acquire the rights to 5,000 Marvel characters. Many of them, including the Fantastic Four and the X-Men, were co-created by the comic book legend Stan Lee.

Stocks end strong month with a bout of selling

NEW YORK (AP) - After giving the stock market solid gains during August, investors still worried about the economy backtracked a bit during the final day of the month.

Stocks fell in light trading Monday after a plunge in China's main stock market sent a wave of selling around the world and added to concerns that stocks have rocketed too high, too fast. The Dow fell 47.92, or 0.5 percent, to 9,496.28.

The Standard & Poor's 500 index, which is the basis for many mutual funds, ended August higher to post its sixth straight monthly gain. It is up 50.9 percent since early March, the best run since 1938.

Baker Hughes to buy BJ Services in $5.5B deal

HOUSTON (AP) - Oilfield services company Baker Hughes Inc. said Monday that it will buy BJ Services Co. in a cash-and-stock deal valued at $5.5 billion to diversify the services it offers and compete better with industry leaders.

Baker Hughes customers will get a one-stop shop for a variety of services. Notably BJ Services' pressure pumping business will go to Baker Hughes, which will help clients with unconventional gas and deepwater fields, said Chad Deaton, Baker Hughes Chairman, President and CEO.

Southwest faces Tuesday deadline to replace parts

DALLAS (AP) - Southwest Airlines Co., facing a deadline of Tuesday for settling a dispute with regulators over the use of unapproved parts, said Monday the parts were installed on almost twice as many planes as it first believed.

The airline also has suspended the maintenance firm that got the parts from a subcontractor.

Southwest said Monday it has replaced the unapproved parts in more than 25 planes but needs more time to find parts for the remaining jets and an extension to avoid a disruption in its service to its customers.

Without an extension, the Federal Aviation Administration could force the airline to ground some planes.

Oil settles below $70 on China worries

UNDATED (AP) - Oil prices fell nearly 4 percent to below $70 a barrel Monday as a steep drop in China's stock market raised doubts about the strength of the U.S. and global economic recovery.

Benchmark crude for October delivery lost $2.78 to settle at $69.96 on the New York Mercantile Exchange, the first time oil has ended a trading day below $70 in about two weeks.

Major refiner China Petroleum & Chemical Corp. fell by the daily maximum 10 percent after the company said it does not expect to significantly boost production, while PetroChina, the Shanghai index's heaviest weighted share, fell 6.7 percent.

Head of Boeing's commercial jets to step down

CHICAGO (AP) - Boeing Co. said Monday that Scott Carson will step down as head of the company's commercial airplane division and retire at the end of the year.

The Chicago-based company said Carson will be succeeded on Tuesday by the head of its defense business, Jim Albaugh.

Boeing's commercial aircraft operation has struggled with sharply lower orders amid the global economic downturn, which has hurt demand for air travel and cargo services. It also has grappled with problems arising from its new 787, a next-generation aircraft that's been delayed five times. Boeing said last week the lightweight plane will fly for the first time by year's end.

Survey finds support for Fed, jitters on spending

NEW YORK (AP) - Economists are pleased with the Federal Reserve's policy on interest rates but skeptical of the government's ability to rein in spending, curb greenhouse gases or overhaul health care, a new survey finds.

The latest semiannual survey by the National Association for Business Economics, set to be released Monday, indicates almost 70 percent of the 266 economists surveyed earlier this month think the Fed's monetary policy is "about right," up from 63 percent in March and 56 percent a year ago.

The results come as indicators point to an improving economy, presenting policy makers with wrenching decisions over how quickly to roll back measures taken in the past year to avert a financial collapse.

Wal-Mart to sell goods from other vendors on Web

LITTLE ROCK, Ark. (AP) - Wal-Mart Stores Inc. has launched an addition to its online business that has outside retailers selling nearly 1 million new items through Walmart.com, a move that could help the world's largest retailer catch up in the online world.

The Walmart Marketplace has products from categories that include home, baby, toys, apparel, sporting goods and sports memorabilia. The company said it picked the retailers - including eBags, CSN Stores and Pro Team - because they have large product assortments and solid customer service track records.

Huntsman makes $415M bid for Tronox assets

NEW YORK (AP) - Chemical company Huntsman Inc. has offered to pay about $415 million for Tronox Inc.'s titanium dioxide and electrolytics businesses in a deal that would make Huntsman the world's second-biggest maker of a whitener used in products as diverse as food, plastics and paint.

Texas-based Huntsman Inc. said Monday that it signed a "stalking horse" agreement last Friday with Oklahoma City-based Tronox Inc., which filed for bankruptcy protection in January.

That means other companies may submit competing bids for Tronox's assets before a bankruptcy court auction, which will likely take place in the fourth quarter of this year.

Drugstores to start giving flu shots Tuesday

NEW YORK (AP) - Drugstore operators are beginning their seasonal flu shot campaigns several weeks early this year, saying they expect greater demand for the vaccine in a year when the swine flu strain has dominated the news.

CVS Caremark Corp. and Walgreen Co. are making flu shots available starting Tuesday, while Rite Aid Corp. said some of its pharmacists are already giving the shots. The vaccine is intended to prevent the seasonal flu and is separate from vaccines for swine flu. A swine flu vaccine could be ready by mid-October.

CVS said it was offering the shots three or four weeks earlier than usual. Walgreen said it started giving flu shots Oct. 1 last year.

By The Associated Press

The Dow fell 47.92, or 0.5 percent, to 9,496.28.

The S&P 500 index fell 8.31, or 0.8 percent, to 1,020.62, while the Nasdaq fell 19.71, or 1 percent, to 2,009.06.

Benchmark crude for October delivery lost $2.78 to settle at $69.96 on the New York Mercantile Exchange.

In other Nymex trading, gasoline for September delivery fell 7.59 cents to settle at $1.9859 a gallon and heating oil dropped 8.11 cents to settle at $1.7792 a gallon. Natural gas shed 5.6 cents to settle at $2.977 per 1,000 cubic feet.

In London, Brent crude settled down $3.14 at $69.65.

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Small Business : Starting a new small business now !

Well, last night I was checking examiner.com and I check and interesting article by Jim Fletecher, and I understand that how to get some more money and some tips that can help somebody...

The desire to own and operate a successful business is one that is familiar to most of us. We dream of the independence, wealth and fulfillment that our own businesses can provide. Our motivations are as varied as our ideas. Some of us need the money, some need to have something to fill our day, and some of us need to make our mark on the world. Whatever our motivation, desire is only the kindling for our bonfire; but, all fires start with a very small flame. From there, we must carefully build and tend to our fire until we either allow someone else to tend it or decide to douse it. The trouble is – many of us don’t know how to build a fire, and a good number of us don’t even know how to strike the match. Even worse, some of us just aren’t capable of the task. The good news is that, no matter which category we fit into, we can be successful with our businesses if we go about it correctly.

If there were one piece of advice I’d offer over any other, it would be to utilize every available resource to us, whether it be our friends and family or professional consultants. Recognizing our own shortcomings is important to our success. I also advocate the use of the resources available through the Small Business Administration. This wing of our government can provide us all with the necessary information to begin and operate a successful small business, and best of all, it's a free resource, paid for with our tax dollars.

A number of years ago, I attended my very first seminar aimed at helping the small business person get started. The most significant statistic shared with me in the opening presentation was an eye-opener, to say the very least. Many more small businesses fail than succeed. The numbers vary according to the sources, but they generally point out a sobering reality: it isn’t enough to have a great idea.

Commitment to the excellence of the idea and to the small business it supports makes the difference. Another way to say it is “survival of the fittest.” The reasons for failure or success are many and varied, but in almost every case, the successes are guided by actions that have their roots in commitment and tapping into the plethora of help available to us in our journey. In truth, most small businesses don’t create great wealth – but they do provide us with the opportunity to obtain wealth.

Wealth is typically the result of sacrifice and hard work. There is no magic formula that ensures we don’t work harder, faster or better in order to succeed. In fact, just the opposite holds true. Assuming that our idea is a good one, our success is directly proportionate to the level of commitment we apply to it. That commitment begins with the idea and is evident in everything we do. At this critical stage, our commitment is simply to decide whether our idea is one that has merit. The worst mistake we can make is to jump on the bandwagon without carefully thinking it through – a sanity check, if you will.

Let’s look at a very simple, but far from complete, sanity checklist:

a. Why do I believe my idea is great?
b. Why do I believe people will buy it?
c. Do I have (or can I make) the time it takes to do it right?
d. Do I have (or can I get) the resources to see it through?
e. Do I believe in it enough to make the sacrifices?
f. Am I willing and able to overcome setbacks?

Just looking at this short example should tell us something – there’s a lot of soul searching for us in this phase that requires our honesty with ourselves. We can’t lie to ourselves if we intend to succeed. Remember, the worst thing we can do is to fail ourselves by not being thorough in our sanity check; however, the second worst thing we can do is to let it drag on too long before we reach a conclusion. Momentum is very important to our business, and if we cannot make a decision in a reasonable time, we’ll sit in our think tank forever doing nothing - while someone else takes action. More opportunities are lost by lack of action than we know.

A true entrepreneur will be able to “go for it”; however, many of us don’t have one or more of these essential traits. It’s imperative that we recognize our own shortcomings and either change them or find a way to productively deal with them.

Great ideas are often left unrealized due to our own lack of commitment. As an example of tenacity, let’s look at Thomas Edison’s electric lamp. Most people think the electric light bulb was Edison’s idea, but they don’t know that his patent wasn’t for the light bulb. Inventors had successfully created light bulbs for almost 50 years prior to his patent; rather, his patent was for a filament that made the life of the bulb long enough to make it commercially viable. Edison’s labs began working on the project in 1878 and experienced thousands of failures before they succeeded. They viewed each failure as a success in how NOT to make a light bulb. It took two years for them to strike pay dirt, and they created a business with the success of their idea. It is this same commitment to our idea that is absolutely necessary. Perseverance is key.

Failures should not be perceived as setbacks; rather, they should be viewed as learning experiences that lead to our eventual success. Once we have confidence in our idea and our commitment to see it through, we’re ready to look outside ourselves to obtain more objective data that can help us to make the right choice for our business.
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Expanded SBA program helps East Bay Business

Service West provides contract furniture installation, commercial moving, delivery and warehousing services.

So, Service West Inc. is taking advantage of an expanded government loan program that rewards increased energy efficiency to purchase a 132,0000-square-foot commercial office building in San Leandro.

The $10.5 million loan for the company's new property was serviced by TMC Development and represents the first loan made by TMC under the Small Business Administration’s Energy Efficiency and Public Policy Goals program.

The small business administration expanded its 504 loan program to offer financing up to $4 million for any project designed to reduce energy consumption by at least 10 percent or which will generate renewable energy or fuels. The previous loan cap was $2 million. SBA loans finance some of the loan while private banks and the companies provide the rest.

"Service West is a perfect example of how recent changes to the SBA 504 loan program make this type of financing an even better fit for larger projects," said Barbara Morrison, CEO of TMC Development.

Michael Barry, Senior Vice President at CB Richard Ellis, brokered the sale on behalf of Service West. ...Read More ! ⇒

Finance Site Mint.com Raises $14M in New Funding

Personal finance site Mint.com has raised $14 million in its latest round of venture funding, which was led by DAG Ventures.

The Mountain View, Calif.-based startup said this week that it secured financing from The Founder's Fund, current investors Benchmark Capital, Shasta Ventures, First Round Capital and Sherpalo.
The company did not disclose its current valuation. Since its launch in September 2007, the company has raised $31 million through three rounds of funding and a seed round.

Mint said it will use the funding to hire more engineers and to speed up product upgrades and partnership launches that are planned for the next six to 12 months.

Mint, which has more than 1.4 million registered users, is also set to roll out upgraded features on its site next week. These will mostly relate to Mint.com's budgeting functions, which let users see how they spend and save their money.

Source: NYTIMES ...Read More ! ⇒