Student Loan Blog : federal college loans

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policy, the school “pays off” students’ federal college loans without students’ knowledge or consent after they have withdrawn from the institution.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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Two Purdue University Campuses Make the Switch to Direct Lending

Student Loan Girl — Tue, 20 May 2008 16:35:00 GMT

Beginning this fall, Purdue University’s West Lafayette and North Central campuses will become direct lending schools.

According to a press release issued by Purdue, the two campuses will offer federal student loans only through the U.S. Department of Education’s Direct Loan Program, under which students and parents will borrow directly through the Education Department (“2 Purdue Campuses Shift to Federal Direct Loan Program,” May 12, 2008).

The move marks a departure from the schools’ past ties to private lenders in the Federal Family Education Loan Program.

Pamela Horne, Purdue’s assistant vice president of enrollment management and dean of admissions, said the school made the switch to offer borrowers stability in a turbulent student loan credit market.

“We worked to identify sources for student loans that can provide stability and predictability to our families with a minimum of disruption,” she said.

More than 23,000 Purdue West Lafayette students and 5,500 parents borrowed $125 million in federal college loans during the 2006–07 academic year. During the same time frame, 5,118 students and 108 parents at the university’s North Central campus borrowed $9 million in federal student loans.

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

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

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

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

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

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

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