Student Loan Blog : Student Aid

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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FAFSA Discourages Students From Applying for Federal Loans

Student Loan Girl — Wed, 10 Jun 2009 21:10:00 GMT

A large proportion of students who only take out non-federal private student loans to finance their education aren’t applying for federal financial aid at all, and it’s the application itself that may be culprit, a new study suggests (“Nightmare Application May Be Driving Students to Costly Loans,” Forbes, June 9, 2009).

In his study of 250,000 students, Mark Kantrowitz, publisher of FinAid.org, a website that offers information on financial aid and student loans, found that since 1999, among those students who relied exclusively on private student loans, 60 percent of undergraduates and nearly 90 percent of graduate students didn’t complete the FAFSA, the Free Application for Federal Student Aid.

The number of students who only take out private student loans has increased 27 percent over the last 10 years. Between 2007 and 2008, the private loans taken out by students who forwent their federal financial aid options amounted to $6.2 billion — nearly 30 percent of the $22.5 billion in new private student loans originated that year.

Proposed Changes Would Eliminate FAFSA

The study’s findings come at a pivotal time in the FAFSA’s history, as the U.S. Department of Education weighs two proposals to overhaul the federal financial aid application process, one of which would carry out President Obama’s campaign promise to eliminate the FAFSA completely.

The FAFSA — currently the only way for families to apply for federal financial aid for college and graduate school — advertises itself as requiring only one hour to complete. But the six-page application calls for families to provide information about their adjusted gross income, marital status, value of their personal property, and taxable income — hurdles, Kantrowitz says, that “may deter students from applying for federal aid.”

A revamp of the FAFSA or of the application process itself could encourage more students to apply for federal student loans, which are typically less costly than private student loans, generally offering lower, fixed interest rates and more flexible repayment terms.

One proposal being considered would simplify the financial aid application form to require only adjusted gross income figures and tax exemption numbers. The other plan that’s been suggested would eliminate an application form altogether and allow the Internal Revenue Service to pass on information from financial aid applicants’ tax returns directly to the Department of Education.

Kantrowitz says a change in the financial aid application process may, in particular, help students from low-income families. His study found that low-income students have been more likely to end up turning to private student loans, which will generally cost them more than federal college loans would: Students from families who earn less than $50,000 a year accounted for two-thirds of those borrowers who financed their education solely with private loans.

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Despite Down Economy, College Student Aid Still Thriving

Student Loan Girl — Tue, 24 Mar 2009 00:18:00 GMT

In economic downturns, colleges and universities become flooded with students of all ages looking to better prepare themselves for an increasingly competitive job market. But these schools haven’t been immune to the effects of today’s recession.

Fortunately, for every recent economic downturn in higher education — tuition hikes, state budget cuts, scholarship and grant cutbacks, and a fluctuating student loan market — there’s also been a tangible upside (“Glimmer of Hope for Student Aid in a Bad Economy,” USA Today, March 19, 2009).

Tuition Assistance

Downside: Public colleges have increased tuition by 4 percent per year over the past 10 years, and many schools are set to bump up tuition even more this year as they face unprecedented state budget cuts.

Upside: Federal stimulus money should help some public colleges to better cope with the loss of state funding and to minimize any increases in tuition. The state of Maryland is hoping to go a fourth-straight year without in-state tuition increases. Other colleges are offering one-time deals to students; Kent State University in Ohio is offering laid-off workers a one-time tuition and application waiver at its Trumbull campus, and Manchester College in Georgia is offering to refund one year of tuition for students who aren’t able to secure a job or admission to grad school within six months after graduation.

Institutional Aid

Downside: Trouble in the stock market has caused colleges’ endowments to drop 25 percent in value this year, which has severely hampered schools’ ability to offer scholarships.

Upside: Despite their endowment losses, more than 90 percent of the nation’s private colleges and universities will be increasing financial aid next year by 9.8 percent to make up for 4-percent tuition increases, according to the National Association of Independent Colleges and Universities.

Government Grants

Downside: Aid for merit scholarships has taken one of the biggest hits this year, primarily due to state budget cuts.

Upside: The federal stimulus package has increased the maximum award for Pell Grants — federal financial aid for low-income students — from $4,731 to $5,350 for the coming academic year and to $5,500 for the 2010–2011 academic year. And, an additional 800,000 students are expected to receive Pell Grant funding this year.

Federal Student Loan Programs

Downside: The $50 billion Federal Family Education Loan Program — the government program that provides federal student loans to more than 10 million students through third-party lenders — has been the larger of the two federal student loan programs. But over the past two years, the FFEL program has lost business to the Direct Loan Program, the government’s other federal student loan program through which the U.S. Department of Education provides federal student loans directly to families, as hundreds of cash-strapped FFELP lenders have been forced to exit the program.

Upside: The FFEL program has still managed to increase its student loan volume this year, and some lenders are returning to the student loan market now that the federal government has bought nearly $25 billion in lenders’ student loan securities, providing them with the capital to make new loans. The Direct Loan Program has picked up the slack, providing an additional $7 billion in lending this year.

Private Student Loans

Downside: The overall supply of capital for private student loans is estimated to have decreased by one-third — a decrease of between $6 billion and $7 billion — due in large part to the fact that lenders have made it harder for families to qualify for private student loans.

Upside: Increased government funding for federal Stafford student loans has helped to reduce students’ reliance on private student loans. And more students are maxing out their federal financial aid before turning to private student loans, which the USA Today suggests has helped students avoid over-borrowing in private student loans.

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Colleges and Students Could Benefit From Pending Federal Bailout

Student Loan Girl — Wed, 21 Jan 2009 23:37:00 GMT

It seems that everyone is getting a piece of the government’s “bailout pie,” including banks, automakers, and perhaps even the nation’s colleges and universities, although exactly how much schools will get and when they will get it has not yet been established, reports Inside Higher Ed (“Manna From Heaven (er, Washington),” Jan. 16, 2009).

While provisions of an $825 billion stimulus package bill drafted by House Democrats earlier this week could change significantly before the bill is ratified by both houses of Congress — the Senate is reportedly in the process of writing its own version of the bill — a rough estimate by Inside Higher Education suggests that colleges and their students could end up benefiting to the tune of tens of billions of dollars in several areas:

Student Aid: $30 billion Nearly $15.6 billion would be used to increase Pell Grant awards by $500 per recipient to $5,350, a move that would help about 800,000 students in the 2009–10 school year and would wipe out the $1.4 billion shortfall projected for next year’s Pell Grant program budget. Some $12.5 billion of the bill would be used to increase the limit on federal unsubsidized student loans by $2,000 and to replace the HOPE Tax Credit with a restructured tax credit worth up to $2,500 to benefit low-income families.
College Grants: $4 billion Community colleges and for-profit schools could receive as much as $4 billion in the form of grants for adult education programs, so that these students may be able to receive career-related or job-education training. Some funds could also be allocated to states in the form of bonds that local governments could use to create “recovery zones” to help those individuals who reside in areas suffering from high unemployment or foreclosure rates.
College Infrastructure: $8.7 billion About $6 billion would be used for “higher education modernization, renovation and repair” and would be distributed to states based on the number of full-time undergraduates attending state institutions. Some $2.7 billion would be allocated to renovate, update, and modernize biomedical research facilities and upgrade equipment, with funding priority given to colleges that “serve high numbers of minority students” or “institutions impacted by a major disaster.”
State Aid: $39 billion A portion of this estimated $39 billion would be given to state governments “to help restore cuts to critical education programs,” including those in higher education. Some of these funds may be used to “restore state support for postsecondary education to the fiscal year 2008 level.”
Academic Research: $8 billion Some $2 billion would be allocated for research on energy efficiency and renewable energy along with $1.9 billion allocated for basic energy studies. An additional $2 billion would go to the National Science Foundation, $1.5 billion would be used by the National Institutes of Health for biomedical research, and $400 million to be used by NASA for climate-change research.

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Note to College Donors: Make the Check Out to Students

Student Loan Girl — Fri, 21 Nov 2008 23:28:00 GMT

As the economic downturn continues to impact families’ ability to pay for college, schools are redirecting their fundraising efforts to focus on financial aid, reports The Wall Street Journal (“Colleges Shift Donor Appeals Toward Student Aid,” Nov. 19, 2008).

In order to help meet the increased demand for financial aid, some schools are urging donors to contribute money directly to a school’s general fund, which universities reserve for their most pressing needs, or to a school’s scholarship program, rather than to new building construction.

Bobbi Mark, vice president of institutional advancement at Barnard College in New York, said it makes more sense for colleges to delay the construction of a new building than to “say to the entire sophomore class: Why don’t you take a year off?

“Certain things have to be priorities,” Mark added, “and financial aid is one of them.”

What Some Schools Are Doing To Boost Financial Aid

To help students get the financial aid they need, some schools are giving their priorities a makeover:

Barnard College is asking donors to participate in its endowed scholarship giving program to make up for a reduction in family contributions and to meet an anticipated $1.2 million increase in demand for aid. The program’s donors agree to pledge $100,000 to help a particular student meet his or her tuition costs.

With its families taking a big hit from the mortgage crisis and unemployment, Stanford University has seen an “increase in demand for aid above and beyond our expanded aid commitment,” said Karen Cooper, director of financial aid. The school plans to delay certain building projects and cut its $800 million general funds budget — which pays for faculty and staff salaries, administrative costs, and non-research-related expenses — by 10 to 12 percent over the next few years.

The University of Texas at Austin, which has seen its state funding decrease, recently announced a new $3 billion fundraising campaign with a “primary focus” on making school affordable, said Carolyn Connerat, the school’s campaign director. Giving toward scholarships is up by $4 million this year compared to last year.

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Student Loan Crunch Affected Some Private Schools, But Crisis Largely Avoided

Student Loan Girl — Tue, 28 Oct 2008 20:59:00 GMT

The student loan crunch that began this past spring failed to become the widespread crisis that experts predicted, according to the results of a survey by the National Association of Independent Colleges and Universities. Still, the NAICU reports, some of the private colleges surveyed have had to scramble to help their students get the loans they need to pay for school (“Student-Loan Crunch Sets Back Some Private Colleges, but Most Manage,” The Chronicle of Higher Education, Oct. 22, 2008).

More than 500 NAICU member institutions responded to the survey, including 450 private colleges and universities that participate in the Federal Family Education Loan Program, the federal student loan program that relies on private, third-party lenders to provide the majority of federally backed loans to students. Of those schools, 85 percent found that their students were dropped by at least one private lender, and 27 percent of the schools said that their students had struggled to find a replacement lender.

Schools reported that their students who weren’t able to get a private student loan often had to take time off from school, drop down to part-time status, work additional hours, or use a credit card to make up the difference in their college expenses.

Three-quarters of the colleges surveyed saw an increase in demand for student aid, but 67 percent reported no negative impact on their enrollment. This is “a good sign,” said David Warren, president of NAICU, even though he speculates that many families may had not yet felt the full impact of the downturn when they were surveyed on Sept. 10., only days prior to the Lehman Brothers bankruptcy filing.

“On the one hand, we avoided anything we’d call a crisis,” Warren said. On the other, we see some clear signals of what may be in store for families right on the edge.”

Only 18 percent of respondents said they had fewer returning students than anticipated, while 19 percent reported having a smaller freshmen class than expected, which came as a surprise to Sarah Flanagan, NAICU’s vice president for government relations and policy. “I thought our sector was going to be OK.”

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For-Profit Colleges Face Expulsion from Federal Student Aid Program for Awarding Too Much Aid

Student Loan Girl — Fri, 25 Jul 2008 18:50:00 GMT

Under new federal legislation, many students at for-profit institutions have seen the amount of their Pell and federal student loan awards increase and a larger number these students have been able to cover all their college costs with just these two types of federal financial aid, according to an article in The Chronicle of Higher Education (“For-Profit Colleges Seek Fix for Student-Loan Problem,” July 25, 2008).

However, school administrators fear that with the growing number of students able to take out larger amounts of federal student aid, these for-profit institutions may run afoul of the federal requirement that at least 10 percent of a school’s revenue come from non-federal sources.

If more than 90 percent of a for-profit institution’s revenue comes from federal sources, these colleges may become ineligible to participate in federal student-aid programs, and students may be required to pay for college with more costly funding sources like private student loans or credit cards.

Lobbyists for these for-profit institutions are working with Congressional leaders to alter and renew the Higher Education Act to resolve this issue so that students may still be able to receive greater amounts of federal aid without jeopardizing the federal student-aid programs in place at for-profit schools.

Though Congress is preparing to break before the 2008 elections, lobbyists are hopeful that their addendum will be added to the final version of the bill, which may be voted on before the end of the current legislative session.

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Lose Your Right to Choose: Kennedy Rallies Support for STAR Act

Student Loan Girl — Thu, 22 Feb 2007 22:39:00 GMT

On Feb. 16, 2007 the “first higher education hearing of the 110th Congress” took place before the Senate Health, Education, Labor and Pensions Committee, according to a Feb. 19, 2007 article titled “Scattered Thoughts on Student Aid” by Doug Lederman and Sarah Rosser that appeared in Inside Higher Ed.

After reading the article, it made me wonder if this is yet another instance of “smoke and mirrors,” or a public relations ploy meant to distract students and their parents from what really is going on in the student loan industry. The article stated that “the committee, perhaps in search of a public relations splash, seemed to emphasize style as much as substance. The result was that it prominently featured a television talk-show host with high Q ratings but limited knowledge of how the financial aid system really works.”

Orman: Another Lobbyist for Hire?

What the article referred to was the appearance of Suze Orman, the CNBC “personal finance guru” as “the panel’s ‘star’ witness.” After glancing through the article, it seemed that Orman served little purpose other than to parrot Sen. Edward Kennedy’s, D-MA, views of noncompetition (and thereby “non-choice”) regarding switching colleges over to the FDLP (Federal Direct Loan Program) via the STAR Act.

The article reported that, “She took issue with the widely held view that increased competition in the student loan industry is better for students, a concept the other witnesses uniformly embraced.

“‘When there are choices, there is confusion,’ Orman said, suggesting that student and families get so overwhelmed by information about competing loan options that they just ‘do nothing.’ Consumers would be better off with fewer loan options, she said, a seemingly unusual stance for a consumer advocate. ‘We always lose when others are competing over our business,’ she said.”

STAR Act Removes Your Right to Choose

Apparently, Orman and Sen. Kennedy think that we should not be able to choose and make our own decisions, a choice that likely will be made for us if the STAR Act becomes law.

As many of you already know, Kennedy has been introducing much legislation that, at first glance, seems to benefit those who have been demanding a solution to the problem of increasing college costs and declining federal funds.

Kennedy: Savior of College Students?

The article summarized Kennedy’s actions and position:

“The various bills from Kennedy aim to increase grant aid, reduce borrowers’ student loan burdens by tying repayment to their incomes, step up regulation of lenders, and reshape the playing field of the government’s two competing student loan programs — and all of those topics got some discussion in the wide-ranging discussion at Friday’s hearing.”

I suppose I could be taking this out of context, and I know I am reading between the lines here. But as an American, I prefer to retain my right to make my own decisions. How about you? The more I learn about the new legislation (like the STAR Act) that the democrats are proposing, the more wary I become. The lesson I am learning is that just because something appears to be good does not necessarily mean that it is so. In other words, just because legislation promises to save billions or provide more federal funding, it does not mean that it will happen. It could just be political posturing.

It is important to keep up to date on the effects of the legislation and news on student loans and education. What goes on in government and in your state can have a great impact on your student loans and your college education.

For all the information you need about student loans, go to www.nextstudent.com.

Be sure to tune in next Wednesday for my next blog on student loan legislation in the news.

Student Loan Girl

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New Faces in Education

Student Loan Girl — Thu, 04 Jan 2007 15:55:00 GMT

Doug Lederman reports in the Jan. 3 edition of Inside Higher Ed on an interview he conducted with Sara Martinez Tucker, the newly confirmed U.S. under secretary for education. The article is titled, “The New Top Fed for Higher Ed,” and a full podcast version of the interview can be found on their website at www.insidehighered.com.

According to the article Tucker has a lot on her plate, especially since she in a new comer in the second-half of a presidential term, and one that has a newly elected Democratic congress to deal with, Lederman reports, “She is, after all, joining an administration (1) for its final two years, (2) after the president’s party has lost control of Congress, and (3) when its top education policy goal is inarguably renewal of the No Child Left Behind law, and during the interview, Tucker, on multiple occasions, utters phrases along the lines of, ‘We don’t have much time.’ But she also expresses confidence — the confidence of the first Latino woman to reach AT&T’s upper ranks, perhaps, or of someone named in 2005 to Time magazine’s list of 25 most influential Hispanics — that she will be able to accomplish much of her agenda in the short time she has.”

Below are a few highlights from Lederman’s interview:

“Q. What in your background has prepared you for this position?

The way I heard the question was what makes you think you’re qualified for the job? [Laughs] Candidly, I don’t know what the right qualifications are. One of the things, when the secretary and I first started talking about education, when she was in the [White House] West Wing and I was quarterly popping by to see her over at the West Wing and we talked about education, I said, the thing that’s amazing to me is just how much is changing. What’s missing for me is the connectivity that we talked about in the commission report. When she formed the commission, what I said to her was, this is going to be a terrific thing for me. I know what higher ed meant to me, I had gotten a picture of higher ed now that I’ve been doing the work that I’ve been doing for the last nine years, and because of the work that I was doing, and because the Hispanicization of America becoming so big, a lot of colleges asked me to sit on their boards. And then there I was, the chair of the Board of Trustees of a small private, and had to deal with accreditation. I said to the secretary, you know, I think one could say that I’m a little jaded, based on seeing higher ed through the eyes of my community for nine years in a row, or eight years before the commission started. For me, it’s going to be fun, because I’m going to get to see higher ed through the lens of the business community, and higher ed through the lens of the academics.

And I was still naively thinking that those were the lenses. The thing I learned the most from the commission work is, we don’t have the ability, the luxury, of looking at higher ed through those unique lenses. Certainly each of us has to be passionate about protecting — for me it would be the constituents I represented, for the business community it would be private investment, for academics it would be academic freedom. But we can’t continue to sit in these little pipes — chimney pipes — and expect to be effective for the students we’re supposed to serve. So I don’t know that there’s any background that would make you uniquely qualified for this job. I would hope that what I would bring to this would be an ability to say, there’s a stake in it for everybody, and to the extent that we can facilitate the right conversation that has to happen so that the right decision is made and we can get the investment required, that’s what I think. I don’t know that an academic or somebody from corporate America — I don’t know what experiences would prepare you for this, given the situation in higher education today.

Q. One practical question: Is your work at the department entirely in higher education?

A. Completely higher education. All things adult, is what the secretary likes to say. The deputy secretary has K through 12, so I have all the operations and policy for anything after.

Q. You opened the door: Which are the recommendations that matter the most to you?

A. Can I tell If I were queen for the day, I’d want to fix federal student aid. It’s not just Pell, it’s not just need-based aid. At AT&T, when they gave me the consumer operations job, I had all of AT&T’s call centers. I was proud of all 22 work centers, and the way they serviced the 80 million resident customers, but it occurred to me that if I had 22 different centers, I was probably staffing to peaks and valleys for 22 different queues, and it was probably going to cost the company more to operate them. So I was thinking, if we have 17 federal student aid programs, and 14 out of [the Office of Federal Student Aid], and we don’t let you apply until midnight on January 1, with the experience I have, why wouldn’t I come in and say, let’s step back, what if we were to do zero-based budgeting? What if we take away no benefits to students, and yet we organize so that it’s more efficient and more effective, what do we do with the savings from doing that? So the thing that I would love to do, and the thing that’s got me real excited, and a lot of it we can do within our own shop here, the No. 1 priority for me is to fix federal student aid so that students have easier access to information they need about what they’re eligible for, so they can apply more easily, so they can get an answer from us much more easily than they do now, and so we can squeeze out as much cost in administering and put more benefits to American students. That’s my No. 1 priority.

Q. When people who deal with student aid and within higher education hear talk of simplification or streamlining or whatever verb or noun you choose to use to describe what might be done to the student aid programs, they tend to believe that money’s going to disappear.

A. That’s why you very carefully heard me say, when I first got here I was ignorant and I was thinking people knew what streamlining meant, and simplification, that it was the corporate jargon. What I was saying was not what people were hearing. What they were hearing was, get rid of programs. That’s why I’m very careful to say now, streamline federal student aid, reengineer federal student aid, simplify — whatever you want to say. Not take away any benefits to students — but reduce the cost of administering the programs. To the extent out there that there are programs out there with benefits to students, that’s not what I’m proposing goes away. What I’m proposing goes away is the complexity of federal student aid.

Q. Do you see ways that can be done? What’s a rough outline of how you go about that?

A. I think the most important thing — and it hasn’t happened yet, but one of the things I’m eager to tackle — the first thing you have to start with is, what are the access goals for this country? Who do you want to become lifelong learners, who do you want getting higher ed, whether it’s the community college or whatever, and then you have to look at who is getting priced out. And then once you understand who is being priced out, then you have to understand what programs can support them, without having that complementary, maybe, increase in the cost of higher ed. So for me it’s what are the access goals for this country, who’s being priced out, what aid do they need, and then how do we package that aid so it doesn’t have unintended consequences? That’s the logic I want to take folks through, in being open.”

It is important to keep up to date on the effects of the U.S. Department of Education and news on student loans and education. What goes on in government and in your state can have a great impact on your student loans and your college education.

For all the information you need about student loans, go to www.nextstudent.com.

Be sure to tune in next Wednesday for my next blog on student loan legislation in the news.

Student Loan Girl

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