Student Loan Blog : income

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 Industry Woes Affecting Commercial Education

Student Loan Girl — Mon, 10 Mar 2008 06:02:00 GMT

The current credit crisis, combined with recent legislation cutting federal subsidy payments to student loan companies that make federally guaranteed student loans, has begun to take a noticeable toll on commercial education companies.

The past few months have seen student loan companies pulling back on now-unprofitable federal student loans and tightening credit restrictions on their private student loans.

With investors fearful that the dwindling availability of student loan financing will lead to lower enrollment numbers, chains like ITT Educational Services, Corinthian Colleges, Inc., and Career Education Corporation have seen their shares fall between 30 and 55 percent since November, according to a New York Times article by Jonathan D. Glater (“As Lending Tightens, Education Could Suffer,” Feb. 19, 2008).

The Push and Pull of Commercial Colleges

These commercial schools, largely offering hands-on instruction in applied areas such as health care, computers, the culinary arts, and automotive repair, would typically expect to see growing enrollment during an economic slump like this one. Layoffs and a flagging job market tend to push individuals back to school, and plunging interest rates make student loans less costly for those needing to finance their education.

In the current economy, however, with lenders in every sector afraid of the kind of credit exposure that led to the subprime meltdown, consumer interest rates on everything from home loans to student loans have stayed steady, despite cuts to interest rates by the Federal Reserve totaling 1.5 points since December.

Commercial colleges typically charge higher tuition than public two-year institutions. Compounded by the fact that these schools have lower graduation rates and tend to be more likely to attract those who would be regarded as risky borrowing prospects — low-income students with poor or unestablished credit histories — potential students may not be able to get enough of the funds they need to attend one of these commercial college programs.

Since federal student loans carry borrowing limits, the higher tuition means that commercial education students must often look to private student loans to supplement their federal aid.

But with student loan companies tightening borrowing restrictions on their private student loans, and with several no longer offering federal student loans at all, these commercial ed students may find themselves increasingly unable to secure the financial aid they need.

Schools Seeking Ways to Adjust to Market Changes

As student loan companies withdraw from the federal student loan market and enforce stricter credit standards on their private student loans, the commercial college chains have begun exploring alternatives to help their students pay for classes, in order to keep their enrollment numbers from plummeting.

Corinthian, Career Education, and ITT have all announced efforts to find new lenders, make arrangements to preserve student loans, and expand their own lending programs.

These moves, writes Glater, point to “how dependent this sector of education is on student loans and how vulnerable the industry could become if credit woes continue to make it harder for lenders to raise capital.”

Lending Lockdown Could Begin to Affect More Students

Ultimately, the student loan crunch may reverberate beyond just commercial colleges.

“So far, problems have yet to be felt by most students,” Glater acknowledges. “But some in the lending industry have begun to warn that there may be fewer borrowing options, even for traditional students, in the fall.”

In the meantime, Michael Dannenberg, director for education policy at the New America Foundation in Washington, D.C., suggests that students who are already having trouble qualifying for the private financing they need for a commercial education consider less costly two-year community colleges that have open enrollment.

Or, as Glater offers, these students may look to enroll in one of the commercial schools that charges lower tuition, which could be covered entirely by federal financial aid.

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Harvard’s Aid to Middle-Class Families a Signal for Change

Student Loan Girl — Thu, 03 Jan 2008 15:03:00 GMT

In December Harvard University announced it would begin offering increased financial aid to students of middle and upper-middle class families. Those families earning between $120,000 and $180,000 will only have to pay about 10 percent of their income, or no more than $18,000 of the $45,600 traditionally charged for tuition, Jonathan D. Glater of the New York Times reports (“Harvard’s Aid to Middle Class Pressures Rivals,” Dec. 29, 2007).

For a school like Harvard, with a $35 million endowment, the gesture is reasonable, and other schools have followed suit: the University of Pennsylvania, Pomona College, Swarthmore College and Haverford College. But smaller liberal arts schools are beginning to find similar cost-cutting discounts to be less than feasible.

Schools Fail to Financially Compete

Harvard’s competitors are finding that the Ivy League school’s change in financial aid policy is affecting their students as much as its own. Small, but competitive liberal arts schools have been receiving comments from concerned parents and students asking for equivalent financial aid offers.

“Harvard has started to redefine the financial aid landscape, and it’s redefined it in a way that is quite beneficial to the wealthiest institutions,” Dean of Admissions and Financial Aid at Bryn Mawr, Jenny Rickard, told the Times. “It’s just a handful of schools that can really respond this way, but it leaves others kind of pulling their hair.”

William D. Durden, president of Dickinson College in Pennsylvania, says his school is one of the many finding it difficult to compete.

“A lot of us are going to be under huge pressure to do these things that we just can’t do,” he tells the Times.

Durden, along with other college president’s like himself, say Harvard’s move could also end up taking away financial aid opportunities from low-income students, making tuition pricing seem even more arbitrary, and causing schools to raise already increasing tuition costs to account for the additional financial assistance.

College Costs at the Heart of the Issue

Harvard officials made their decision in part because they noticed students from middle-class families were simply not applying. Although Harvard allows almost any student from a household making less than $60,000 to attend the school almost for free, Harvard’s Dean of Admissions William R. Fitzsimmons noticed that his school was missing out on some “exciting” middle and upper-middle-class students, most likely because of the school’s high price tuition.

“People were voting with their feet,” Fitzsimmons said in the Times article.

But others see Harvard’s efforts as capable of reversing admissions trends. Donald E. Heller, director of the Center for the Study of Higher Education at Pennsylvania State University, says an increase in middle-class students to Harvard could bump out lower-class students from the school’s acceptance pool.

Some of the arguments surrounding Harvard’s recent tuition discounts are turning into the chicken and the egg type discussions. While some officials have used Harvard’s move as an example of why schools need additional federal funding, others fear that parents and students will point their fingers back at the institutions arguing that they’re clearly charging too much for an education.

“It will educate those parents into thinking, ‘Eighteen thousand dollars a year is what we ought to be paying; why should we have to pay any more than that?’” the president of Ursinus College, John Strassburger, asked in the Times article.

And perhaps that’s where the real problem lies: college affordability. There’s no saying when and if college costs will ever be overhauled, but in the meantime it looks like the only people winning in this situation are those Harvard students whose families make just the right amount of money.

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