Student Loan Blog : college funding sources

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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Audit of State Student Loan Agency Calls for Major Reform

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

The Pennsylvania Auditor General Jack Wagner has recommended sweeping changes for the Pennsylvania Higher Education Assistance Agency a year after the state student-loan agency was found to be lavishly overspending on internal operations, according to a Forbes.com article (“Pa. Audit Seeks Loan-Agency Board Overhaul,” Aug. 19, 2008).

In a performance audit of the agency, Wagner concluded that “The PHEAA was governed and managed within a culture that sometimes allowed self-reward to supersede fiscal prudence. In those instances PHEAA failed its mission by not using all available resources to benefit Pennsylvania students.”

Wagner began the audit in April 2007, after news reports accused the agency of overpaying executives and staff members and freely spending hundreds of thousands of dollars on extravagant banquets, bar bills, golf outings, and spa treatments — all while failing to increase college grant amounts to keep pace with rising tuition costs.

Now, after a year-long investigation that analyzed the agency’s spending and management practices between July 1, 2004, and June 30, 2007, Wagner is asking the student loan agency to trim the salaries of PHEAA’s 12 executives whose combined income totaled $121 million during the three-year period of the audit.

Wagner is also urging the PHEAA to replace half of the 16 lawmakers on the 20-member PHEAA board with heads of banking and community agencies, leaders of colleges and universities, and a full-time college student.

PHEAA Bends on Some of Report’s Recommendations

PHEAA President and Chief Executive Officer James Preston said while the agency agrees with most of Wagner’s findings, the audit is based on “really old information.”

“What you have to look at is what’s really happened going forward,” he said. “Our board and our management and employees are dedicated to reform.”

Over the last 18 months, PHEAA has overhauled its spending practices, instituted annual internal spending audits, and increased oversight of its travel policies.

But Preston rejects Wagner’s proposal to alter the makeup of the agency’s board — a change that would require legislative approval — saying that too many adjustments to the board’s organization would jeopardize the PHEAA’s ability to retain its tax-exempt status, which allows the agency to receive state funding for its student loan programs.

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Massachusetts College Students Lose Funding Source for Student Loans

Student Loan Girl — Tue, 29 Jul 2008 20:41:00 GMT

For the first time in its nearly 30-year history, The Massachusetts Educational Financing Authority won’t be offering student loans this fall to the 40,000 borrowers it serves, according to an article in The New York Times (“Agency in Massachusetts Is Stopping College Loans,” July 29, 2008).

Citing the troubled economy and fallout from the subprime mortgage crisis, MEFA dropped out of the federal student loan business in April, but by June said it would continue to offer private student loans.

The nonprofit student-loan authority, which provided more than $500 million in college loans to Massachusetts students last year, announced on Monday that it would no longer be feasible to offer private student loans. MEFA made the announcement following news that the authority’s bond insurer faced a possible credit-rating downgrade that would have increased the cost of floating new debt.

”It’s really the capital markets. It’s a global situation,” said Jessica Belt, a MEFA spokeswoman. “We’re looking at other options. It’s uncharted territory for everyone, not just MEFA.”

MEFA joins the list of 50 other nonprofit organizations, state agencies, banks, and private lenders that have dropped out of the student lending business this year. Belt says that while it is unclear when the agency will be able to secure new funding, it hopes to rejoin the market in time to help students with their tuition bills for the spring semester.

In the meantime, MEFA has set up a hotline to help families secure other college funding sources.

MEFA will continue to run its other educational programs, including U.Fund, a college savings plan that families can use to pay for tuition, fees, room and board, and books at 80 Massachusetts colleges and universities.

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