Student Loan Blog : U.S. Department of Education

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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Federal Student Loan Lenders Fight for Survival

Student Loan Girl — Mon, 30 Mar 2009 23:52:00 GMT

In what is being viewed as a direct hit to private third-party lenders in the Federal Family Education Loan Program who are fighting to keep the program alive, the U.S. Department of Education’s preliminary data paints the FFEL program as a costly and ineffective system with a 7.3-percent student loan default rate, two whole points higher than the default rate for the Direct Loan Program (“Private Lenders Brace for Fight Over Student-Loan Role,” The Wall Street Journal, March 27, 2009).

Since its launch in the 1960s, FFELP has been the primary source of federal student loans. This year the FFEL program has already lent more than $56 billion in student loans, while the Direct Loan Program has lent just $20 billion. But President Obama has proposed axing the FFEL program, which costs the federal government billions of dollars in subsidies each year, in favor of the government’s Direct Loan Program, through which families borrow directly from the government.

FFELP lenders have said that the Education Department’s untimely release of the student loan default rate data — taken from fiscal year 2007 — was purely political since the government has never released preliminary default rate data and has never broken down the data by the two programs. Industry analysts say the data reflects the differences in the two programs: FFELP lenders typically cater to more students from for-profit schools who tend to default at a higher rate than students in the Direct Loan Program.

Department of Education officials have said they released the data in response to a U.S. Freedom of Information Act request from The Wall Street Journal and inquiries from Congressional leaders.

“It’s unfortunate the rates are being released before there is an analysis of them,” said Brett Lief, president of the National Council of Higher Education Loan Programs, a trade group that represents FFELP lenders and federal loan guarantee agencies. “This is very serious stuff and I’m saddened that it has come out like this.”

No Cut-and-Dry Solution to the FFELP Dilemma

While the Consumer Bankers Association, which represents certain FFELP lenders, has sent Congress a 2,500-signature petition asking legislators to reject the president’s proposal to eliminate the FFEL program, industry observers don’t see the battle over FFELP ending quickly or simply.

The Congressional Budget Office has said eliminating the program would save the government nearly $100 billion over the next 10 years, which President Obama plans to redirect to the Federal Pell Grant program. This potential funding boost for Pell Grants, which are awarded to the nation’s neediest students, could make it harder for legislators who support FFELP to successfully argue to keep the program alive.

However, some legislators who oppose the FFEL program face strong opposition from their home-state guarantee agencies that work with FFELP lenders to service college loans for students in their state. Legislators may also have to battle student loan giant Sallie Mae, which has said that keeping certain elements of FFELP might actually make it possible for the government to draw additional Pell Grant funding from FFELP itself. Sallie Mae has also pointed out that its borrowers, who partake in default prevention programs through state loan-guarantee agencies, are 30 percent less likely to default than direct loan borrowers.

“It’s certainly possible Congress would eliminate the program,” said Terry Hartle, a senior vice president of the American Council of Education, a trade group representing colleges and universities. “But it’s equally possible — and perhaps more so — to wring more savings out of the [FFEL] program and put the savings into Pell.”

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Groups Say Forgiving Student Loan Debt Would Boost Economy

Student Loan Girl — Thu, 26 Mar 2009 00:16:00 GMT

As student loan debt continues to rise — jumping to $20,098 per graduating student loan borrower in 2007 from $18,796 in 2006 — and employment prospects continue to worsen, college graduates are experiencing greater difficulty repaying their student loans, and some of them have said enough is enough, BusinessWeek reports ("Asking for Student Loan Forgiveness,” March 24, 2009).

In 2008, borrowers fell behind on nearly $131 billion in private student loan payments, according to FinAid.org. There were $544 billion in federal student loans left outstanding for the fiscal year 2009, up from $502 billion in 2008, the U.S. Department of Education reports.

Student Borrowers Use Facebook to Advocate A Break From Loans

While Robert Applebaum hasn’t fallen behind on his student loan payments from law school, he has become frustrated with his mounting student loan debt. The New York attorney saw his $80,000 student loan debt balloon to $100,000 after he put his loans into forbearance for five years when he was working a low-paying job at the Brooklyn District Attorney’s Office.

Fed up with his rising debt and with recent media reports of banking executives from bailed-out banks receiving hefty bonuses or spending taxpayer money on million-dollar office renovations, Applebaum took his gripes online. He used Facebook as a soapbox to promote his own idea for stimulating the economy: canceling student loan debt. He quickly found out he wasn’t the only one interested in this idea.

Within the first two weeks of starting the Facebook group “Cancel Student Loan Debt to Stimulate the Economy,” Applebaum gained 2,500 followers. Just two months later, the group now has more than 138,500 members.

“Despite having a law degree, I’m middle class and I don’t have any money at all,” Applebaum says. “I don’t own a house or a car. My only assets are my couch and television.”

More Change Needed But Reforms Are Taking Shape

Applebaum hasn’t been the only one to take to the Internet to advocate for student loan forgiveness. Alan Collinge, founder of the website StudentLoanJustice.org, has used his site as well as in-person visits with elected officials throughout the country to increase awareness about the problems in the student loan system. Collinge has advocated for a return of what he calls “basic consumer rights” to student loan borrowers. Currently, student loans are one of a few types of consumer debts that are almost impossible to discharge in bankruptcy proceedings.

“Until someone shows me why student loans should specifically be exempt from bankruptcy protections, it’s definitely a fight worth fighting,” Collinge said.

Although it may be some time before the government agrees to forgive student loan debt, legislators have taken steps to make student loan payments more affordable.

On July 1 of this year, the government will implement the Income-Based Repayment plan, which caps borrowers’ monthly student loan payments at 10 percent of their gross income for 25 years, after which borrowers’ remaining debt will be forgiven. And the government’s Public Service Loan Forgiveness program allows borrowers to make income-based repayments on their student loans and have those loans discharged after 10 years of working in public service.

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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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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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Univ. of Phoenix Accused of Manipulating Its Default Rate

Student Loan Girl — Wed, 14 Jan 2009 23:39:00 GMT

Three former University of Phoenix students are suing the for-profit higher education giant for using a questionable loan repayment practice that skews the university’s default rate and takes away federal student loan repayment options from students who withdraw from the school, according to The Chronicle of Higher Education (“Lawsuit Accuses U. of Phoenix of Protecting Its Default Rate at Students’ Expense,” Jan. 14, 2009).

The lawsuit, which could soon reach class-action status, alleges that the university’s ”payback” policy is designed to manipulate the school’s default rate — the percentage of a school’s students who stop repaying their loans. Under the current policy, the school “pays off” students’ federal college loans without students’ knowledge or consent after they have withdrawn from the institution. The University of Phoenix then attempts to improperly collect on the paid-off loans directly from the students “under terms more onerous than those of the original federally guaranteed loans.”

By canceling the federal student loan debt of students who withdraw from the school, the University of Phoenix, which has one of the lowest default rates among the nation’s for-profit colleges, effectively prevents those loans from being considered in its default rate.

Statistics suggest that students who withdraw from school are more likely to default on their student loans, and the more borrowers a school has who go into default thereby increasing its default rate, the more likely the school is to lose its ability to participate in the federal student loan program, among other restrictions.

Students Lose Repayment Benefits Under ‘Payback’ Policy

According to the lawsuit, the university’s payback policy harms students by preventing them from being able to take advantage of generous loan repayment terms offered by the federal student loan program, which include below-market interest rates and longer repayment terms and grace periods.

Students who must repay the University of Phoenix directly are “routinely bombarded with calls, letters, and e-mails from [the university] to collect tuition along with threats that refusal to pay will result in referral to collection agencies and negative reports on their credit.”

The lawsuit seeks actual and punitive damages on behalf of thousands of borrowers affected by the university’s repayment practice over the past four years, as well as an injunction barring the university from continuing its current payback practice, which could affect numerous other for-profit colleges that use similar practices, the Chronicle reports.

In a statement, the University of Phoenix said that the students bringing the lawsuit have “misconstrued” the Higher Education Act, and that the U.S. Department of Education had determined in January 2008 that the school’s refund policies were compliant with federal student aid rules.

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Kentucky Set to Buy $50 Million Bond So Students Can Get College Loans

Student Loan Girl — Mon, 18 Aug 2008 22:57:00 GMT

To ensure that Kentucky students get the money they need to pay for school, Kentucky Gov. Steve Beshear has authorized the state to buy a $50 million bond from the state’s student loan agency just before fall classes get underway, reports the Lexington Herald-Leader (“State Using $50 Million Bond to Solve Student Loan Crisis,” Aug. 16, 2008).

Affected by the ongoing credit crunch, the Kentucky Higher Education Student Loan Corp., also known as the Student Loan People, ran out of money last week, but with the “bridge loan,” will be able to begin issuing $35 million in loans to about 16,000 students by Thursday.

Although the recently passed Ensuring Continued Access to Student Loans Act (H.R. 5715) was designed to give the U.S. Department of Education the authority to buy student loans from cash-strapped lenders, the Education Department requires that lenders first obtain short-term “bridge” financing to initially fund new loans. After lenders secure the preliminary financing, the Education Department will buy these college loans, giving lenders the liquidity they need to continue making new loans.

Kentucky is thought to be the first state in the nation to purchase a private placement bond to meet the state’s student-loan needs. Massachusetts has unsuccessfully looked to its public pension funds for relief, while other states have simply shut down their student loan operations, according to an article in the Kentucky Post (“Gov. Orders State Purchase $50M Bond to Ensure Student Loans,” Aug. 15, 2008).

The Student Loan People’s bond sale must be approved by the State Property and Building Commission, an executive branch panel that meets today, and the General Assembly’s Capital Projects and Bond Committee, which will meet Tuesday.

If the bond sale is authorized, the nonprofit state loan agency will have a loan term of 445 days that would be payable on Nov. 15, 2009. The agency will be charged a variable interest rate, currently set at 3.32 percent, which means the agency would pay $1.9 million in interest to the state, on top of the $50 million principal.

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Number of Students Applying for Federal Financial Aid Goes Up Almost 20%

Student Loan Girl — Tue, 12 Aug 2008 23:21:00 GMT

While college enrollment is only expected to grow by 300,000 students this year, some 1.3 million additional college students have already applied for federal financial aid — an increase of 17 percent, according to an article in U.S. News World Report (“Financial Aid Applications Jump 17 Percent,” Aug. 11, 2008).

The U.S. Department of Education accepts the Free Application for Federal Student Aid (FAFSA) between January 1 and June 30 of every year. (Submitting the FAFSA is the only way undergraduates can apply for federal grants and student loans.) In the first six months of 2008, the Education Department received more than 9 million FAFSAs, up from 7.7 million in 2007.

Some financial aid experts are postulating that this increase is a sign that more students are unable to afford their school costs this year, as college tuition continues to rise, outpacing cost of living, and as high gas and food prices, along with the current credit crunch, leave families with tighter budgets and fewer financing options.

“What we are seeing is more people filling out requests for financial aid, and for those who do, more people are qualifying and the aggregate need is increasing,” says Richard Toomey, associate vice provost at Santa Clara University (“Student Aid Requests Soar as Economy Plummets,” San Francisco Chronicle, Aug. 11, 2008). “Students who haven’t needed assistance before are coming in. You had to expect that this was going to happen with all the news of companies laying off thousands of people.”

Donald Heller, director of the Center for the Study of Higher Education at Pennsylvania State University, has a different theory: He believes the surge in FAFSA submissions could simply mean that more eligible students are becoming aware of their federal financial aid options and are trying to take advantage of them.

Extensive press coverage of a potential student loan availability crisis and the news of elite institutions expanding their financial aid offerings to accommodate more low- and middle-income families may have helped encourage more students to apply this year, Heller says.

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Sex Offenders May Lose Pell Grant Eligibility Under Revised Higher Education Act

Student Loan Girl — Mon, 04 Aug 2008 23:49:00 GMT

Starting July 1, 2009, sex offenders confined in treatment centers throughout the country may no longer be eligible to receive need-based federal Pell Grants, under a new provision of the reauthorized Higher Education Act, according to an article in the Associated Press (“Congress Cuts Off College Aid For Sex Offenders,” Aug. 4, 2008).

President Bush has yet to sign the act into law, but after the act passed through Congress July 31, Rep. Ric Keller, R-Fla., said, “Today, the most insane wasteful spending program in America comes to an end.”

Keller cited an AP article from March that revealed dozens of rapists and child molesters had taken higher education classes at taxpayers’ expense while confined to treatment centers after serving their prison sentences. Some prisoners were using the financial aid to buy clothes, DVD players, and music CDs even after they had dropped their classes in some cases.

While the U.S. Department of Education does not know exactly how many sex offenders receive Pell Grants, spokeswoman Stephanie Babyak predicted that making sex offenders ineligible for the aid would save taxpayers millions.

Critics say the new measure may rule out a higher education for sex offenders who are trying to rehabilitate themselves. Instead of cutting off grant aid to all sex offenders, Congress should better regulate how it administers the program in order to help prevent abuses, said Michael Macleod-Ball, chief legislative and policy counsel for the American Civil Liberties Union.

The grant aid provision would affect the 20 states that allow violent sex offenders — those who it is believed would likely repeat their crimes if they were to be released — to be held indefinitely in treatment facilities after they have served their prison sentences. Prison inmates have been ineligible for Pell Grants since 1994, but sexual offenders can qualify for the grants once they are transferred from prison to treatment centers.

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Proposed Legislation Would Prevent Student Loan Lenders from ‘Cherry-Picking’ Schools They Lend To

Student Loan Girl — Fri, 20 Jun 2008 01:14:00 GMT

To ensure all students have access to student loans regardless of what type of school they attend, two Democratic senators introduced legislation Tuesday that would prohibit banks and other lenders from “picking and choosing” which institutions of higher education they do business with, according to a New York Times article (“Bill Promotes Universal College Loans,” June 18, 2008).

Under the proposal, lenders that participate in the Federal Family Education Loan Program would have to extend credit to any eligible student, regardless of a student’s income or the type of institution they attend, as long as the student’s college is a member of the FFEL program, writes Times reporter Jonathan Glater.

Senators Patty Murray, D-Wash., and Christopher Dodd, D-Conn., introduced the legislation in response to the decision of Citibank, JPMorgan Chase, PNC, and SunTrust to stop offering student loans to community colleges and other two-year institutions.

“Lenders offering loans backed by taxpayer dollars shouldn’t be able to discriminate against certain schools or students,” Murray said in a statement. “Denying loans based on school, program length, or income level locks the door for far too many.”

Bill Faces an Uncertain Future

Banks who have ceased lending to certain two-year institutions contend that they lose money on the loans. Schools that have been cut off by the banks tend to have higher default rates and fewer borrowers with small loan amounts — financial factors that, lenders say, make business at these schools less profitable.

But financial aid administrators counter that lenders should not be allowed to “cherry-pick,” because selective lending could make it harder for low-income students to pay for college.

The proposal, which is under review by the U.S. Department of Education, has already been met with controversy. Some financial aid officials support the measure as way of ensuring access to student loans, while others believe it might have the unintended consequence of pushing lenders out of the federal student-loan business altogether at time when over 100 lenders have already left the FFEL program.

While the bill’s prospects are unclear, Sen. Edward Kennedy, D-Mass., chairman of the Senate Committee on Health, Education, Labor, and Pensions, is expected to co-sponsor the bill.

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Medical Residents Losing Ability to Defer Student Loans for 'Economic Hardship'

Student Loan Girl — Tue, 10 Jun 2008 23:50:00 GMT

Beginning next year, medical school residents will no longer be eligible to defer their federal student loans because of new criteria the government will use to determine “economic hardship,” according to an article in the American Medical News (“New Rule Excludes Medical Graduates from Federal Loan Deferment Plan,” June 16, 2008).

An economic hardship deferment allows students with a high debt-to-income ratio to postpone their federal student loans for up to three years, during which time the government pays the interest on any subsidized student loans. According to the Association of American Medical Colleges, medical school students typically graduate with about $140,000 in college loans, $34,000 of which are subsidized loans.

Based on the new deferment eligibility criteria established by the U.S. Department of Education, a borrower’s debt-to-income ratio will no longer be taken into account. About two-thirds of medical school graduates qualified for deferment under the previous eligibility criteria.

The new definition of economic hardship, which takes effect July 1, 2009, only considers a borrower’s income for qualification, which is limited to $15,600 a year or less. Under the previous criteria, a medical resident making $45,000 and carrying at least $76,000 in debt generally qualified for economic hardship deferment.

To help students affected by the new rules, the Education Department will debut an income-based repayment program next July.

Medical residents, whose income is not over 150 percent above the poverty line for their family size, can have their loan payments capped at 15 percent of their income under the new program.

Once the government’s new criteria takes effect, a medical graduate who earns $45,000 — the average salary for first-year residents — would be required to make monthly payments of $365. As residents earn more money each year, their monthly payments would likely increase.

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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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Education Department to Pay Lenders Full Value for Student Loans

Student Loan Girl — Wed, 21 May 2008 22:56:00 GMT

The U.S. Department of Education has released details of how much it will pay private lenders in the Federal Family Education Loan Program who sell their loans to the government instead of to capital-market investors, according to an article in The Wall Street Journal ("Bush Will Use Treasury Funds to Bolster Student Loan Market," May 20, 2008).

Under the new authority granted to the Education Department by the Ensuring Continued Access to Student Loans Act" (H.R. 5715), the government can buy loans from private FFELP lenders until Sept. 30, 2009.

In return, these lenders will receive the full principal value of the loan along with accrued interest, a rebate of any loan origination fees paid to the government, and a $75 payment, WSJ writer Robert Tomsho reports.

In an effort to reassure lenders who typically have relied more heavily on the securities markets for their lending capital, the government also plans to invest in newly created trusts that hold federal student loans made by private lenders.

"In effect, the government will reimburse such lenders for the full cost of such loans in return for payments from the trust equal to commercial paper interest rates, currently about 2.6 percent, plus an additional 50 basis points," Tomsho writes.

However, financial details of the plan could change if the federal Office of Management and Budget determines the loan-purchasing plan does not meet the act’s requirement that such measures be cost-neutral.

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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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More on Higher Education Accreditation

Student Loan Girl — Thu, 03 May 2007 16:02:00 GMT

Yet another player has entered the arena in the discussion on who is going to be the responsible party when it comes to creating the standards and practices for accrediting higher education institutions. The Bush administration has appointed Anne D. Neal, executive director of the American Council of Trustees and Alumni, to the U.S. Department of Education’s National Advisory Committee on Institutional Quality and Integrity (NACIQI).

According to a May 1, 2007 article written by Doug Lederman, titled “Stacking the Deck,” that appeared in Inside Higher Ed, Neal is “a critic who has advocated more or less junking the current federal system of academic quality review.”

What has the Panel Decided so Far?

In his article Lederman reported, “Over the past year, the department panel has already begun altering the standards it uses to judge accreditors, urging them to set ‘bright line’ minimum standards for the colleges they oversee to meet, to prove how successfully they are educating their students. College leaders and accreditors have criticized that push, accusing the department of prodding the advisory committee to change its standards before the department has proposed or instituted regulations that would formally enact such changes. A federal negotiating session aimed at reaching agreement on possible new accrediting regulations ended without consensus on key issues last week, although negotiators plan to meet one final day next month to try to resolve their differences. Through that same negotiating session, political leaders in the Education Department also sought to give NACIQI significantly more power to investigate accreditors, and to do so more regularly.”

How are they ‘Stacking the Deck?’

Well, according to Lederman’s article, critics believe that Bush is populating the panel with like-minded people who are more likely to move the vote toward a pre-known position; however, Lederman reported that Samara Yudof, a spokeswoman for the Department of Education, has heralded the panel as being well rounded. Lederman quoted Yudof as saying, “The Secretary’s appointments to NACIQI further strengthen this well-rounded group that holds a wide variety of views and perspectives while representing key stakeholders, including academia, trustees, public, private, faith-based and for-profit institutions, and businesses, among others. Having a strong, well-diversified board helps to protect the public’s interests.”

However, Lederman continued to write, “College leaders do not seem to share the department’s view that the appointees are well-rounded. In a wide-ranging letter this month to Congressional leaders laying out their priorities for legislation extending the Higher Education Act, 15 major higher education groups included an item relating to ideological balance on the accreditation advisory committee.”

It is important to keep up to date on student loan news. 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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