A billionaire seafood tycoon may have found the secret to solving Nova Scotia’s economic problems: issue high-interest student loans through a private company, then sue them all students who cannot reimburse you.
John Risleypresident of Clearwater Fine Foods, is one of nine highly successful (re:wealthy) business figures sent to attend a posh entrepreneurship program at MIT at Dalhousie’s expense.
The university spends $300,000 on courses—or on $43,000 per attendee. Dalhousie promised the fees would be reimbursed – eventually – by private sector partners, but the news was heavily criticized by students and faculty.
Less commented on is the news that Risley recently completed a $65.5 million agreement to buy the remaining shares he did not already own in a Massachusetts-based student loan company First Marblehead Company. Risley’s FP Resources USA paid $5.05 (US) per share for the stock, about 40% more than the company was selling.
Marblehead’s first co-founder and CEO, Dan Meyers, is a yachting buddy with Risley. The two were co-owners of a 52 meter Royal Huisman named “Meteor.” He is also an investor in Risley’s Bahamas-based internet and cable company, Columbus Communications, of a billion dollars.
Meyers’ (now Risley’s) company offers private student loans to American students who cannot obtain federally guaranteed loans. Private student loans tend to have higher interest rates (which often accrue during college), higher fees, and a higher cost if the student doesn’t pay.
According to BloombergNational Collegiate – one of more than two dozen trusts that First Marblehead has created over the years to sell student loan bonds – has filed more than 4,000 lawsuits against borrowers since 2011 in just five US states. Writing about the industry in the Huffington Postlawyer Richard Gaudreau called private student loans “the worst debt in America bar none”.
“Private student loans have the same protection against a bankruptcy discharge as federal loans, but offer none of the benefits. The law requiring federal student loan servicers to offer reasonable repayment plans to borrowers in financial difficulty does not apply to private student loans. As a result, private student loan servicers can simply refuse to work with people, and no law requires them to change their attitude.
A 2008 brief from the American Association of State Colleges and Universities tore into the private student loan industry and the “disproportionate harm” it can cause low-income borrowers.
“…these students are more likely to attend private institutions and less likely to have parental financial support. If parents do not sign a PLUS loan and federal and state aids are exhausted, the student may be driven into the private market. In the private market, if the student does not have a co-signer or has a bad credit history, loan interest rates can increase significantly.
The First Marblehead website proclaims itself to be a strong proponent of the “smart borrowing” principle and encourages students to access government loans before applying for private loans. But that hasn’t stopped the company from spending millions of dollars lobbying Washington to fight bills that would guarantee the availability of federal student loans for students during an economic downturn.
Addressing the New York Times in 2007, Meyers said that “if a student can go out and get a subsidized federal loan and it costs less…he should do it.”
Risley told the provincial newspaper-which-must-not-be-named last week that he bought First Marblehead for its industry expertise and database of student borrowers.
The company has issued $25 billion in student loans since the 1990s.