As the wrangling over proposed healthcare legislation drags on in the Senate, progress on other bills has stalled, including a piece of legislation that would impact federal student financial aid programs.  The Student Aid and Fiscal Responsibility Act, passed by the House of Representatives in September, has yet to see its counterpart taken up for debate in the Senate.  Yet the debate over student loan reform is heating up again as the Department of Education and lenders both attempt to press their agendas forward.

Student loan reform has been a topic of contention since President Obama announced his 2010 budget proposal at the beginning of the year.  Among them was doing away with the Federal Family Education Loan Program, which subsidizes private banks to make and service federal student loans, such as Stafford Loans and PLUS Loans.  Students would borrow directly from the Department of Education through the Direct Loans Program.  The money saved from the subsidies would then be channeled into Pell Grants and Perkins Loans, among other education funding priorities.  The proposed changes would go into effect on July 1, 2010 necessitating a quick switchover to direct lending for all colleges still participating in FFELP.

After the bill passed the House, the Department of Education began urging schools to voluntarily make the change to Direct Loans, which concerned some financial aid administrators and most lending agencies.  Concerns have been expressed over the efficiency of direct lending, the loss of choice in eliminating FFEL, the feasibility of making the switch, and the continuation of services such as financial aid counseling that some lenders currently provide.  Many of these were aired at a recent meeting of a panel of financial aid experts in Washington.  Representatives of student lenders were also there to champion an alternate plan that would bring some of the savings proposed by SAFRA, but would maintain a role for banks in student lending.

It’s widely expected that the Senate will ultimately pass a version of the bill similar to what was passed by the House, but when that will happen remains uncertain.  Procedural regulations and concerns over support are currently preventing the bill from progressing until the issue of healthcare is settled.  In the meantime, it appears debate, analysis, and lobbying will continue on both sides of the issue.

Posted: under College in Congress, Student Loans.
Tags: College in Congress, Direct Loans, FFEL, financial aid news, Student Loans

Comments (0) Nov 12 2009

Private student loans may soon come under increased federal regulation as Congress takes up legislation that would create a consumer financial protection agency.  The bill moved out of the House Financial Services Committee yesterday and will soon go to a floor vote.

Lenders fought the legislation, but the proposed amendment to exempt student loans from the agency’s oversight was defeated in committee.  A brief but heated debate also arose over whether the agency should also regulate “gap loans” made by private for-profit colleges directly to students to help cover tuition and other expenses.  Ultimately, the panel sided with the schools who argued that new Truth in Lending restrictions already offered students sufficient protection in regards to borrowing from schools.

Student loans are only one of several aspects of lending that would be regulated by the new agency.  They’d be accompanied by mortgages, credit cards, and other bank-based loans.  This comes in addition to legislation that’s already been passed that will limit lenders’ ability to market credit cards to college students.  However, auto financing plans offered by car dealers were exempted and the agency’s role in regulating smaller banks and lending institutions was also limited by amendments.

Backers of the proposed regulatory agency hope that its creation will offer greater protection to consumers, including college students, who find themselves overwhelmed by risky debt or deceptive lending practices.  They hope that they will be able to limit the extremely high interest rates and confusing terms that accompany some private loans.  Student lenders have previously come under fire for questionable lending practices and have paid out large settlements and agreed to new codes of conduct governing their practices of marketing loans to students and offering incentives to colleges to promote their services on “preferred lender” lists.  Private loans have also seen increased regulation this year, with previous student aid legislation requiring them to disclose terms up front, among other steps taken to make their lending practices more transparent.

Posted: under College News, Student Loans.
Tags: college news, credit cards, financial aid news, money management, private loans, Student Loans

Comments (0) Oct 23 2009

Can college students correctly answer basic questions about federal student financial aid? Researchers from CALPIRG, the California Public Interest Research Group, sought to find out, asking California community college students three questions about financial aid. The results of the survey were published this week. The majority of students did not do so well, with over half of students answering one or zero questions correctly.

How would you do?

Students were asked to say whether the following three statements were true or false (the questions below are paraphrased from the report):

1. I have to go to school full time to be eligible for financial aid.
2. Taking more classes per term could increase my financial aid award.
3. Financial aid can be used to cover expenses beyond tuition and fees, such as living expenses.

The answers:

1. False. You do not have to go to school full time to be eligible for financial aid. Students enrolled at least half-time are able to apply for and receive federal student financial aid, including Pell Grants and Stafford Loans. Only 47 percent of students surveyed answered this correctly.

2. True. If your tuition goes up, your aid award can go up, especially when it comes to federal work-study and low-interest student loans. Additionally, students who move from half-time to three-quarter-time or full-time enrollment can see an increase in Pell Grant awards and also potentially become eligible for more college scholarships and grants. Half of students answered this correctly.

3. True. Financial aid can be used to cover college expenses including food, rent, car maintenance, books, computers, and other essentials. These items are included in the living expenses portion of the cost of attendance figure used by the financial aid office to calculate your aid eligibility. Students surveyed did the best on this question, with 54 percent answering correctly.

Knowing About Aid Can Boost College Success

At this point, it’s becoming fairly well-documented that not enough community college students apply for federal student financial aid, despite the fact that many are eligible. While some students don’t apply because their schools do not participate in federal aid programs, others don’t apply because they don’t know they’re eligible for aid.  The results of the CALPIRG survey suggest that this is a fairly substantial group of students. Namely, 13 percent of students surveyed didn’t get a single question right, 44 percent of students answered only one question correctly, and only 2 percent of students who did not apply for aid got all 3 questions, compared to 10 percent of students overall.

Additionally, the survey shows that many students are loan-averse, with almost half of students saying they would drop a class or an entire semester than take out a student loan to cover books or other expenses, and students showing nearly as much willingness to put their books on a credit card than to take out a federal loan for books.  A full 57 percent of surveyed students saying they would only borrow as a last resort or would not borrow for college at all.  With additional research suggesting that many community college students are not balancing work and college effectively and that their reluctance or inability to borrow is hurting their chances of graduating, more financial aid education is important.

Community college students are not the only college students who may need help learning about financial aid. If you found that you answered one or more question incorrectly, you may want to review information about paying for school. We have a wide variety of student resources available that can help you learn about financial aid programs and requirements and maximize the amount of aid you receive.

Posted: under FAFSA, Federal Aid, Financial Aid.
Tags: College Costs, community college, FAFSA, Federal Aid, Financial Aid, Financial Aid Information, Student Loans

Comments (0) Oct 22 2009

On Tuesday, the College Board published the latest installment in its Trends in Higher Education Series, annual reports detailing changes in college costs and student financial aid. These newest reports cover the 2008-2009 and 2009-2010 academic years and provide some insight into how economic difficulties have affected paying for college. Despite the recession, tuition continued to rise at a pace comparable to previous years, but financial aid has undergone some changes.

Between 2008-2009 and 2009-2010, tuition increased 6.5% at 4-year public colleges and 4.4% at 4-year private colleges. Tuition and fees for in-state students at four-year state colleges rose from $6,591 to $7,020. Out-of-state tuition and fees at public colleges rose to $18,548, a 6.2 percent increase. Private college tuition and fees rose to $26,273. Total costs of attendance also rose to $19,388 for public colleges (a 5.8% increase) and $39,028 for private colleges (a 4.4% increase). Rising college costs are attributed to declines in state funding and massive endowment losses brought about by the recession.

Despite tuition increases and greater financial difficulties for students and families, total student borrowing dropped by 1% when adjusted for inflation in 2008-2009.  Federal student loan borrowing increased by $11 billion, or 15 percent, to about $84 billion. Most strikingly, there was a 50% drop in private loan volume in the 2008-2009 academic year, as a result of the tightening of credit markets.  The 2008-2009 academic year also saw a growth in grant aid (both need-based and merit-based college scholarships and grants). About 2/3 of full-time undergraduates receive grants and the average grant was $5,041. The College Board anticipates that students will receive an estimated $5,400 in grant aid and tax benefits in 2009-2010.

A large portion of grant aid is made up of merit-based awards, like academic scholarships, which worries some analysts who are concerned with the increasing cost of tuition pricing lower income families out of college entirely. While, after adjusting for aid, the average net cost of tuition actually has declined for families over the period covered in these reports, another recent report by Postsecondary Education Opportunity research Tom Mortenson showed that students from the poorest families tended to have the largest amount of unmet financial need. The sharp drop in private loans suggests those families may be less likely to be able to secure funding to cover that unmet need, even if colleges and the federal government have made more aid available this year.

Much of the growth in federal student loans and college grants and scholarships is likely due to the increased amount of aid colleges and the federal government made available to struggling students as a result of the recession.  However, much of this emergency aid is intended to be temporary, so these changes may turn out to be anomaly, rather than an overall trend.

Posted: under College Costs, College News, College and the Economy.
Tags: College and the Economy, College Costs, College Grants, college news, Financial Aid, Student Loans

Comments (0) Oct 21 2009

Although community colleges nationwide have seen significant boosts in enrollment, a report released yesterday suggests many will be forced to put their educations on hold or find new sources of funding if their institutions continue blocking access to federal student loans.

The Project on Student Debt released the report, and despite their stance on promoting that students take on as low a student loan burden as possible, they say community college students are at risk for taking on riskier private student loans or watching their grades slip as they take on more work hours to cover gaps in funding because they aren’t able to apply for and receive federal student loans. About one in 10 students in 31 states surveyed don’t have access to federal student loans, and in some states, more than 20 percent of students can’t get the federal loans. Minority students have less access to federal loans than other student groups, as the report found many minority students attending community colleges that don’t participate in the federal student loan program.

Why have many community colleges moved away from offering federal student loans? In an uncertain economy, the answer is risk, according to the report. Defaults on student loans have begun to rise among not only community college students, but among all college students over the last few years. The report always says many community college administrators believe students shouldn’t have to borrow to attend their schools. Tuition is lower, they say, and if students are saddled with large amounts of debt now, they could hurt their chances for qualifying for low interest rates and federal student loans if they were to transfer to a more expensive, four-year institution.

But some students do need the additional funding even at a low-cost option like a community college, especially in the current economic climate. According to survey results released by the National Council of State Directors of Community Colleges last month, about half of the nation’s community colleges are expecting budget cuts and midyear reductions in their state appropriations. Many administrators in that survey also reported that stimulus money provided by the Obama administration went toward meeting existing budget deficits, and that they would be forced to raise tuition rates substantially despite record enrollments to make up for a lack of state funding. (The average tuition increase among community colleges is expected to be about 5 percent for the 2009-2010 academic year.)

While you should always exhaust your options with grants and scholarships first, student loans are often a necessary evil, and we have plenty of tips on how to go about applying for them and making sure you’re getting the best rate possible. Never rely on credit cards to fund your education, or you’ll run the risk of getting into more debt than you can handle not only post-graduation, but while you’re still in school. Browse through our site for more information on your student loan options.

Posted: under College Costs, College and the Economy, Federal Aid.
Tags: College and the Economy, College Costs, community college, economy, Student Loans

Comments (0) Oct 09 2009

The much-lauded new Income-Based Repayment plan for federal student loans has been available to student borrowers since July, but those who could potentially benefit may have difficulty enrolling in it.  The Department of Education’s Direct Loans website allows borrowers to enroll online in several student loan repayment plans, including the Standard, Graduated, and Income-Contingent options using a convenient drop-down menu.  However, after over three months Income-Based Repayment is still missing from this menu, making it more difficult for borrowers to enroll in this plan, and possibly preventing some students from even realizing it’s an option.

For many students who have large debt loads, are struggling to find work or are currently working low-wage jobs that make repaying student loans difficult, the new Income-Based Repayment plan may be their best option for repaying their federal student loans.  It allows borrowers to only pay 15% of their discretionary income (their adjusted gross income minus 150% of the poverty line for their household size) once they’ve entered repayment, then cancels their remaining loan debt after 25 years of repayment.  Borrowers enrolled in Income-Based Repayment can also take advantage of the 10-year public service loan forgiveness program, meaning they can make 10 years of affordable payments while working eligible public service jobs, then have their remaining debt forgiven.

Despite its appeal, though, students can currently only apply for Income-Based Repayment using a paper form, blank versions of which are available on the Direct Loans website, though not at all well-advertised.  Students can eventually dig through the Direct Loans website to find it (we found it by clicking on the announcement in the upper right corner of www.dl.ed.gov, then following links through two additional pages), then complete it and mail it to the Department of Education.  This is a somewhat time-consuming process, obviously, and may deter some borrowers who either lack the time or resources to locate, print and submit the form.

In addition to a missing online option and a buried enrollment form, the Direct Loans website also doesn’t list Income-Based Repayment on their repayment options comparison site for logged-in borrowers (a calculator allows you to compare payments among Standard, Graduated, and Income-Contingent options but makes no mention of Income-Based Repayment).  While a calculator is available through the Federal Student Aid website, it’s not readily accessible from the Direct Loans site.  To even choose Income-Based Repayment, then, borrowers will need to employ two different calculators on two different Education Department websites simultaneously, adding another confusing and time-consuming hurdle to the process.

According to The Chronicle of Higher Education, the Department of Education is aware Income-Based Repayment is missing from the online enrollment options on their site, but they don’t plan to add it until March, citing a lack of resources due to the possibility Congress will soon switch all federal student loans to the Direct Loans program, as called for in a student loan bill currently under consideration.  Hopefully, other revisions to the website will happen then, as well, but for students investigating student loan repayment options before then, enrolling in Income-Based Repayment will remain a hassle.

Posted: under College News, Student Loans.
Tags: Department of Education, Direct Loans, loan consolidation, loan repayment, Student Loans

Comments (0) Oct 09 2009

Colorado’s CollegeInvest agency, an organization in charge of state loan forgiveness and scholarship programs, is facing criticism and increased scrutiny from the state’s legislature after an audit revealed conflicts of interest and a surprisingly low number of scholarship awards being made by the board.  The state legislature will now require the agency to report to them monthly to ensure proper oversight of the state’s scholarship and student loan funds.

The audit found that the CollegeInvest Early Achievers Scholarship, a fund that awards high-achieving high school students with college financial aid, had only given out a tiny fraction of the awards it was expected to since it was established in 2005.  Students opt into the scholarship program as 7th, 8th or 9th graders and pledge to take pre-college coursework in high school and maintain a GPA of 2.5 or better.  The Colorado legislature estimated that the scholarship fund would award about $3.8 million in scholarships per year, but awarded only $91,000 this year.  A volunteerism scholarship program and a student loan forgiveness programs managed by CollegeInvest also fell significantly short of goals and projections.

Meanwhile, the fund incurred over $12 million in administrative expenses beyond salaries and benefits for its employees.  Reports on the audit note that the program has spent $10 on administrative costs for every $1 in scholarships awarded.  The audit also found conflicts of interest with the board awarding funding to other organizations they were connected to and giving out large payments to financial advisors.

CollegeInvest officials say that the program is off to a slow start and that potential conflicts of interest were disclosed and didn’t affect board decisions.  For now, the state legislature has just asked for increased oversight of the program.  But for Colorado students who were expecting to benefit from academic scholarships, community service scholarships, or loan forgiveness programs for which money is in place but funds aren’t being awarded in large amounts, any change in these programs cannot come soon enough.

Posted: under College News, Financial Aid, Scholarships, Student Loans.
Tags: college news, Financial Aid, loan repayment, Scholarships, state news, Student Loans

Comments (0) Sep 30 2009

As the Senate prepares to begin looking at similar measures recently passed by the House to stop or further regulate bank-based lending, student-loan companies have been looking for ways to lobby for their own cause, spending millions in the process, according to an analysis of federal records done by The Chronicle for Higher Education.

Earlier this month, the House of Representatives voted to approve the Student Aid and Fiscal Responsibility Act of 2009, legislation that would stop lending from the bank-based Federal Family Education Loan Program in favor of the Department of Education-run Federal Direct Loans Program by July 2010. Student-loan companies have understandably been feeling threatened, and have spent nearly $14 million over the last year and a half lobbying the government to abandon attempts to stop bank-based lending. The country’s largest lender Sallie Mae, which handed out about a quarter of the nation’s federal student loans last year, spent $2.5 million this year alone, according to The Chronicle. The Senate’s version of the legislation could come onto the floor as early as this week.

While the legislation has strong support from the Obama administration, some  Democrats in Congress have voiced concerns about the potential for job losses in states that headquarter private loan agencies. Sallie Mae has reported it would need to lay off about a quarter of its workforce if Congress voted to end bank-based lending. Republican lawmakers have argued more broadly that the student loan industry, while it could use some tweaks, has served college students well and should not go under the control of the federal government.

So does the bill stand a chance? The Obama administration would like it to be a sure thing, as legislation to limit bank-based lending was a campaign promise during election season. The Congressional Budget Office claims it would save taxpayers around $87 billion, but that’s a figure disputed by Republican lawmakers. Colleges and admissions officials seem to be on the fence, worried mainly about any delays in financial aid funding for their neediest students and potential costs to schools’ already tight budgets. The bill’s proponents argue that savings from the legislation would either go toward overhauling the financial aid system or higher education programs. While the Obama administration has urged lawmakers to avoid interactions with special interest groups, the upcoming arguments on the Senate floor will determine whether those lobbying dollars swayed any opinions.

Posted: under College News, College in Congress, Student Loans.
Tags: College in Congress, Direct Loans, private loans, Student Loans

Comments (0) Sep 28 2009

The global economic recession of 2008-2009 has had an impact on seemingly every aspect of life, especially large expenses like college tuition.  There has been much speculation about the economy’s effect on college financial aid, and as the fall semester gets underway at colleges across the nation, information is starting to emerge that helps paint a picture of paying for school in a recession.  So far, the results are mixed.

While a poll by Gallup and Sallie Mae showed fewer students borrowing for college this year, a survey conducted by NASFAA, the National Association of Financial Aid Administrators, shows more students applying for and receiving federal student financial aid this year than last year.  Additional data from the Department of Education also backs this up, showing 25 percent more borrowing in federal student loan programs this year.

The NASFAA survey of nearly 500 financial aid offices shows that in comparison to the same time last year, 61 percent of colleges and universities are seeing an increase of 10 percent or more in financial aid applications, with 63 percent of institutions also seeing a significant increase in Pell Grant awards this year.  Only 8 percent of institutions saw no increase in aid applications, with only 5 percent reporting no increase in Pell awards.  Also, despite 65 percent of schools seeing an increase in financial aid appeals by 10 percent or more, 51 percent saw an increase of 10 percent or more in the number of students with unmet financial need.

Additionally, the majority of colleges have increased institutional aid (such as scholarships and grants), with 74 percent of four-year colleges and universities offering some increase in aid.  Community colleges were the majority of institutions not increasing aid, with many citing a lack of available funding as the reason for this decision.

Many of the changes found by NASFAA and the Department of Education can be attributed to the federal response to the economic downturn.  The increased borrowing is most likely due to the increases in loan limits, with larger unsubsidized Stafford loans being made available to both undergraduate and graduate students in the last two years.  Financial aid administrators speculate that the increased aid awards are likely due to a combination of the increasing unemployment rate, changes in rules for adjusting financial aid awards, and nationwide awareness campaigns to let those collecting unemployment benefits know they are eligible for increased financial aid for college.

Posted: under College and the Economy, Financial Aid.
Tags: College and the Economy, College Grants, Financial Aid, stafford loans, Student Loans

Comments (0) Sep 24 2009

For-profit career colleges have had a rocky history, being met with skepticism and criticism from traditional academic institutions, as well as undergoing a great degree of government scrutiny over the years, as some institutions have been revealed to engage in a variety of questionable practices.  So, when the Government Accountability Office announced an investigation of proprietary institutions that participate in federal student financial aid programs, few in the education industry were surprised.  The results of these investigations were released on Monday, and they indicate that in at least some cases, distrust towards career colleges may still be warranted.

For-profit colleges have higher student loan default rates than any other sector of higher education, with two-year cohort default rates topping 11 percent according to recently released annual Department of Education data, and four-year default rates clearing 23 percent according to the GAO report.  By comparison, state colleges have two-year default rates of 6 percent and 9.5 percent respectively, with the default rates for private colleges falling even lower.

While acknowledging that much of this discrepancy is likely due to the different student populations these institutions serve, the GAO found that part of this high default rate could be connected to questionable admission and aid application practices at for-profit colleges.  Under current federal law, in order for students to qualify for financial aid, they need to demonstrate “ability to benefit” from higher education.  This means that they must have either earned a high school diploma or GED or passed a test indicating they are prepared for college-level instruction.  Some of the proprietary colleges investigated by the GAO encouraged students to purchase high school diplomas from diploma mills to circumvent the testing process.

It appears that in at least one case, employees of a career college helped prospective students cheat on an ability to benefit test, even changing their answers after the fact to ensure their scores were high enough.  GAO investigators posed as sudents at a school in the Washington, DC area and attempted to deliberately fail this test.  According to the report, they were given some of the answers to the test and also saw evidence of the school tampering with their scores to ensure that they passed and qualified for aid.

These practices allow students who wouldn’t otherwise qualify for federal aid access to college instruction and money for school, but also can saddle students who are likely to be unable to complete and benefit from college coursework with large amounts of student loan debt.  The Career College Association, which represents proprietary colleges, assures that these practices are not widespread and that strict standards are in place.  However, the GAO still urges the federal government to provide more oversight of ability to benefit testing and financial aid disbursement at for-profit colleges.

If you’re considering attending a career college, be sure to make sure its practices are legitimate and you are likely to enhance your earning potential by completing a degree or certificate there.  Do your research about the school’s reputation, the program’s reputation and job and salary prospects for graduates of your prospective program.  Also, be wary about borrowing and make sure you don’t get into a position where you’ve taken out too many federal or private loans to be able to pay them back.  Attending a career college can help you land a better job or a higher salary, but this report indicates that there are still schools with dodgy practices out there, so diligence is still required when choosing a college.

Posted: under College News, College Search, Financial Aid, Student Loans.
Tags: choosing a college, college news, College Search, default, Financial Aid, Student Loans

Comments (0) Sep 22 2009