Student Loan Blog : Rep. George Miller

New Law May Simplify College Financial Aid Form

Student Loan Girl — Wed, 06 Aug 2008 00:55:00 GMT

Students and parents could spend less time filling out the Free Application for Federal Student Aid under a new provision of The Higher Education Opportunity Act of 2008, according to an article in The Austin American-Statesman, (“New Law to Trim College Financial Aid Form,” August 2, 2008). The legislation was approved by Congress last week but has yet to be signed into law by the president.

Currently, in order to qualify for federal financial aid, families are required to complete the lengthy 11-page FAFSA separately from their yearly tax forms even though the 100-question federal financial aid form is based on tax information families are required to report to the Internal Revenue Service each year. The proposed legislation would allow the IRS to share these figures with the Department of Education, eliminating the need for families to report the information twice.

Requiring the agencies to share data could eliminate the need for as many as 31 questions from the FAFSA, according to a 2007 study by the Institute for College Access and Success.

The current FAFSA, which is used by federal and state governments and most colleges to determine eligibility for financial aid, is so cumbersome to fill out that it represents a roadblock for many students who otherwise might be college bound, the Chronicle of Higher Education reported last year, (“Congress and the Education Department Move to Simplify the Student-Aid Process,” March 30, 2007).

At that time, Rep. George Miller, who is the chief sponsor of the U.S House of Representative’s version of the bill to simplify the FAFSA, told the Chronicle the FAFSA needed to be changed because “It’s long and complicated. It’s over 100 questions. We now see the situation that the form itself can impact the decision about whether students go to college.”

Legislators have not laid out a specific time frame for when the shortened FAFSA would be introduced, leaving the agencies involved to decide when to implement the new FAFSA and the other proposed revisions to the financial aid process:

A simplified process for re-applying for financial aid
Clearer explanations regarding student borrowing options
Requirements that schools and lenders adopt new codes of conduct
Increased transparency and disclosures regarding federal student loan programs

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President Bush Signs Legislation That Boosts Availability of Student Loans

Student Loan Girl — Thu, 08 May 2008 16:15:00 GMT

On May 7, President George Bush signed into law legislation intended to help stabilize the $85-billion student loan industry and to avert a predicted shortage in student loans.

The law will allow the U.S. Department of Education to buy bundled student loans that lenders have been unable to sell to investors. Sales of these loans will create capital to help lenders make new loans.

In addition, the measure will allow the Education Department to loan federal money to guarantee agencies, so those agencies can issue student loans, if necessary, under the “lender of last resort” system,” according to an article in The Chronicle of Higher Education (“Bush Signs Student-Loan Bailout Bill Into Law,” May 7, 2008).

The new law is expected to simplify that system, under which students who have been denied student loans can petition the government as a last resort, by allowing the Secretary of Education to designate an emergency lender for an entire school instead of on a student-by-student basis.

Rep. George Miller, D-Calif., chairman of the House education committee and a chief backer of the legislation, said the passage of the bill should send a strong message to the public (“Bush Signs Student Loan Market Stabilization Plan,” Reuters, May 7, 2008).

“With this bill signed into law,” Miller said, “students and families now have every assurance that they will continue to have access to all the federal student loans they are eligible for, no matter what happens in the nation’s financial markets.”

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Not What It Appears: College Student Relief Act of 2007

Student Loan Girl — Wed, 07 Mar 2007 16:29:00 GMT

According to a March 2, 2007 article written by Olivia Majesky-Pullmann titled, “Just the Stats: Will Student Loan Interest Rate Cuts Really Help Low-Income Students?” that appeared in Diverse: Issues in Higher Education, “The College Student Relief Act of 2007, recently approved by the U.S. House of Representatives, has been hailed as a savior for students trying to handle the ever-rising costs of college. Phased in over five years, the interest rate on federally backed loans will be cut in half, from 6.8 percent to 3.4 percent. But some say the cut isn’t the saving grace politicos make it out to be.”

Majesky-Pullmann quoted U.S. Rep. George Miller, D-CA, of the House Committee on Education & Labor, as saying, “Once fully phased in, these cuts would save the typical borrower, with $13,800 in need-based federal student loan debt, $4,420 in savings over the life of the loan,” pointing out that he is “relying on an analysis by U.S. PIRG. The new interest rate will drop to 3.4 percent by 2001, but on January 1, 2012 the rates will go back to 6.8 percent.”

In the article, Majesky-Pullmann reported that, “U.S. PIRG, a public interest advocacy group, has said Miller’s office has misquoted its findings. Miller’s prediction assumes that the interest rate at its low of 3.4 percent will be permanent, although the act is scheduled to expire in 2012. A student with $13,800 in debt might save $4,420, but only if the rate was not scheduled to go back up to 6.8 percent in 2012.

“Even if the 3.4 percent interest rate were to be extended, it would only help borrowers taking out loans in 2012 or later. Unlike a mortgage, when the rates drop, students with existing loans do not have the capability to re-finance at the new, lower rates.”

Who is Affected by the STAR Act?

Although the STAR Act is being touted as one that will help low-income students, Majesky-Pullmann summarizes Mark Kantrowitz, publisher of FinAid.org, as saying “there are several misleading errors in Miller’s claim. He says the committee overstated the average cumulative subsidized Stafford Loan debt of $13,800 for undergraduate borrowers because they didn’t account for two-year students when they averaged the per-student debt. The actual total debt for four-year degree completers in 2003-2004 totaled $10,667, and is projected to increase to $12,000 in 2007-2008. Two-year degree completer’s debt was $5,488 in 2003-2004 and will increase to about $6,200 by 2007-2008.

“When combining unsubsidized and subsidized student loans, the total average cumulative debt is roughly $13,800, thus saving the borrower approximately $4,400 at 3.4 percent with a 15-year repayment term. ‘Since the 3.4 percent interest rate is limited to a six-month period, it is unreasonable to assume that all of the subsidized Stafford loan debt will be at this rate,’ Kantrowitz says.”

The STAR Act Does Not Make College More Affordable

In the long run, the STAR Act does not make college more accessible or affordable for low-income students nor does it benefit the taxpayer. Majesky-Pullmann wrote, “Kantrowitz says the U.S. government will lose billions in interest revenue because of the lower interest rate,” and quoted him as saying, “It is misleading to say that the legislation makes college more affordable for needy students at no new cost to taxpayers.”

Additionally, Majesky-Pullmann reported, “Thomas G. Mortenson a policy analyst with Postsecondary.org, has a similar view on the proposed act, ‘My concern is that this idea does nothing to make college affordable. It does nothing to reduce the $32 billion in unmet financial need that we identified from the 2004 NPSAS study.’”

It is important to keep up to date on all the news regarding student loans and education.

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.

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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