Student Loan Blog : Kelly Field

Aid Administrators to Lawmakers: “Don’t Kill Guaranteed Student Loans”

Student Loan Girl — Wed, 25 Mar 2009 00:02:00 GMT

Just as Congress is about to vote on President Obama’s plan to end the government’s Federal Family Education Loan Program, through which families get their student loans from private third-party lenders, a lender advocacy group is urging lawmakers to consider an alternative to the president’s proposal, reports The Chronicle of Higher Education (“Student-Aid Administrators Urge Lawmakers to Reconsider Killing Guaranteed Loans,” March 19, 2009).

Currently, college students can take out student loans through private lenders using the FFEL program, or directly from the Department of Education through the government’s Direct Loan Program, which Obama hopes to establish as the sole provider of federal student loans.

Instead of doing away with FFELP lenders altogether, the National Association of Student Financial Aid Administrators proposes creating a new federal student loan model that would allow FFELP lenders to continue their participation in the federal student loan program, but under different roles.

FFEL Program Participants Would Serve New Roles

In a memo sent to Congress, NASFAA president Philip R. Day Jr. proposes that student loans be financed through the sale of government subsidized bonds to investors and that the proceeds be used to disburse student loans to colleges, who will in turn apply the funds directly to students’ accounts, similar to how direct lending functions today.

Under the NASFAA’s proposal, private lenders would no longer market college loans to students but could bid on Education Department contracts that would allow them to originate, disburse, and service the loans. Nonprofit agencies and former guarantors would no longer guarantee student loans, but would instead provide default- management services to students, including entrance and exit counseling on their repayment options.

A unique feature of NASFAA’s proposal would allow family members, friends, and private companies to receive a tax credit in exchange for paying off a portion or all of a borrower’s debt. State-based nonprofit lenders would still be allowed to offer loan-forgiveness programs for students entering in-demand professions.

Congress Urged to Consider Alternatives

Earlier last week, the NASFAA asked lawmakers to go slow when considering Obama’s plan. Lawmakers were also urged to engage in “deliberative” discussions regarding the future of student lending, The Chronicle reported, instead of just “ramming through” the government’s proposal to end the guaranteed lending program.

Obama’s plan aims to eliminate guaranteed lending for students through a budget resolution outlining the government’s spending plan.

If that resolution includes instructions to Congress’ education committees to consider Obama’s proposal by way of the budget reconciliation process, Day says it would be the death knell of the FFEL program and “prevent a full vetting of alternative proposals.”

The NASFAA has asked legislators to convene a stakeholder’s meeting to consider other viable options to reform the federal student loan program.

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Auditors Accuse Bank of Illegally Getting Student Loans

Student Loan Girl — Fri, 09 Jan 2009 21:20:00 GMT

A recently completed audit of Fifth Third Bank — the 20th largest lender of federal student loans in the country according to college financial aid site FinAid — found that the bank violated federal law by illegally paying three companies for loan applications (“Audit Slams Fifth Third Student Loans,” The Enquirer, Jan. 9, 2009).

According to the law, lenders may not provide inducements in the form of “points, premiums or payments” in exchange for loan volume, reports The Chronicle of Higher Education (“Fifth Third Bank Offered Inducements for Loan Volume, Audit Finds,” Jan. 7, 2009).

The bank had agreements with Law School Financial, MSA Solution Inc., and Pacific Loan Processing Inc. to solicit loan applications that allowed these third-party companies to participate in the federal student loan program through Fifth Third, which acted as a trustee on their behalf. These arrangements allowed the third-party companies to make or purchase federal student loans.

As a result of the audit’s findings, the Department of Education’s Inspector General recommended terminating the bank’s participation in the Federal Family Education Loan Program. The audit also recommended imposing penalties that range from a fine to removing government subsidies on more than $3 billion of improperly obtained loans, which would require more than $300 million in reimbursements.

Fifth Third said that the audit’s findings represented a new, stricter interpretation of the law which authorizes a bank to buy and sell loans, but doesn’t allow lenders to pay another company to market loans or solicit applications. “The payments at issue were for the sale of actual loans, and not for the marketing of loan applications,” the bank said in response to the Inspector General’s audit.

Although the dispute won’t affect current Fifth Third borrowers who already have loans with the company, it could affect the way student loan companies do business and make it much more difficult for students to obtain loans in the future.

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Despite Greater Benefits Under New GI Bill, Vets May Still Opt for Trade Schools, Community Colleges

Student Loan Girl — Fri, 25 Jul 2008 22:38:00 GMT

Recently published research from the U.S. Department of Veterans Affairs indicates that approximately 57 percent of those veterans who used their GI Bill benefits in fiscal year 2007 attended either community colleges or for-profit institutions.

Veterans tend to enroll at these types of schools because they often cater to veterans’ needs, are more convenient, and in the case of community colleges, are cheaper than their four-year counterparts, according to an article in The Chronicle of Higher Education (“Cost,Convenience Drive Veterans’ College Choices,” July 25, 2008).

Even with the new GI Bill giving veterans sufficient benefits to cover the more expensive four-year colleges in their state, many educators, legislators, and other experts are skeptical about whether veterans will actually choose to attend these schools.

Convenience May Win Out Over Added Benefits of New Bill

The current GI Bill only covers 73 percent of a veteran’s tuition, fees, and room and board at a four-year public college, and only 31 percent of the costs at a private four-year school. Veterans often choose to attend community colleges, since their GI Bill benefits cover the costs of these schools in full.

But veterans may choose to attend a particular type of school for its low costs as well as for its services, according to Keith Wilson, director of the education service at the Department of Veterans Affairs.

Most veterans go back to school to build on a particular skill set gained in the military and are looking for programs that enable them to balance their studies, with work and family life, Wilson said.

Community colleges near military bases and schools, such as American InterContinental University, University of Maryland, and Tidewater Community College, do just that. They are set up to more specifically to address veterans’ needs by extending more academic credit for military experience, helping veterans access their federal benefits, and accommodating vets with physical and emotional disabilities.

Anthony Mabutol, a Navy veteran, told the Chronicle that he began his education at Tidewater for “practical” and “financial” reasons. He said he probably would still select Tidewater, even if he had more generous GI Bill benefits. The only difference, he said, is that the added benefits would allow him to eliminate his part-time job while attending school.

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College-Bookstore Bill Could Lower Textbook Costs for Students

Student Loan Girl — Mon, 21 Jul 2008 21:12:00 GMT

College students may soon be getting some relief when it comes to the $900 they spend on textbooks annually, although these new savings may be too minimal to notice.

A new bill before Congress being supported by college bookstores, HR 5546, would allow bookstores to negotiate the fees they have to pay to banks when students purchase books using credit cards, according to an article in The Chronicle of Higher Education (“College Bookstores Back Bill That Could Lower Their Credit-Card Fees,” July 16, 2008).

These fees, which average 1.75 percent of the total textbook purchase, are passed on to students in the form of higher prices for college books and may be partly responsible for this trend of escalating textbook costs.

Since 2003, the nation’s college bookstores have paid about $85 million in fees for students who purchased textbooks using credit cards, the National Association of College Stores estimates.

If the new bill becomes law, college bookstores would not only be able to negotiate credit card fees with banks, presumably lowering the fees, but they would also be able to pass their savings on to students in the form of lower textbook costs.

Critics say that the bill may harm smaller banks and credit unions, and they point out that there is nothing in the measure that indicates bookstores’ savings from the reduced fees will be passed along to consumers or students.

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Colleges May Be Required to Refund Student Loans for Military Members Called Into Service

Student Loan Girl — Wed, 02 Jul 2008 00:20:00 GMT

At the same time the recently passed GI Bill was being pushed through Congress, legislators have been considering a veterans education “bill of rights” that would protect service members who are called to duty in the middle of their higher education studies, according to an article in The Chronicle of Higher Education (“Congress May Require Colleges to Repay Loans for Students Called to Military Service,” June 27, 2008).

Both the House and Senate are looking at legislation, which has become unpopular among colleges, that would require institutions to refund student loans and other out-of-pocket expenses to students who are called to active military duty mid-semester.

Under the proposed legislation, students would be able to sue colleges that fail to make the refunds and would require colleges to re-enroll veterans at the same academic status they held when they departed for military service.

Opponents say the requirements would be difficult to implement and that the potential changes would conflict with existing rules. They counter that Congress should require the loans to be discharged instead of having colleges repay them.

David Baime, vice president of the American Association of Community Colleges, claims that students should be responsible for the loans they take out, not the institutions they attend.

“It’s kind of outrageous to expect institutions to repay loans” that students take out, he said.

Supporter of the bill Patrick Campbell, legislative director for the Iraq and Afghanistan Veterans of America, says that the new requirements are only fair, pointing to the many horror stories of vets who have attempted to get refunds or re-enroll at their schools after returning from active duty.

Campbell said, “When veterans come home and their schools make them jump through hoops, some students will not go back.”

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2009 Budget Resolution with More Money for Education Approved by Senate

Student Loan Girl — Mon, 09 Jun 2008 22:48:00 GMT

The U.S. Senate approved an $84.3-billion discretionary spending blueprint for the 2009 fiscal year that greatly increases federal funds for education as well as scientific research, according to an article in The Chronicle of Higher Education (“Senate Approves Budget Blueprint With More Money for Education and Science,” June 4, 2008).

The $84.3-billion figure represents an increase of 5.6 percent, or $8.2 billion, more than the current 2008 budget, and $8.4 billion, or 6 percent, more than the budget President Bush proposed for 2009. Since the House of Representatives is expected to pass the resolution this week, legislators may begin debating specific spending bills, such as increases to the federal Pell Grant program, as early as next week.

However, these measures probably will not make it through Congress before the new president is elected in November. Bush has threatened to veto any bills that exceed his spending limit, so lawmakers anticipate the possibility of financing education and other programs through a series of ongoing resolutions until a new president takes office.

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Financial Aid Administrators Oppose New Preferred-Lender List Rule

Student Loan Girl — Thu, 24 Apr 2008 01:01:00 GMT

The National Association of Student Financial Aid Administrators has asked the Department of Education to reconsider its interpretation of a new rule that requires colleges to have at least three student loan lenders that are not affiliated with each other on their preferred-lender lists, according to an article by Kelly Field in The Chronicle of Higher Education (“Aid Administrators Urge Reconsideration of Rule on Preferred-Lender Lists,” April 28, 2008).

In a letter sent to the Department of Education, NASFAA President Philip Day, Jr., expressed members’ concerns that the rule is being interpreted too broadly and “could not come at a worse time.”

Financial aid officers are presently dealing with the uncertainty about access to student loans and many have already created their preferred lender lists, which under the Education Department’s new three-lender rule would have to be revised.

With peak student loan processing season currently underway, financial aid administrators fear that the rule, expected to go into effect in July, would severely limit students’ borrowing options.

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