Student Loan Blog : Stafford student loans

Note to Families: Financial Aid More Competitive, But Not Out of Reach

Student Loan Girl — Tue, 27 Jan 2009 00:09:00 GMT

With more families applying for financial aid — applications are already up 10 percent above last year’s record — and lending for private student loans drying up, families’ ability to find available financial aid is becoming more difficult, reports the Associated Press (“College Financial Aid System Facing Stiff Test,” Jan. 25, 2009).

Traditional sources of college funding are no longer available: Home values are dropping, making it difficult for families to get a home equity loan, college savings accounts are dwindling, and private lenders are leaving the student loan market.

Currently, only 21 of the 60 third-party student loan lenders who issued $19 billion in federal and private student loans last year are still lending, and most of the lenders still issuing loans have severely tightened their credit criteria, according to Finaid.org, a college funding resource site.

Families face limited financial aid options at a time when state funding shortages have forced numerous state colleges to cut their financial aid budgets and replace grants and scholarships with student loans in their financial aid offers. Colleges are also increasing tuition, in some cases, by double digits.

“There are no sure answers because we’re in new territory,” said Bruce Hammond, a college admissions consultant based in Washington, D.C. “But students with high need and lesser credentials are going to have to brace themselves for less aid.”

Financially Needy Students Should Know Their College Funding Options

While the financial atmosphere for college students and their families may seem more dismal this year, things “are not as scary as people might think,” says Lauren Asher of the non-profit California-based Institute for College Access and Success.

Students and parents can take advantage of expanded federal financial aid offers. The U.S. Department of Education has already made $95 billion in grants, loans, and work-study assistance available to nearly 11 million students and families and Congress has increased annual borrowing limits for unsubsidized Stafford student loans, which are not tied to financial need, by $2,000. And President Obama’s proposed stimulus package could offer families even more financial aid.

Cash-strapped families and students could consider attending lower-cost public schools and community colleges to avoid taking on large amounts of debt. On average, tuition and fees at a two-year public school cost about $2,300, while tuition and fees at a four-year public school cost about $6,000, according to the College Board.

And while a number of the nation’s top colleges and universities, including Harvard , Yale, and Duke, have seen their endowments take a huge hit this year, none of these schools have gone back on their commitment to offset their high tuition costs by extending financial aid offers to a greater number of low- and middle-income families.

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Private Student Loan Funding Dries Up for South Carolina Lender

Student Loan Girl — Mon, 24 Nov 2008 22:19:00 GMT

South Carolina’s largest student loan provider — the predominate lender of private student loans for the state’s two largest college campuses, the University of South Carolina and Clemson University — has run out of money to issue new private student loans, reports The Greenville News (“South Carolina Student Loan Corp. Suspends Private Lending,” Nov. 20, 2008).

South Carolina Student Loan Corp., which funded $48 million in private student loans and $500 million in federal student loans last year, will stop accepting applications for new private student loans immediately, affecting some 12,000 students who rely on these loans to supplement their financial aid.

The nonprofit lender initially anticipated it would have sufficient funds to meet the state’s demand for private student loans, said company president Chuck Sanders, but the credit crunch has made it more difficult for the lender to find investors willing to buy its student loans.

While the lender has been unable to secure new financing, South Carolina Student Loan Corp. will honor the private student loans it has committed to for the coming spring semester, Sanders said.

The state lender will still offer federal student loans, including Stafford student loans, to students attending any South Carolina college or university and to South Carolina residents who attend out-of-state schools.

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Missouri Loan Forgiveness Program to Erase More Than $400,000 in Student Loans

Student Loan Girl — Tue, 21 Oct 2008 00:08:00 GMT

As part of a statewide effort to support education in math and science, the Missouri Higher Education Loan Authority has agreed to forgive nearly $444,000 in student loans for almost 300 engineering and pre-engineering college students (“MOHELA Forgives Over $400,000 in Pre-Engineering Loan Program,” MarketWatch, Oct. 17, 2008).

The lender’s Prospective Engineering Student Loan Forgiveness Award Program will forgive up to $3,500 in federal Stafford student loans for any Missouri college freshman who enrolls in and completes two years of engineering classes in certain degree programs.

Students at 11 Missouri schools are eligible for the loan forgiveness program, which complements the state’s Math, Engineering, Technology, and Sciences Alliance (METS), an initiative created by Gov. Matt Blunt to improve student achievement in METS-based industries.

MOHELA’s loan forgiveness program will be funded, in part, by the revenues generated from tax-exempt bonds, says Raymond Bayer, Jr., MOHELA’s executive director and chief executive officer.

The state student loan agency also made a second announcement on Friday that it had recently closed on a $262.5 million bond issuance with Bank of America Securities (“MOHELA Announces $262.5 Million Bond Issuance,” MarketWatch, Oct. 17, 2008). This bond will give MOHELA the capital it needs to continue issuing federal student loans through the Federal Family Education Loan Program.

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Technical College May Lose Ability to Offer Federal Financial Aid For Violating Newly-Relaxed Aid Rule

Student Loan Girl — Wed, 20 Aug 2008 20:05:00 GMT

Star Technical Institute, a technical college in New Jersey, may not be able to offer federal financial aid to students at two of its seven campuses for allegedly violating a federal law that requires colleges to obtain 10 percent or more of their revenues from nonfederal sources in order to participate in the federal student-aid program, reports The Chronicle of Higher Education (“Just as Congress Eases Aid Rule, College Is Accused of Violating It,” Aug.18, 2008).

A recent audit conducted by the U.S. Department of Education’s Inspector General found that from January 2004 to December 2006 the technical college relied on federal funds for 93 to 96 percent of its revenues at the two campuses, known as Star Upper Darby.

Since the college received more than 90 percent of its funds from the federal government, auditors recommended that both of the institute’s campuses located in Philadelphia, Pa., and Egg Harbor Township, N.J., have their eligibility for federal financial aid revoked.

Auditors also said that the school should return almost $10-million in federal grants and loans it received between 2004 and 2006.

New Legislation Seeks to Relax 90-10 Rule As Student Loan Borrowing Limits Increase

The allegations and recommendation to revoke federal aid are at odds with provisions in the College Opportunity and Affordability Act of 2008, just signed into law by President Bush, which seeks to ease the 90-10 requirement.

Legislators feared that earlier legislation passed by Congress, which raised the loan amount of subsidized federal Stafford student loans by $2,000 per student, would cause some institutions to run afoul of the 90-10 rule. With students’ ability to borrow more in federal financial aid — increasing the likelihood that they could pay for their college costs solely through grants and student loans — colleges run the risk of receiving more than 90 percent of their revenue from federal sources.

To account for the increased limits in student loans and to help institutions maintain their federal funding below the 90 percent threshold, the College Opportunity and Affordability Act allows schools to temporarily treat the extra $2,000 in federal student loan funds as part of their 10 percent, and enables them to work with the Department of Education to resolve violations within a two -year time period.

Resolution, Federal Funding Uncertain

It remains to be seen whether the Department of Education will work with Star Technical Institute to resolve the issues raised by the department’s inspector general under the new provisions of the law or if the department will proceed to revoke the college’s federal funding.

Star’s president, Karen Manin, disputes the audit’s findings and defends her position that the school received only 90 percent of its revenues from federal sources. In a formal letter to the Education Department, Manin noted that the Department of Education appeared to accept formulas her institution used in audits conducted prior to its current audit of 2004 to 2006.

Based on the department’s perceived approval of its previous formula calculations, Manin said, “Star Upper Darby reasonably relied on the DOE’s acceptance of these audits and made decisions about its business.”

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Penn State’s Switch to Direct Loan Program Underway, So Far So Good

Student Loan Girl — Fri, 11 Jul 2008 23:43:00 GMT

Pennsylvania State University said its transition over to the federal Direct Loan Program is going “smoothly.” Already about 3,000 borrowers have taken out $5 million in student loans under the new program this summer, according to an article in The Daily Collegian (“PSU Direct Loan Program Successful,” July 11, 2008).

The university made the switch to the federal Direct Loan Program — in which students and parents borrow federal Stafford, graduate PLUS, or parent PLUS loans directly from the federal government — in March after the state’s student loan agency announced it would no longer be able to issue federal student loans.

More than 90 percent of Penn State’s borrowers were dropped by their federal student loan lenders after these private lenders, who were affected by the volatility of the nation’s credit markets, left the Federal Family Education Loan Program.

Wishing to offer students a more stable and predictable system of lending, Penn State decided to join the Direct Loan Program and move away from the FFEL program under which students could take out student loans through banks and private lenders.

“Our concern was that students might pick a [FFELP] lender, and that lender might subsequently quit making loans,” said Anna Griswold, Pennsylvania State’s executive director of student aid.

In the fall, Griswold estimates that about 40,000 Penn State students will borrow $400 million in student loans through the Direct Loan Program.

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College May Be Stripped of Its Ability to Offer Some Federal Student Loans

Student Loan Girl — Thu, 29 May 2008 20:36:00 GMT

The federal government is considering revoking a college’s ability to offer subsidized federal student loans — namely Perkins and Stafford loans — as allegations surface that the school, Technical Career Institute, has been paying off the loans of some of its own students.

Since October 2005, TCI, a for-profit college in New York City, has allegedly paid $440,000 to student loan lenders in an effort to improve its default rating, according to the U.S. Department of Education’s Inspector General.

TCI, which is owned by EVCI Career Colleges Holding Corp., paid off the student loans and then later attempted to collect the debt from students.

Under federal law, colleges face penalties, including the loss of eligibility to participate in the federal student loan system, if too many of their students default on their government-subsidized loans, writes Chronicle of Higher Education reporter Paul Basken ("College Faces Penalties for Paying Students’ Loans," May 30, 2008). Colleges, however, are not allowed to pay off those student loans to help their institutions avoid a poor default rating.

In response to the Education Department’s findings, TCI denies wrongdoing, saying its actions did not hurt students and asserts that Education Department officials were aware of TCI’s student loan practice and that officials “did not communicate any concerns” about the practice, Basken writes.

The inspector general said the Education Department’s guidance to the institute was not definitive on that point.

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Arkansas Offers State Student Loan Agency $80M Line of Credit

Student Loan Girl — Thu, 24 Apr 2008 23:53:00 GMT

The Arkansas state student loan authority has been tentatively approved for an $80 million loan after an announcement that it may not be able to continue issuing student loans without financial assistance.

The state board of finance, the investment arm of the state treasurer’s office, unanimously approved the line of credit to the Arkansas Student Loan Authority, whose ability to offer student loans has been severely compromised by the nation’s ailing economy, according to an Associated Press article (“Arkansas Offers $80M to Help Student Loan Agency,” April 24, 2008).

At a meeting next month, the five-member board will vote on the final terms and conditions of the loan, which will be issued from state treasury funds that would normally be invested in banks.

Mark Conine, the authority's chief financial officer, told the Associated Press the money would solely be used to issue student loans. The authority issued $70 million in new loans last year.

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