Student Loan Blog : credit crisis

Defaulted Student Loans Stuck in Credit-Freeze Induced Limbo

Student Loan Girl — Tue, 10 Feb 2009 18:52:00 GMT

Thousands of student loan borrowers who have defaulted on their student loans — including 15,000 additional borrowers each month — are being forced to remain in default despite their efforts to bring their loans back into good standing, The Chronicle of Higher Education reports (“Credit Freeze Leaves Thousands of Student Borrowers Stuck in Default,” Feb. 13, 2009).

“I’ve done what I’m supposed to do, and they’re holding me hostage,” says Judy Ellis, a borrower who has made nine on-time payments to bring her student loan out of default. “I want to make this right, and I want to move on.”

But Ellis can’t move forward because the stagnant credit markets have made it harder for student loan guarantors to sell these “rehabilitated” loans back to lenders. A borrower must wait for the guarantor to find a lender to buy the defaulted loan before the loan, and the borrower’s credit, can be restored to good standing.

Currently 19 of the nation’s 35 student loan guarantee agencies, the companies who insure student loans against default, have no buyers for the rehabilitated student loans they hold. The market for rehabilitated loans has been effectively shut down for months due to the credit crisis, and in November, SunTrust, the only commercial bank that was still buying rehabilitated loans, exited the market.

Now, says Timothy Fitzgibbon, vice president for debt-management services at the National Council of Higher Education Loan Programs, nearly $150 million in debt is piling up every month on top of an existing backlog of loans awaiting rehabilitation.

Guarantors Awaiting Legislative Action

Consumer advocates say changes need to be made quickly before borrowers get so fed up with being “stuck” in default that they stop paying their student loans altogether, which could lead to more defaults and re-defaults.

“The last thing we want is for people to pack it in and say, Oh, never mind,” says Michael Ryan, vice president of borrower services for American Student Assistance, the student loan guarantor in Massachusetts.

Legislation passed by Congress last year authorized the Department of Education to buy up student loans from guarantors, but the legislation only approved the department to purchase loans made after 2003, and most rehabilitated loans that guarantee agencies hold predate that.

Guarantors believe that with creative interpretation of the law, allowing almost-rehabilitated loans to be considered “new,” the Education Department could use its authority from the bailout to buy up more loans. But Fitzgibbon argues that “it would be much cleaner to get a legislative fix,” which could come as part of a proposed spending bill or as part of revisited legislation from the previous session of Congress, than for the Education Department to reinterpret its purchasing authority.

“While this is being sorted out,” says Deanne Loonin, a staff attorney with the National Consumer Law Center, guarantors should stop collecting on the loans — a step guarantee agencies aren’t likely to take. Guarantors are encouraging borrowers whose student loans are currently frozen in default to continue making payments until buyers can be found.

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Ohio State Commits to Helping Students in Financial Turmoil

Student Loan Girl — Wed, 24 Dec 2008 00:30:00 GMT

The largest university in the nation, Ohio State University, has taken steps to ensure that its students who rely on financial aid will still be able to complete their degree program in spite of the economic recession, the school announced in a press release this week (“Ohio State Assisting Students Facing Economic Difficulties,” Dec. 22, 2008).

The initiative, called “Students First,” is aimed at ensuring that currently enrolled students, as well as those admitted for the upcoming 2009 academic year, will have access to additional financial aid, as well as short-term emergency loans, if they or their families experience economic hardship.

The university will also be personally contacting all first-year students who didn’t re-enroll for classes this winter quarter to check whether financial hardship was the reason.

“Now more than ever, we must assure that young people are able to pursue their dreams, earn a degree, and use their talents to enhance our economy, our state, and our world,” said university president E. Gordon Gee.

The Students First plan proposes an array of measures designed to protect student’s access to financial aid funds during any budget cuts and to insulate the school’s financial aid system from changes in the economy:

Doubling the existing short-term emergency loan fund by $1 million
Providing short-term loans of up to $500 for students with temporary cash-flow problems
Guaranteeing to increase financial aid proportionally to correspond with any tuition increases
Offering students assistance in securing financial at any point throughout the academic year if their financial situation worsens
Encouraging donors to give toward financial aid, student loans, and scholarships

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In Declining Economy, Student Loans May Be More Difficult to Secure

Student Loan Girl — Tue, 04 Nov 2008 22:27:00 GMT

Students are finding it increasingly challenging to find the money they need to pay for college as the credit crisis continues to hamper student loan providers’ ability to fund new loans, reports MustangDaily.net, the college newspaper of California Polytechnic State University (“Student Loans Harder to Come By in Uncertain Economy,” Oct. 30, 2008).

In 2007 alone, Cal Poly lost almost 25 percent of its student lenders, leaving many families scrambling to find a new student loan provider.

“Last year (Cal Poly students) borrowed through 76 different lenders,” said Lois Kelly, the school’s director of financial aid. “Nineteen of those lenders are now declining to make any student loans. That is a substantial number of lenders no longer in the market.”

With fewer lenders serving the school, Kelly says students will have a harder time finding a student loan provider that will “be there for them” until they graduate.

To date, more than 100 lenders have stopped issuing federal student loans and 37 lenders have stopped offering private student loans due to a reduction in federal subsidies and a lack of funding to make new loans.

Lending Problem Affecting Students Nationwide

A recent study conducted by the National Association of Independent Colleges and Universities revealed that out of the 500 institutions surveyed, nearly 50 percent reported that some of their students were dropping out of school or switching to part-time status because students couldn’t get college loans and couldn’t afford tuition costs without them.

“We lost a large portion of our freshman class who were unable to secure a private loan and whose parents were either denied a PLUS loan or could not take one,” said an unidentified NAICU survey respondent.

Of the students who were denied a student loan and chose to remain in school, many turned to credit cards, which are generally more costly, to help pay their tuition expenses.

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Government’s Direct Lending Program Sees 43-Percent Increase in Volume

Student Loan Girl — Wed, 03 Sep 2008 00:36:00 GMT

As cash-strapped lenders continue to drop out of the Federal Family Education Loan Program, the number of student loans originated for the 2008–09 school year through the government’s Direct Loan Program has increased by 43 percent, reports The Chronicle of Higher Education (“As ‘Crisis’ Deters Loan Companies, Direct Lending Sees 43-Percent Jump,” Sept. 2, 2008).

Lenders in the FFEL Program — through which borrowers take out federal student loans through private, third-party lenders including banks, state agencies, and nonprofit lenders — have generally accounted for 80 percent of all federal student loan volume, according to the House Committee on Education and Labor (“The College Loan Landscape,” March 2008).

But the Direct Loan Program, which provides loans to students and parents directly from the Department of Education, is gaining ground. As of August 8, the Direct Loan Program had already originated more than $10.84 billion in federal student loans at 1,156 colleges and universities. At this time last year, the direct-lending program, had originated just $7.55 billion in loans at 851 institutions.

And although the exact figures have yet to be released, the Education Department estimates that the Direct Loan Program, which has generally made up 20 percent of all federal college loan volume, will soon be comparable in size to the FFEL program. FFELP lenders have only issued $13 billion in federal student loans at 3,230 colleges and universities this academic year, compared to the $55.8 billion in student loans they originated at 4,612 schools last year.

So Far, A Smooth Transition to Direct Lending

Government subsidy cuts to FFELP lenders enacted by the College Cost Reduction and Access Act last September, as well as continued fallout from the subprime mortgage crisis, have led more than 100 lenders to suspend their participation in the FFEL program.

By April of this year, some 5.8 percent of lenders remaining in the FFEL program had switched over to the direct-lending program and another 19.3 percent said they were considering the switch, according to Student Lending Analytics, a company that provides financial aid administrators with data about lenders (“Drift Toward Direct Lending (Update),” Inside Higher Ed, April 30, 2008).

Although some lenders questioned the Education Department’s ability to handle an increase in loan volume through its Direct Loan Program, some financial aid administrators say the Department of Education has done well in handling the influx of business.

Anna Griswold, executive director of student aid and assistant vice president for undergraduate education at Penn State, says she has been “pretty pleased” with the Direct Loan Program and has not experienced any glitches. Penn State, the 10th-largest FFELP lender last year, became a direct-lending school this year after its FFELP lender, the Pennsylvania Higher Education Assistance Agency, stopped offering federal student loans in February.

Penn State borrowers have already taken out $100 million in student loans this year through the direct-lending program.

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Shares of Corinthian Colleges Stock Take Nosedive Over Student Loan Defaults

Student Loan Girl — Fri, 29 Aug 2008 01:56:00 GMT

Despite an 11.5-percent boost in student enrollment and an 18.3-percent growth in revenue over the last quarter, Corinthian Colleges saw its shares tumble in afternoon NASDAQ trading on Tuesday, as investor fears persist of rising defaults on the school network’s student loans (“Defaults Drown Corinthian,” Forbes, Aug. 26, 2008).

Corinthian’s stock value plummeted 19.3 percent, with investors selling off shares even as the company posted a smaller-than-expected fourth-quarter loss, thanks to higher revenues spurred by the increase in enrollment.

Second-Worst Stock Downslide Since Being Dropped by Main Student Loan Provider

Corinthian, a for-profit operator of more than 100 colleges and trade schools in the United States and Canada, has been struggling to maintain a source of financing for its 72,000 students ever since three of its largest student loan providers — Sallie Mae, College Loan Corp., and Student Loan Express — informed the company that, effective March 1, they would no longer be able to offer “serial” private student loans to the schools’ subprime borrowers. These serial transactions provided current subprime student borrowers — those who have weaker or limited credit histories — with subsequent student loans for ongoing studies.

In 2007, over 75 percent of Corinthian’s private student loan portfolio consisted of subprime student loans, and 90 percent of Corinthian’s private student loans in the United States were provided by Sallie Mae.

In fact, the 19-percent drop in Corinthian shares on Tuesday was the biggest percentage decline only since Sallie Mae made its announcement, on January 22, that it would stop issuing subprime private loans to Corinthian’s students. In the last 12 months, up until Tuesday, reports Bloomberg, Corinthian shares had risen 20 percent (“Corinthian Falls After Increases in Student Lending,” Aug. 26, 2008).

Taking Student Loans Into Its Own Hands: Inviting Risk With Revenue

To offset its loss of student loan lenders, Corinthian established a new company-sponsored student loan program in the fourth quarter called ACCESS and, according to Chief Executive Officer Jack Massimino, was able to provide funding for “the vast majority of students.”

But with a greater volume of student loans comes increased exposure to potential student loan defaults, and Corinthian’s defaults in the fourth quarter rose to 9.1 percent of its revenue, compared to 6.2 percent a year ago.

Corinthian’s chief financial officer, Kenneth Ord, said that for the 2009 fiscal year, Corinthian will spend all available cash on student loans that isn’t already earmarked for capital expenditures; however, investors are still uneasy, worried that Corinthian will fall short of its projected earnings for 2009 and may need to write off some of its student loans to stay afloat.

The company’s student loan program — and the higher rate of borrower defaults that investors fear is coming with it — “adds risk to the forecast,” said Jeffrey Silber, an analyst with BMO Capital Markets. “People were expecting sizable margin expansion, and this is going to put a damper on that. People are not giving [Corinthian] the benefit of the doubt.”

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Struggling Colleges’ Predicted Dilemma: Merge or Close Up Shop

Student Loan Girl — Tue, 26 Aug 2008 22:58:00 GMT

Over the next few years, more small, private colleges may be faced with the decision to either merge with another school or close their doors as rising energy costs, increased competition for students, and the lingering credit crisis eat away at these private colleges’ profit margins, according to an article in Inside Higher Ed (“Will More Colleges Merge?,” Aug. 25, 2008).

The economic downturn that is threatening both families’ ability to pay for college and donors’ ability to continue financially supporting schools to the same extent they have in the past, may mean that “colleges in difficulty are going to be willing to try more ambitious solutions such as mergers,” says Richard Ekman, president of the Council of Independent Colleges. This month, Woodbury College in Vermont announced it would merge with fellow state school Champlain College. In July, California schools John F. Kennedy University and National University joined together.

Ekman wonders if other small colleges, which have typically “found amazingly imaginative ways to thrive” under financial hardship, may also be on the verge of merging or closing. Other industry experts contend that the private sector of higher education has always been in some degree of flux with colleges constantly having to adapt to demographic changes and students’ shifting interests.

“There will be a handful of colleges opening, closing or merging [every year],” says David Warren, president of the National Association of Independent Colleges and Universities. But Warren sees “no compelling evidence that we are entering a new era of consolidation in private higher education.”

Private Colleges Experiment With New Ways to Stay Afloat

Still others argue that the number of colleges officially merging may understate the extent to which small colleges are considering radical changes in order to survive, writes Inside Higher Ed reporter Scott Jaschik. More colleges are turning to collaborative partnerships with other universities to keep their doors open.

Last year, Shimer College, a small independent liberal arts school that bases its education model on small class seminars and emphasizes the study of classical literature, relocated 40 miles away to the Chicago campus of the Illinois Institute of Technology. This year, Shimer also started a joint B.A./J.D. program with the Chicago-Kent College of Law.

The moves were needed, Shimer officials say, to help the “great books” college, which was struggling to keep enrollment at 100, attract new students. This year, enrollment at Shimer is up by 25 students.

Robert Zemsky, CEO of the Learning Alliance for Higher Education, an organization that advises colleges and universities on market strategies, predicts that mergers may grow in their appeal among both small, cash-strapped colleges and financially secure schools that see merging as a better way to grow enrollment and diversify their offerings.

This merger trend could be a blow to the U.S. system of higher education, Ekman says. “The diversity of the types of American colleges and universities has always been the wonderful strength of the American system,” he says. “To me, it’s a shame when any college goes out of business or needs to sacrifice its distinct identity.”

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Proposed Bailout for Massachusetts Student Loan Authority Uncertain

Student Loan Girl — Sat, 16 Aug 2008 01:42:00 GMT

A third attempt to generate liquidity for the Massachusetts Educational Financing Authority may be too little too late for some 40,000 Massachusetts college students, reports The Boston Globe (“Student Loan Authority May Not Get State Aid,” Aug. 14, 2008).

In late July, MEFA announced that it wouldn’t have enough money to fund any new private student loans this fall after it was unable to launch a bond offering in time.

With proposals from both the state’s governor and treasurer fizzling out, the student loan agency is attempting to raise about $400 million in funds from large investors through a new bond offering on the public market — a deal that, if completed, wouldn’t be finalized until September.

But bonds issued by student loan lenders are having a hard time finding buyers, as investors remain cautious in the wake of the collapse of the subprime mortgage market and the ongoing resulting credit crunch. According to The Boston Globe, the issue of $350 million in student loan revenue bonds just completed on August 7 by the Higher Education Student Assistance Authority of New Jersey was the first successful student loan bond issue since May.

Several Solutions, Few Viable Options

Soon after MEFA announced that it was suspending its private loan program, Gov. Deval Patrick asked that the Massachusetts state pension fund purchase $50 million of the planned upcoming MEFA bond offering, but the request has been rejected by State Treasurer Timothy Cahill. The pension fund’s executive director has said this direct purchase of MEFA bonds would violate the fund’s investment policies.

Cahill has suggested an alternative solution, in which the state would back the MEFA bond offering, using taxpayer funds as collateral. But this initiative would require approval by the state legislature, which isn’t scheduled to meet until October.

Of the ideas lobbied so far as possible ways to help MEFA regain its financial ability to offer student loans, the proposal with the most potential, put forth by some of the state’s colleges and universities, may not go into effect until next year.

This plan would reinstate a participation fund, phased out several years ago, in which schools set aside up to 6 percent of the loan amounts their students take out through MEFA. These stockpiled funds serve as a type of insurance for bondholders and may provide a draw for otherwise reluctant potential investors.

Though most Massachusetts students have already begun pursuing other financing options, Cyndi Roy, the governor’s deputy press secretary, says that the administration is continuing to work with the state’s loan authority.

“Governor Patrick put a serious, viable proposal on the table,” said Roy, “and he remains actively engaged with MEFA on that and any other solutions that will help 40,000 Massachusetts families send their children to college this year.”

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Governor Launches Website to Help Massachusetts Families Find Student Loans

Student Loan Girl — Thu, 07 Aug 2008 11:32:00 GMT

Massachusetts Gov. Deval Patrick has set up a financial assistance website to help the 40,000 families who were previously served by the Massachusetts Educational Financing Authority to find a new student loan provider for the 2008–09 academic year, following MEFA’s announcement on July 28 that it was suspending its private student loan program.

The news that MEFA would no longer be offering private student loans came just weeks before fall tuition payments are due and a mere three months after the state agency suspended its federal student loan program, citing the troubled economy and continuing fallout from the collapse of the subprime mortgage market. MEFA’s announcement last week marks the first time in the lender’s nearly 30-year history that it won’t be able to provide any student loans, federal or private.

The governor’s new student loans website gives borrowers an overview of student loans and the different types of student loans still available, provides links for families to compare the interest rates being offered by certain private student loan lenders, and brings together information on scholarship resources.

“It is critical for our students to be able to pay for the colleges of their choosing,” said Gov. Patrick. “I have directed my team to make available a list of resources to help students and their families locate the information they need to finance education this fall and beyond.”

Late yesterday, Gov. Patrick also made a move aimed at restoring liquidity to MEFA, asking the Massachusetts pension fund to invest $50 million in the state student loan agency by buying MEFA bonds — MEFA would use the proceeds from the bond sale to finance new student loans. The governor intends to approach Boston College, Harvard, MIT, and the University of Massachusetts, among other schools in the state, about making similar investments.

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Community Banks May Be an Option for Families Looking to Weather Student Loan Crunch

Student Loan Girl — Thu, 07 Aug 2008 01:17:00 GMT

Although the turmoil in the nation’s credit markets has forced student loan providers, including some big banks, to stop offering federal and private student loans, these lenders’ financial troubles may provide the opening community banks need to get back into the student loan business, according to a guest editorial in The Boston Globe by Douglas Stebbins, managing director of a Boston-based investment banking firm (“A Role for Community Banks in Student Loan Crunch,” Aug. 2, 2008).

Credit unions may be better able to serve families who need student loans, Stebbins says, since community banks generally hold the loans until they’re paid in full, unlike other private lenders who bundle their student loans and sell them to investors in order to get the money they need to make new loans.

Lenders who rely on these sales have seen their traditional sources of revenue dry up, despite recent federal legislation that allows the Department of Education to purchase student loans from cash- strapped lenders in an effort to give them the liquidity they need to continue making new loans.

Community banks, on the other hand, “can provide a financing solution to an underserved population of parents and students,” Stebbins says, “and since these banks know their customers, their loans can be based upon the credit risk of the borrower, not the risk of the securitization marketplace.”

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Nonprofit Lenders Hurt by Legislation Intended to Help Them

Student Loan Girl — Sat, 02 Aug 2008 01:53:00 GMT

Legislation that went into effect in October with the College Cost Reduction and Access Act cut federal subsidies to for-profit student loan lenders partly in an attempt to give nonprofit lenders a more competitive edge in the student loan market.

But as lenders continue to scale back or suspend their student loan programs amid a troubled economy and now-unprofitable federal education loans, newer legislation designed to help struggling lenders — nonprofit student loan providers in particular — may be doing more harm than good, writes Paul Basken in The Chronicle of Higher Education (“Federal Rescue Plan May Have Overlooked Nonprofit Lenders,” Aug. 1, 2008).

Government Positioned to Provide Lenders With Funds … But Only If Funds Are Already There

When it became clear that skittish investors, burned by the collapse of subprime credit markets, would no longer buy lender’s student loan portfolios in the secondary market, the government responded by passing the Ensuring Continued Access to Student Loans Act in May, allowing the Department of Education to purchase federal student loans from lenders or to use a lender’s student loan portfolio as collateral for a low-interest line of credit. Both provisions were intended to provide lenders with the needed capital to make new loans, which investors were no longer providing.

The continuing credit crunch, however, has hit nonprofit lenders so hard that they lack the liquidity to even begin issuing new student loans; without new loans, these lenders have nothing to sell or offer as collateral to the Education Department.

Peter Warren, executive vice president of the Education Finance Council, an association of nonprofit lenders, suggests that the recent legislation, by leaving nonprofit lenders still unable to bankroll federal student loans, has not done its job of shoring up the student loan market.

“You need to have access to funds in order to play in this game,” Warren says. “It’s essentially a Catch-22.”

Lower Interest Rates Cripple Lenders

Nonprofit lenders’ inability to secure capital has been even further aggravated by the recent drop in interest rates brought about by the subprime mortgage crisis, which has left student-loan lenders with a “negative subsidy” rate.

As Basken explains, lenders are now actually in the position of having to pay interest to the government on each unsubsidized student loan they issue, since the fixed 6.8-percent interest rate on these student loans is higher than current market rates. Meanwhile, lenders may not be receiving any corresponding principal or interest income from student loan borrowers, who aren’t required to make payments on these federal student loans while they’re in school at least half time.

These lenders, says Shelly Repp, general counsel for the National Council of Higher Education Loan Programs, simply “don’t have enough working capital to carry all the expenditures they’re expected to make.”

In response to the ongoing liquidity issues facing nonprofit lenders, lawmakers are pushing the federal government to come up with new solutions quickly, calling for a hearing next month to consider new options for student loan providers and asking President Bush to offer additional help to nonprofit lenders.

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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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Pennsylvania Student Loan Agency to Cut Grant Aid, Offer Employee Buyouts

Student Loan Girl — Thu, 01 May 2008 00:06:00 GMT

Pennsylvania’s student-loan agency will cut college grant amounts for the 2008–09 academic year by up to $750 and will offer voluntary buyouts to some of its nonunion employees in an effort to keep the company afloat.

The Pennsylvania Higher Education Assistance Agency will determine the adjusted grant amounts based on a recipient’s college costs, family size, and the number of children from the family enrolled in college. Next year’s awards will range from $2,100 to $3,948, compared to this year’s awards which ranged from $2,500 to $4,700.

The agency expects to save $12.5 million annually with the nonunion buyout agreements, after losing more than $37 million in the nine months leading up to March 31, agency spokesman Keith New said in an Associated Press article, (“Pa. Student-Loan Agency to Cut Aid, Offer Employee Buyouts,” April 24, 2008).

During the same period last year, the agency earned nearly $113 million in operating income.

Employees eligible for buyouts will receive two weeks’ pay for each year of service at the agency for up to 16 weeks. The number of buyouts needed to steady the company has yet to be determined and is dependent on the salaries of departing employees.

The agency, which New said has “never before experienced more difficult or severe economic conditions,” will only impose layoffs as a last resort.

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The New Financial Aid Landscape

Student Loan Girl — Sat, 26 Apr 2008 19:41:00 GMT

In the last few months, the media has been drawn to the potential student loan crisis, focusing on how students will be able to weather accessibility issues to get the funds they need for college next fall.

At the same time, many of the country’s top colleges and universities have been revamping their financial aid programs to better assist parents and students in covering their college costs.

Schools Modifying Financial Aid Programs

To date, about 50 schools have made substantial changes to their financial aid programs, writes Anne Marie Chaker of The Wall Street Journal (“The New Math of College Financing,” April 21, 2008).

Several schools have chosen to replace student loans with grant money that won’t need to be repaid, effectively lowering their tuition. Others have waived tuition costs altogether for families that fall below a specific income. Some have capped the amount of money a family is required to contribute toward college costs at a certain percentage of the family’s yearly income.

Student Loans Being Replaced with Grants

Undergraduates attending Stanford, Dartmouth, Harvard, M.I.T., Yale, or Cornell next fall now have a better chance of graduating with less debt from student loans, thanks to a significant shift in the financial aid programs at these schools.

Under pressure from Congress, with legislators questioning growing student debt levels and skyrocketing tuition costs that outpace inflation even as the wealthiest schools report endowments of $500 million or more, colleges and universities with sizeable endowments are tapping into those endowments to replace student loans with grants in their financial aid awards.

Although Harvard is using grant awards to eliminate student loans from its financial aid packages entirely, other schools are reserving these loan-replacement grants for families at qualifying income levels, Chaker notes.

Cornell, for example, in the 2009–10 academic year, will only replace student loans with grants for families making less than $75,000 annually. (The threshold was $60,000 for the current school year.) Students from families earning between $75,000 and $120,000 a year may still be awarded student loans, but those loans will be capped at $3,000 for 2009–10.

Tuition Waivers for Middle-Income Families

A handful of the nation’s top schools have also implemented programs that eliminate tuition charges completely for middle-income and even upper-middle-income families, with qualifying income levels as high as $100,000.

At M.I.T. and Dartmouth, families who make less than $75,000 a year will be able to send their children to college at zero tuition cost (although they may still have to cover room and board, books, and other living expenses). At Stanford, the income cutoff for a tuition waiver is $100,000 (with assets typical for that income level).

Family Contribution Capped Even for $100K+ Incomes

Last year, Harvard announced “one of the most ambitious [financial aid] plans out there,” writes Chaker, allowing families earning between $120,000 and $180,000 a year, with standard corresponding assets, to put just 10 percent of their annual income toward their child’s cost to attend — in other words, paying only between $12,000 and $18,000 of the 2008-09 sticker price of roughly $50,000.

Yale followed on Harvard’s heels with its own 10-percent policy that went even further up the income bracket, applying to families who make up to $200,000 a year.

As part of these new financial aid plans, both Yale and Harvard require that students contribute between $2,500 and $4,000 of their own funds, earned through a part-time or summer job or both, in addition to their parents’ 10-percent contribution.

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Financial Aid Administrators Oppose New Preferred-Lender List Rule

Student Loan Girl — Thu, 24 Apr 2008 01:01:00 GMT

The National Association of Student Financial Aid Administrators has asked the Department of Education to reconsider its interpretation of a new rule that requires colleges to have at least three student loan lenders that are not affiliated with each other on their preferred-lender lists, according to an article by Kelly Field in The Chronicle of Higher Education (“Aid Administrators Urge Reconsideration of Rule on Preferred-Lender Lists,” April 28, 2008).

In a letter sent to the Department of Education, NASFAA President Philip Day, Jr., expressed members’ concerns that the rule is being interpreted too broadly and “could not come at a worse time.”

Financial aid officers are presently dealing with the uncertainty about access to student loans and many have already created their preferred lender lists, which under the Education Department’s new three-lender rule would have to be revised.

With peak student loan processing season currently underway, financial aid administrators fear that the rule, expected to go into effect in July, would severely limit students’ borrowing options.

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Kentucky Lender Puts Brakes on Student Loans to New Borrowers

Student Loan Girl — Mon, 21 Apr 2008 21:50:00 GMT

Citing ongoing fallout from the national capital market crisis, Kentucky officials announced the state’s student loan agency will stop making student loans to first-time borrowers beginning May 1 until it can secure additional financing, according to an article by Nancy C. Rodriguez in the The Courier-Journal (“State to Suspend Student Loans to First-Time Borrowers,” April 18, 2008).

The Kentucky Higher Education Student Loan Corp., also known as The Student Loan People, will continue to make student loans for its returning borrowers based on the availability of funds.

In the meantime, the student loan company has asked the U.S. Treasury to allow the Federal Financing Bank to temporarily help the state fund new student loans until confidence in the market is restored.

A few months ago, the state also announced it would be phasing out three loan-forgiveness programs for health care, education, and public prosecutors due to federal cutbacks and overall market instability.

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