Student Loan Blog : Financial Aid Officers

Students Could Wave Goodbye to Merit–Based Federal Aid

Student Loan Girl — Thu, 25 Jun 2009 16:41:00 GMT

In another move to restructure the federal financial aid system, President Obama has proposed ending the government’s five-year foray into merit-based student aid and redirecting those financial aid funds to the need-based Pell Grant program, reports The Chronicle of Higher Education (“An Experiment in Merit-Based Student Aid Is Likely to End,” June 26, 2009).

The Academic Competitiveness Grant and the National Science and Mathematics Access to Retain Talent Grant programs were created by Congress in 2006 to encourage students to take academically “rigorous” coursework in high school and then choose college majors in fields with labor shortages.

Only students who are eligible for need-based Pell Grants can qualify for the Academic Competitiveness Grants, which provide $750 and $1,300 to college freshmen and sophomores respectively, and for the SMART grants, which provide $4,000 to college juniors and seniors who major in science, math, and certain foreign languages.

But so far both grant programs have fallen short of their participation projections, due in large part to the Department of Education’s failure to promote the programs, as reported by the department’s own inspector general in 2008.

The other major problem has been the programs’ vague qualification criteria, which has made it difficult for financial aid officers’ to determine award recipients. The American Council on Education, in a 2006 letter to the Department of Education, called the grant program’s guidelines “unworkable” and defined them as placing a “breathtaking administrative burden” on colleges’ financial aid officers.

Obama’s Proposal Receives Support From Education Officials

Education Department officials support the president’s proposal to make the Pell program an entitlement with annual increases tied to inflation and to raise the maximum Pell awards by $200 to $5,500 by the 2010–11 academic year because, they say, the Pell Grant program better serves low-income students than the competitiveness grant programs.

This proposal “would benefit the vast majority of the nearly six million Pell Grant recipients worldwide,” even though the annual increases amount to significantly less funding for the one in 10 students who qualify for the Academic Competitiveness and SMART grants.

Even former Secretary of Education Margaret Spellings, who crafted the merit-based programs under the Bush administration, backs the proposal.

“Do higher education officials and K-12 officials prefer free money with no strings attached? Absolutely,” Spellings said. “But if we’re trying to move the needle, putting resources behind our policy goals is a more powerful and prudent way to go."

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MyRichUncle Stops Making Student Loans, Files for Bankruptcy

Student Loan Girl — Thu, 19 Feb 2009 00:06:00 GMT

MyRichUncle, the student loan company that “caustically ridiculed the financial ties between colleges and student loan companies” has filed for Chapter 7 bankruptcy, The Chronicle of Higher Education reports (“Student-Loan Industry’s Caustic Rebel Now Cries Uncle,” Feb. 9, 2009).

Unable to secure funding to issue new student loans and unable pay its creditors, the student loan lender, with assets of $11 million and liabilities of $45 million, said it “has suspended all business operations.” But the bankruptcy filing could threaten the financial health of MyRichUncle’s subsidiary Embark, an online college planning company that MyRichUncle purchased from The Princeton Review in 2007.

Despite receiving increased financing from MyRichUncle to launch a new website this year, Embark, which sells online admissions software to hundred of colleges, has laid off 22 employees and has struggled to sell its wares to admissions offices “given MyRichUncle’s widespread alienation of financial aid officers,” Inside Higher Ed reports (“Collateral Damage in Lender’s Demise,” Feb. 18, 2009). Some of Embark’s competitors have even been murmuring to the company’s customers that Embark’s financial future is in danger.

MyRichUncle helped spark the widely-publicized probes of the student loan industry by New York Attorney General Andrew Cuomo that investigated the business relationships between private third-party lenders and colleges and universities.

The investigations revealed that colleges and financial aid officers received both payments and perks from lenders in exchange for placement on schools’ preferred lender lists, and that student loan lenders engaged in deceptive marketing practices, and resulted in the creation of a lender code of conduct that prohibits such practices.

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Survey Shows New England Families Can Still Access Federal Student Loans, Despite Loss of Lenders

Student Loan Girl — Thu, 11 Sep 2008 22:29:00 GMT

According to a regional survey of financial aid officers from 214 New England colleges and universities, students and parents have had few problems accessing federal student loans this year, but financial aid administrators have lingering doubts about how easily students will be able to secure college loans next year (“Student Loan Availability Survey of New England Colleges & Universities,” The New England Council, September 2008).

The survey, conducted by the New England Board of Higher Education and The New England Council, asked financial aid officers to describe how New England families fared following federal legislation that Congress passed in May to help families pay for college.

The legislation was designed to ensure that families still have access to federal student loans as private, third-party lenders — crippled by fallout from the subprime mortgage crisis that dried up traditional sources of funding and hurt by legislation that cut $21 billion in their federal subsidies — continue to drop their federal student loan programs.

To date, 104 of these lenders have stopped participating in the Federal Family Education Loan Program, through which borrowers take out their federal student and parent loans from third-party lenders rather than through the federal government.

Although some families were forced to find a new student loan provider after their former lender suspended its federal student loan programs, New England financial aid officers indicated that borrowers have not been deterred from seeking FFELP loans.

In fact, the survey revealed, more parent borrowers are seeking federal PLUS loans through FFELP lenders this fall and more students are taking out unsubsidized federal Stafford student loans.

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Online Ordering Causing Mailroom Mayhem on College Campuses

Student Loan Girl — Thu, 27 Dec 2007 23:46:00 GMT

The internet has completely changed the way college campuses operate, from class offerings and registration to college admissions and financial aid services. Now the technology is changing the way campuses deliver and receive mail. As more college students gravitate to online shopping, college and university mailrooms are overhauling their mail processing operations to accommodate the influx of packages.

Some pretty bizarre ones at that.

Car tires, barbecues, dishwashers, ant farms and air conditioners are just some of the orders college students are having mailed to their dorm rooms, according to a New York Times article by Jonathan D. Glater (“Majoring in Mailroom Management,” Nov. 21, 2007).

When students make their online purchases they often give little thought to the cost let alone the effect their shipping volume or types of packages they’re ordering will have on the mail processing centers at their schools. But for some schools, the adjustment has not been simple or cheap.

Revolutionizing the Mailroom At a Cost

The University of Southern California, for example, has experienced double the amount of their typical package volume in the last four years, expecting to process more than 67,000 packages by the end of this year. It has spent thousands of dollars adjusting their mail processing systems by building a new highly-complex mailroom almost as large as half a volleyball court for just one of their residence halls, Glater reports.

“Some folks don’t realize the logistical implications,” said Jeff Urdahl, the recently retired director of housing at USC, told the Times. “It’s a different world.”

Although online shopping statistics don’t exist for the college age demographic, according to shop.org, a division of the National Retail Foundation, internet buying increased nearly $220 billion last year and this year it is expected to top $259 billion.

And how are students paying for these purchases? Most interviewed for the Times article said their online shopping splurges are financed by college jobs, savings and parental allowances, but many students are also resorting to their good friends Visa, Master Card and American Express.

But students’ online ordering habits are not only affecting theirs and their parents’ bank accounts, they are also proving costly for the schools themselves. SUNY Binghamton spent $25,000 to implement a new bar code scanning system to track the increase of incoming packages, which rose from 33,000 in 2002 to 57,000 this year. Purchase College, also in New York, spent $37,000 on a similar system.

For Arizona State University, the second largest university in the country, the process became so cumbersome, the school chose to wash its hands clean of the mail distribution process and turned over all mail responsibilities to UPS.

Mindless Internet Shopping Hurts Students and Schools

The effect of students’ online spending is not isolated to schools; students’ bank accounts are taking huge hits as well. Credit and debit card use, necessary for online shopping, makes it much more difficult for students to keep track of their spending and their account balances.

Some students told the Times that they may buy something off the internet three times a week. This has led college students, according to Young Money, a student financial magazine, to have credit balances averaging $2,700, and as the popularity of internet shopping continues to rise, these numbers may only go up.

Students like Sarah Staton, a first year student at USC, don’t mask their online shopping activities; however they don’t quite seem to understand the effects it has on their finances.

“I do buy a lot of things, but it’s O.K. because I buy things that are cheap,” she told the Times. She admits to shopping on the internet more than two hours a day, especially for shoes. “How can I make a fashion statement if I don’t have the right shoes that match what I’m wearing?”

With this type of attitude, it looks like college mail centers and students will have to keep expanding their wallets.

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New York Probe on the Student Loan Industry

Student Loan Girl — Wed, 21 Mar 2007 00:14:00 GMT

On Nov. 7, 2006 Andrew Cuomo was elected the 64th attorney general of the state of New York, and shortly thereafter launched a nationwide investigation into student loan practices at more than 400 universities across the nation, including some of the Ivy Leagues.

According to a March 15, 2007 article briefing titled “NY State Attorney General Releases Results of Probe on College Loan Industry,” that appeared in the National Council of Higher Education Loan Programs Inc.’s Daily Briefing, “Cuomo issued results of his nationwide investigation into the college loan industry that revealed ‘deceptive’ practices.”

It is important to remember that not ALL lenders or university financial aid officers have been implicated in this investigation. Although Cuomo’s office has not revealed the specific colleges it has been investigating, it has said it is focusing on Sallie Mae and Nelnet.

Preferred Lender Lists Questioned

According to the Daily Briefing, “The investigation revealed the following industry practices, which Cuomo says are ‘problematic’: Establishment of so-called ‘preferred lender’ lists without disclosing the basis for selection or the specific benefits associated with these preferred lenders; revenue sharing and other financial arrangements between schools and lenders; denials or impediments to a student or parent’s choice of lender based on the borrower’s selection of a particular lender or guaranty agency; impediments to competition in the lending industry that stifle better loan terms for students and parents.”

On the New York State Web site, http://www.oag.state.ny.us/press/2007/mar/mar15a_07.html, it is reported that “Cuomo notified over 400 colleges and universities throughout the country, including all in New York state, to end relationships with lenders that have the potential to mislead students and compromise their ability to obtain the best rate for their student loans.”

The letter also included the following points as being problematic in the student loan industry:

“Lenders pay financial kickbacks to schools based on a percentage of the loans that are directed to the lenders. The kickbacks are designed to be larger if a school directs more student loans to the lender. And the kickbacks are even greater if the schools make the lender their ‘exclusive’ preferred lender.
Lenders pay for all-expense-paid trips for financial aid officers (and their spouses) to high-end resorts like Pebble Beach, as well as other exotic locations in the Caribbean and elsewhere. Lenders also provide schools with other benefits like computer systems and put representatives from schools on their advisory boards in order to further curry favor with the schools.
Lenders set up funds and credit lines for schools to use in exchange for schools putting the lenders on their preferred lender lists.
Lenders offer large payments to schools to drop out of the direct federal loan program so that the lenders get more business.
Lenders set up call centers for schools. When students call the schools’ financial aid centers, they actually get representatives of the lenders.
Lenders on preferred lender lists agree to sell loans to a single lender so there is actually no real choice for the student.
Lenders sell loans to other lenders, often wiping out the back-end benefits originally promised to the students without the students ever knowing.”

What’s Next for the Investigation?

The Daily Briefing explained, “The Attorney General’s press statement does not indicate the future direction of their investigation, except to say the investigation is continuing.”

Students can finance their federal student loans through any lender that participates in the Federal Family Education Loan Program, including NextStudent. Make sure to look for a lender with aggressive benefits. NextStudent offers some of the best benefits in the business, including a 1 percent LOCKED interest rate reduction after the first 36 on-time payments.

Talk to the education financial advisors at NextStudent. They have all the information and advice you need on student loans. Check out www.nextstudent.com.

Also, be sure to tune in next Monday for my next blog on student loan issues in the news.

Student Loan Girl

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Financial Aid Officers on the Take?

Student Loan Girl — Thu, 15 Mar 2007 21:56:00 GMT

Definitely not, but that is the implied accusation from the U.S. Department of Education regarding its intentions to toughen lender oversight policies, according to a March 13, 2007 article by Doug Lederman titled “Change of Heart on Lender Oversight” that appeared in Inside Higher Ed. The article reported that “At a meeting last month, department officials had signaled that they planned to toughen their policies regarding when and how colleges can select certain ‘preferred’ lenders for their students to use, and to clarify the sorts of ‘inducements’ that lenders are prohibited from offering colleges and potential borrowers.

“The relationships between lenders and colleges have drawn increasingly intense scrutiny from the newly installed Democratic Congress and from some state officials amid some highly publicized examples of questionable payments…”

Administrators Livid Over Implications

The article mentioned that many college financial aid officers are angry and offended at the proposals that the Department of Education are intent on implementing, claiming that implied allegations insinuate something that is not true, as portrayed in the following quote: “‘It’s a slap in my face, saying I’m unethical,’ said Sarah Bauder, director of the office of financial aid at the University of Maryland at College Park. ‘I’m not,’ she added angrily.”

Though the initial set of proposals that regulate colleges with respect to loan providers has been rejected by college officials and currently is under negotiation according to the article, they include the following:

“Among other things, the proposals the department released at last month’s negotiating session would require colleges to have at least three lenders on any list of ‘preferred’ providers, to publicize the process and criteria they used to craft that list, and sharply restrict the benefits and gifts that they can bestow on colleges and borrowers.”

Current Enforcement Lacking

A key point of interest that occurred during policy negotiations, as reported in the article, included one in which an individual questioned Daniel Madzelan, an official at the Department of Education, regarding the wisdom of implementing new policies when the current ones were not being enforced. “In one particularly sharp exchange, Scott Giles, of the Vermont Student Assistance Corp., a state guarantee agency, asked Madzelan and a lawyer for the department, Brian Siegel, for proof of the problem, suggesting that the department had done little to enforce its existing rules and laws governing illegal inducements, and that perhaps stepped-up enforcement might be wiser than new regulations,” the article stated.

Students Stand to Benefit, Regardless of the Resolution

So, whatever happens to resolve this problem of better regulating relationships between colleges and lenders, it most likely will be in students’ best interests. Perhaps there is no impropriety going on and college financial aid officers are not on the take, as they claim. Whether new policies are implemented or current ones are more aptly enforced, ensuring that colleges put the needs of students before their own is definitely a winning play.

The student loan advisors at NextStudent are helpful and knowledgeable about student loans. They are a trusted source in getting you the appropriate information about your student loan consolidation, student loan options and helping students get the college financing they need. Go to www.nextstudent.com for more information.

Be sure to tune in next Thursday for my next blog on student loan advice.

Student Loan Girl

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