In late September 1991, at a meeting of the Western Association of Student Financial Aid Administrators (WASFAA), HEAL officials outlined a new system that would be implemented to rank or "tier" HEAL lenders based on the costs of funds to borrowers; further the HEAL funds ($260 million) would be allocated on a priority basis to those lenders who could offer students the most favorable terms for HEAL loans.
At first blush, this appeared to be reasonable and rational, almost a motherhood issue. The money would go to those efficient, frugal lenders who in turn would offer lower cost loans to students. What is there to complain about in such a plan! As it turns out, there is plenty to complain about.
Table one provides a listing of all lenders who participate in the HEAL loan program. The table also list the restrictions applied to or by each respective lender. Finally, the "tier" that a given bank falls into is also listed.
TABLE 1: Life College of Chiropractic West's HEAL Lender List
Lender | Tier | Restriction |
| Dartmouth Ed. Loan Corp. | 1 | Darthmouth students only |
| Penn. Higher Ed. Assist. Agency | 1 | Residents of Pennsylvania |
| Texas Higher Education | 1 | Res. of TX schools exclud. DC students |
| First Fed. S & L Assoc. | 2 | Available to all disciplines |
| Boatmen's 1st Nat'l Bank of OK | 2 | Available to all disciplines |
| Ponce Fed. Bank F.S.P. | 2 | Restricted |
| Key Bank of Maine | 3 | Medicine & dental students only |
| Kirksville College of Osteop. | 3 | Kirksville College students only |
| Northstar Bank of Upstate N.Y. | 3 | Medical & dental students only |
| Oklahoma Student Loan Authority | 3 | Oklahoma residents and school |
| South Dakota Health and Ed. | 3 | SD residents and school |
| Vermont Student Assist. Corp. | 3 | Vermont residents and school |
| Bank One of Merrillville, N.A. | 4 | All disciplines |
| Chase Manhattan Bank, N.A. | 4 | All disciplines |
| Firstar Bank of Des Moines | 4 | Iowa students only |
| Home State Bank Kansas City, KS | 4 | Medical and dental students only |
| Norwest Bank South Dakota | 4 | Medical and dental students only |
| Bay Banks | 4 | Medical students only |
| First American | 4 | All disciplines |
It is essential to note that nothing requires a lender to make funds available to all disciplines and in fact some lenders are prohibited by law from loaning outside of a give region or to certain disciplines.
Tier I
There are three lenders in Tier I: Dartmouth Education Loan Corporation; Pennsylvania Higher Education Assistance Agency; and the Texas Higher Education Coordinating Board. Table two shows the funding level of each and the restrictions that apply.
TABLE 2: Life West's HEAL Lender List | |
Lender | Funding |
| Darthmouth Education Loan Corp. | $ 1,000,000 |
| Pennsylvania Higher Ed. Assist. Agency | $86,000,000 |
| Texas Higher Ed. Coord. Agency | $15,000,000 |
The lenders in Tier I have had their funding request fully funded. Together their requests total $102 million or 35% of the entire sum authorized. Of those monies the only money available to chiropractic students would go to those students from Pennsylvania.
Two of the lenders in Tier I have a unique feature in common, they are state agencies authorized by their respective legislatures and restricted by those legislatures. In addition, one reason they are able to offer lower cost loans is to their ability to use state generated tax free investments to help fund the management of the program. This financial base makes it possible for them to "hold" the loans rather than sell their loans to the Student Loan Marketing Association (Sallie Mae) as every other lender in the program needs to do.
The savings to a student who receives a HEAL loan through Dartmouth versus everyone else is very significant and we would be thrilled to see our students have access to funds on this basis. Such is not the case however, and in fact access to money on that basis is a unique aberration. Table 3 shows the cost of money within Tier I based on the variations of the three lenders.
TABLE 3: Life West's HEAL Lenders Interest Comparison
| Tier 1 | |||
| Lender | Cost of Money | During School | During Repayment |
| Dartmouth Ed. Loan Corp. | 7.00% | 7.00% | 7.00% |
| Penn. Higher Ed. Asst. Agency | 6.25% | 6.25% | 7.45% |
| Texas Higher Ed. Coord. Board | 8.00% | 8.00% | 8.00% |
| T-Bill interest rates are assumed at 4.75% | |||
Tier II-IV
When you begin to examine the situation with the lenders in Tier II-IV, the good public policy and motherhood aspects of this system are replaced by puzzlement, suspicion, anger, and a sense of betrayal.
There are a total of 16 Tier II-IV lenders. Together they share the remaining 65% of the HEAL funds, but not on an equal basis.
Tier II lenders (3 in number) have been funded to a level of $7 million. These lenders are known as "standard lenders" and their needs have been fully funded. Tier III (6 in number) are lenders that share in the remaining monies with 75% of the remainder [$260 million, minus $102 million (Tier I), and $7 million (Tier II)] of the HEAL funds in excess of $113 million. Finally, Tier IV banks (7 in number) collectively share $38 million.
At this point it is important to refer again to Table I and review which institutions lend to chiropractic students (remember this is a matter of lender policy or law). You can clearly see that chiropractic students have access to the smallest pool of funds, and the most expensive pool of funds. This situation which takes on additional meaning when you understand that in FY 90-91 e.g., one of the primary chiropractic lenders had a HEAL allocation of $60 million. Under the present tiering system their allocation has been reduced to less than $15 million for the current fiscal year. Think back to the goals of the president's budget which sought to eliminate chiropractic students from the HEAL program. There appears, as the old saying goes, to be more than one way to skin a cat.
We need at this juncture to direct our attention to the original goal of establishing this tiering system in the first place: reduce the cost of funds to the student borrower. Table 3 outlined the cost of Tier I money. When compared to Tier II-IV the Tier I money is clearly less costly. When the lenders in Tier II-IV are reviewed relative to ultimate cost of funds, however, the degree of difference almost evaporates.
Now see Table 4 which provides an illustration of the cost of funds from Tier II-IV lenders.
TABLE 4: Life West's HEAL Lenders' Interest Comparison
| Lender | Cost of Money | During School | During Repayment |
| Tier II | |||
| First Fed. Sav. & Loan Assoc. | 7.75% | 7.75% | 7.75% |
| Boatmen's 1st Nat'l Bank, OK | 7.75% | 7.75% | 7.75% |
| Ponce Fed. Bank F.S.P. | 7.75% | 7.75% | 7.75% |
| Tier III | |||
| Key Bank of Maine | 7.45% | 7.45% | 7.75% |
| Kirksville College of Osteo. | 7.45% | 7.45% | 7.75% |
| Norstar Bank of Upstate NY | 7.45% | 7.45% | 7.75% |
| Oaklahoma Student Loan Auth. | 7.25% | 7.25% | 7.75% |
| South Dakota Health & Ed. | 7.35% | 7.35% | 7.75% |
| Vermont Student Assist. Corp. | 7.45% | 7.45% | 7.45% |
| Tier IV | |||
| Bank One of Merrillville, N.A. | 7.45% | 7.45% | 7.45% |
| Chase Manhattan Bank, N.A. | 7.45% | 7.45% | 7.45% |
| Firstar Bank, Des Moines | 7.45% | 7.45% | 7.45% |
| Home State Bank, K.C., Kansas | 7.45% | 7.45% | 7.45% |
| Norwest Bank, South Dakota | 7.45% | 7.45% | 7.45% |
| Bay Banks | 7.45% | 7.45% | 7.45% |
| First American | 7.45% | 7.45% | 7.45% |
| T-Bill interest rates assumed at 4.75% | |||
The differential on the maximum lifetime of the loan is noteworthy, but when reduced to a per month cost the maximum difference between the best and the worst in Tiers II-IV reduces to less than $10 per month over 25 years (Table 5). The difference between Tier I and the worst of Tier III-IV is only $13.
TABLE 5: Life West's HEAL Loan Repayment Analysis
| Tier I | 25 Years Repayment | ||
Darthmouth | Penn. HEAA | Texas HE | |
| Present value (current balance due) | $10,000 | $10,000 | $10,000 |
| Interest rate | 7% | 6.25% | 8% |
| Term | 9.5 | 9.5 | 9.5 |
| Loan amount at payment start date | $13,865.43 | $12,968.75 | $14,514.99 |
| Payback term | 300 | 300 | 300 |
| Interest rate | 7% | 7.45% | 8% |
| Monthly payments | $98 | $95.42 | $112.03 |
| Tier II | All Banks |
| Present Value (current balance due) | $10,000 |
| Interest rate | 7.75% |
| Term | 9.5 |
| Loan amount at payment start date | $14,350.10 |
| Payback term | 300 |
| Interest rate | 7.75% |
| Monthly payments | 108.39 |
| Tier III | Vermont Student Assist. Corp. |
| Present value (current balance due) | $10.00 |
| Interest rate | 7.45% |
| Term | 9.5 |
| Loan amount at payment start date | $13,538.75 |
| Payback term | 300 |
| Interest rate | 7.45% |
| Monthly payments | $99.61 |
| Tier IV | All Banks |
| Present value (current balance due) | $10,000 |
| Interest rate | 7.75% |
| Term | 9.5 |
| Loan amount at payment start date | $14,350.10 |
| Payback term | 300 |
| Interest rate | 7.75% |
| Monthly payments | 108.39 |
As consumers, none of us is interested in paying more for anything. One must question the cost benefit analysis that HHS applied to this decision. The benefit is clear: about $10 per month over 15 years, but the cost is immeasurable in terms of human anguish, disruption, and trauma. Thousands of students from all disciplines have had their lives, their careers, their hopes and dreams turned upside-down over as little as $4 per month. Good public policy?
The most rational among us cannot help but succumb to a walk on the paranoid side when this system's full picture is considered. Is HHS so concerned about $10/month that it cannot appreciate and consider the impact of this action? The agency is Health and Human Services -- it seems at the very least to be contradictory, if not sadly oxymoronic.
There is little question that HHS has the authority to implement this system and there is nothing to affect this regulatory process in the continuing resolution or pending reauthorization legislation. But the issues of fairness, equal access, and discrimination must be viewed in light of the intent of Congress in authorizing the HEAL program. We are being denied access, we are being unfairly treated, and we are being discriminated against. Admittedly it is at arms length and through an accidental or intentional alignment of factors and situation, but it is nonetheless happening.
Dr. Gerard Clum
President
Life College of Chiropractic West
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