Student Loan Blog : federal government

$1M Awarded to Unnamed Whistleblowers in Federal Student Aid Suit

Student Loan Girl — Fri, 24 Apr 2009 21:22:00 GMT

Alta Colleges, operating 17 campuses in six states, recently settled a lawsuit involving student-aid fraud allegations and has agreed to pay the federal government $7 million, The Chronicle of Higher Education reports (“Proprietary College to Pay $7-Million to Settle Federal Student-Aid Charges,” April 20, 2009).

Unnamed whistleblowers filed the suit, which alleges Alta Colleges made false claims to be eligible for federal student aid, under the False Claims Act. The act allows individuals to sue on behalf of the federal government and get a portion of a suit’s monetary settlement, in this case, about $1.19 million.

The suit accuses Denver-based Alta Colleges Inc. of improperly obtaining a state license to operate in Texas under the name Westwood Colleges by lying that its campuses complied with state requirements on job-placement reporting.

To obtain the licensing, Alta claimed that more than 90 percent of its students received jobs after graduation when the actual figure was 54 percent and only about 33 percent of Alta graduates were actually placed in positions by the school, reports The Associated Press.

Alta was also accused of misrepresenting its interior design program, The Chronicle reports, saying that its program complied with professional interior design industry licensing requirements when it did not.

George Burnett, Alta CEO, assured school faculty and staff by letter that the company believes it had acted lawfully, but chose to settle with the government due to the projected cost and time involved in litigation.

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Students’ College Access to Improve, Vice President Pledges

Student Loan Girl — Thu, 23 Apr 2009 23:50:00 GMT

Vice President Joe Biden intends to make higher education a reality for more young people, the Associated Press reports, in part by closing the gap between families’ incomes and rising college costs (“Biden Wants to Make Higher Ed More Affordable,” USA Today, April 18, 2009).

At a town hall–style meeting he hosted in St. Louis Biden told about 300 people that he’ll be asking the Treasury Department to figure out how to make college savings plans more effective and more reliable.

“We’re going to make a series of investments, investments in our families and our students,” he said, highlighting the administration’s efforts to improve tax breaks for families and increase need-based grants for low-and middle-income families.

White House Taps Existing Programs to Increase College Affordability

Since so many families save for college using tax-deferred 529 savings plans, which allow families to set aside funds to cover future tuition expenses, fees, books, and supplies, the Obama administration is examining a program that would allow families to take out low-interest loans against their 529 plans to help them cover college costs.

Obama has already increased funding for the need-based federal Pell Grant program, which helps low-income students afford school, but Biden said the Obama administration also wants to ensure continued Pell Grant funding by setting up the program to be automatically subsidized each year.

The government is also considering extending The American Opportunity Tax Credit beyond 2010, which allows families to claim a $2,500 tax credit for college expenses for up to four years.

But by far the most sweeping proposal from the Obama administration, which has drawn fierce criticism from leaders in the student loan industry, is the suggested cancelation of the federally funded student loan program.

Lenders say that cancelling the program will eliminate families’ option to choose from a variety of private lenders and federal student loan incentives and, instead, require them to borrow federal student loans through government’s Direct Loan Program.

Biden alleges that the move to cancel the federal student loan program would result in up to $94 billion in savings to the federal government over the next 10 years, which he said, “We can take … and reinvest … in more loans, more grants and more access to college.”

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Colorado Colleges ‘Safe’ for Now, Won’t Face $300 Million in Cuts

Student Loan Girl — Tue, 21 Apr 2009 20:42:00 GMT

Colorado Governor Bill Ritter recently announced his refusal to eliminate $300 million in funding for Colorado public colleges and universities to ensure that that the state’s schools remain qualified for $760 million in federal stimulus money, The Denver Post reports (“Ritter Rejects Cuts to Colleges,” April 14, 2009).

Colorado institutions have already taken a $150 million hit, which the governor said he plans to make up over the next two years with stimulus funds from the federal government, assuming the state gets the funds. But short of saying that he would veto the $300 million in funding cuts for higher education — the governor’s first public stance on the state budget — Ritter has failed to offer any solution to the state’s budget crisis, critics say.

Like many governors across the nation, Ritter faces a huge state budget shortfall — $800 million to be exact — as he attempts to balance Colorado’s $17.9 billion budget.

Colorado lawmakers, for their part, have planned to raid cash funds, suspend property-tax breaks for seniors, and cut education budgets to partially cover the budget shortfall. And currently the state is considering two of several other possible initiatives to reduce the budget gap to manageable proportions: requiring furloughs for state employees and taking money from a worker’s compensation insurer.

Though an alternate plan to replace the $300 million in college cuts is not yet in place, college officials have said they’re cautiously optimistic.

Ritter's announcement was “a good step, but we aren’t out of the woods yet,” said Nancy McCallin, Colorado Community College System president. “We clearly don’t know where the $300 million will come from.”

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Gloomiest Job Outlook for New Grads in 25 Years

Student Loan Girl — Thu, 09 Apr 2009 23:20:00 GMT

Recent college graduates face one of the worst job markets in years, making the prospect of finding a job that much more daunting at a time when America is experiencing the highest unemployment rate in a quarter century.

Landing a job may be even more difficult, according to a survey by the National Association of Colleges and Employers, since companies have indicated they plan to hire 22 percent fewer graduates this spring (“College Grads Face Worst Job Market in Years,” The Associated Press, March 31, 2009).

But that may not be the worst of the job shortage, says Sheila Curran, former head of career services at Duke University. Curran says that employers, particularly those that offer entry-level positions in April and May “just in time” to hire newly minted college graduates, may actually be looking to hire far fewer graduates than the survey indicates. However, the full extent of how much employers will pull back from hiring for these “just-in-time” positions — which account for 80 percent of jobs for new grads — may not be known until later this fall.

Despite a dismal job outlook for new graduates, career counselors say there are still some bright spots in certain industries.

Graduates looking for a job in the healthcare field are still in demand, and graduates looking for a career in finance may find jobs are still available, since small regional companies are stepping up their recruiting efforts on college campuses while larger firms in New York and elsewhere are downsizing, the Associated Press reports.

Surprisingly, one of the biggest potential employers for graduates this spring may be the federal government, which recently posted some 46,000 job openings on its website, including positions for budget analysts, historians, and firefighters.

Students Learning to Persevere as They Expand Their Networks

Career counselors say one good thing to come out of this tightened job market is that many students are being forced to develop better job-search skills than in years past when jobs were more readily available.

“In a sense it's like, ‘Welcome to the real world,’ and it’s not a bad thing,” said Elizabeth Alexander, manager of marketing and program evaluation for the career services center at the University of Texas at Austin’s College of Liberal Arts. “If you come out of college thinking, ‘I’m entitled to a great job,’ the first time you get laid off, it’s going to come as a great shock. Life is full of peaks and troughs.”

New graduates, who will likely change jobs three times within five years of graduation, are learning valuable job-search skills that will help them persevere later in their careers, suggests the Associated Press.

“Where we’re seeing a difference this year is [that students] have to do the right things over and over again,” said Teresa Olsen, associate director of career services at Colgate University. “It’s not just reaching out to two or three contacts. They have to keep coming back.”

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74% of Sallie Mae Loans Could Disappear Under Obama Plan

Student Loan Girl — Thu, 12 Mar 2009 19:21:00 GMT

Sallie Mae — the largest provider of college student loans in the country — may ultimately see three quarters of its student loan business evaporate under a plan by President Obama that would end government subsidies to third-party lenders and establish the federal government as the sole provider of federal student loans, reports Bloomberg.com (“Sallie Mae May Lose 74% of Loans Under Obama Budget,” Feb. 27, 2009).

Last year, the student loan giant made a total of $24.2 billion in student loans, with $17.9 billion, or 74 percent, backed or subsidized by the federal government.

If Obama’s plan is approved, students would no longer get their federal student loans through private third-party lenders participating in the Federal Family Education Loan Program — which currently provides the bulk of federal student loans to college students — and would instead get their federal student loan funds directly from the government through the Direct Loan Program.

The government’s new plan — a plan that financial analyst Matt Snowling of financial services firm Friedman, Billings, Ramsey & Co says has “blindsided” the student loan industry — threatens to reduce Sallie Mae to a debt collector and servicer for the government.

However, Sallie Mae isn’t likely to protest Obama’s new student loan strategy, says William Ryan, an analyst at Portales Partners, LLC, a New York-based stock rating service, since the lender is bidding on a contract to become the government’s servicer of student loans. That contract could bring in $250 million over four years according to analysts’ estimates.

While Education Secretary Arne Duncan has said that switching to government-funded student loans could save the government as much as $4 billion per year, Snowling says that the move could vastly alter the student loan marketplace, making borrowing much more difficult for students.

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Student Loan Providers Get More Help From the Government

Student Loan Girl — Thu, 13 Nov 2008 22:39:00 GMT

In a move intended to avoid a shortfall in student loans next year, Congress has expanded the government program to buy federally guaranteed student loans from private lenders.

Under the updated loan-purchase plan, the Education Department can now buy lenders’ student loans with origination dates between Oct. 1, 2003, and July 1, 2009, The New York Times reports (“U.S. Buying More Loans to Students,” Nov. 8, 2008). The original buyback parameters only allowed lenders to purchase loans made for the current academic year and for the 2009–10 academic year.

Federal officials say that as much as $60 billion in student loans may be eligible for purchase under the new expansion.

“We were able to provide stable, reliable funding for students this school year,” said Education Secretary Margaret Spellings. Now the government is taking action to avoid problems in student loans for next year, she said.

Expanded Program May Solve Liquidity Problem

Many lenders were initially unable to participate in the student loan buyback program because the original version of the program only allowed lenders to sell loans on the secondary market that were generated prior to 2008.

The economic conditions during the current academic year have made it difficult for lenders to secure the financing needed to make new student loans that would be eligible for sale through the buyback program. Unable to sell their loans, lenders were then forced to carry their loans on their books.

“They have these government-guaranteed loans and nobody wants to fund them,” said Sameer Gokhale, a financial analyst for Keefe, Bruyette & Woods in New York. “The government is agreeing to buy more of the loans to give more liquidity.”

The Education Department hopes that the new initiative will provide lenders with the required funds to generate new federal and private loans next year, as lenders may be more likely to participate in the program once they can free up billions of dollars in loans under the new requirements of the buyback program.

“We need to do everything we can to prevent students from becoming the next victims of the financial crisis,” said Sen. Edward Kennedy, chairman of the Senate Education Committee. “Next year, we need to take a closer look at these programs to insulate them from fluctuations in the market so students’ ability to access loans is not threatened.”

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