Student Loan Blog : student debt

Banks Become More Selective, Leaving Some Colleges Without Student Loans

Student Loan Girl — Tue, 03 Jun 2008 00:49:00 GMT

Students at community colleges, for-profit universities, and other less competitive institutions may have trouble finding a lender willing to offer them federal student loans as some of the nation’s biggest banks pare down the list of schools they serve, according to an article that appeared today in The New York Times (“Student Loans Start to Bypass 2-Year Colleges,” June 2, 2008).

Citibank, JPMorgan Chase, PNC, and SunTrust are no longer offering student loans to certain colleges — schools that the banks have determined tend toward higher default rates, fewer borrowers, and small loan amounts that make business less profitable.

More than 6.2 million — over 40 percent — of the nation’s undergraduates attend community colleges. These students, according to the College Board, borrow an average of $3,200 a year.

In late May, Citibank, one of the nation’s largest providers of student loans, announced its student lending division, the Student Loan Corporation, would temporarily suspend lending to schools whose borrowers tend to have college loans with “lower balances and shorter periods over which we earn interest.” Citibank also announced it would cease lending to schools it anticipated to have minimal loan volume.

“The logic is so flawed, that for us to have volume with them in the future, we have to have had volume with them in the past,” said Korey Compaan, financial aid director at William Jessup University in Rocklin, Calif. To deny federal student loans to students based simply on the college they attend, he said, is “totally and completely unethical.”

Sallie Mae and Nelnet have recently reaffirmed their commitment to offering federal college loans regardless of the institution a student attends. And Wells Fargo has contacted financial aid administrators at schools dropped by Citibank to express a willingness to lend to their students.

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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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Cuomo to Make Investigation into Colleges’ Credit-Card Deals Public

Student Loan Girl — Sat, 19 Apr 2008 01:05:00 GMT

The results of New York Attorney General Andrew Cuomo’s investigation into the relationship between colleges with co-branded credit cards and the banks that issue them are expected to be released within the next two months.

Benjamin Lawsky, Cuomo’s deputy counsel, made the announcement about the soon-to-be public results during an education forum on the topic “Higher Ed Governance: Stewardship or Sham?” held Wednesday at the American Enterprise Institute, according to an article by JJ Hermes in The Chronicle of Higher Education (“Cuomo Aid Says Investigation Into Colleges’ Credit-Card Deals Will Soon Be Public,” April 16, 2008).

Lawsky acknowledged that campus administrators are like “sitting ducks” to credit card and student loan companies seeking some form of preferred status as a way of generating business.

“I think people will be shocked at some of these arrangements,” Lawsky told forum attendees.

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Student Loan Debt Is on the Rise, and College Grads Face Growing Financial Obstacles

Student Loan Girl — Sun, 04 Nov 2007 20:10:00 GMT

Money. Some of us have it. Some of us need more of it. Particularly recent college grads transitioning from their campus to the workspace, from having student loans available that help pay their living expenses to having to make it on their own—all while paying back those student loans that paved their way to graduation.

With the surge in student loan debt outpacing the growth in starting salaries, and with tuition increases far exceeding increases in federal financial aid, a growing number of college graduates are facing barely manageable levels of student loan debt.

Tuition Hikes Outstrip Increases in Federal Financial Aid Awards

“Student aid continues to grow, but not as fast as tuition, and not enough to make up for the difference between family incomes and the price of college,” says Larry Abramson in a story for National Public Radio (“Tuition Hikes Outpace Student-Aid Increases,” Oct. 26, 2007).

According to the College Board’s “Trends in College Pricing” 2007 report, average published tuition and fees for in-state college students at four-year schools climbed by 6.6% for the 2007–08 academic year, a hike that “outpaced increases in the financial aid that lowers what most students actually pay” writes Erica Perez in the Milwaukee Journal Sentinel (“College Costs Outpace Inflation,” Oct. 23, 2007).

Starting Salaries Increasing More Slowly Than Student Debt

With more tuition to have to pay, students are graduating with more student loan debt than ever. In 2004, two-thirds of college graduates left school with student loans, and between 1993 and 2004, the average debt for college graduates with student loans soared a staggering 107%, according to a report by Luke Swarthout, a Higher Education Associate for the U.S. PIRG Education Fund. Student loan debt, Swarthout notes, is rising faster than both the cost of living and the cost of health care (“Student Debt and Consumer Costs in the Minneapolis–St. Paul Area,” July 2006).

Student debt levels are also eclipsing income gains. The “rapid rise in student debt comes while the real median income of younger Americans has only modestly increased” by 4.4% between 1995 and 2004 for household earners under 35, writes Swarthout.

Starting salaries for recent graduates can’t keep pace either. A report on “Student Debt and the Class of 2006” released by the Project on Student Debt found that for graduating seniors, average student loan debt rose 8 percent between 2005 and 2006, while starting salary offers rose only about 4 percent.

“Too many young people leave college saddled with heavy debt burdens and struggle to cover their loan payments on top of basic living expenses,” says Robert Shireman, Executive Director of the Project on Student Debt, in a press release for their recent study. “Students need better options and counseling when they’re deciding how to pay for college.”

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Hope On The Horizon: Student Debt Relief Act in Senate

Student Loan Girl — Thu, 25 Jan 2007 03:47:00 GMT

I have posted blogs in the past several weeks regarding states that are implementing college financial aid programs at the community college or public college level, making education an affordable reality for lower-income students. Just yesterday a major Ivy League school announced that it was freezing tuition for an entire year (see my Thursday, Jan. 25, 2007 post for more info). While this all is good news, nationwide reform implies national legislative action.

It seems that everyone is waiting to see what will happen in the U.S. Senate now that H.R. 5 has passed the House. Hot on its heals comes a tandem effort by Sens. Edward Kennedy, D-MA, and Barbara A. Mikulski, D-MD, introducing the Student Debt Relief Act, whose purpose is to supply college student aid to borrowers who use loans to cover costs of their education, according to a Jan. 23, 2007 press release titled “Mikulski Fights For Student Debt Relief” issued from Mikulski’s office.

American Dream or Financial Nightmare?

According to a statement by Mikulski, who also serves as a member of the Health, Education, Labor and Pensions (HELP) Committee, “College tuition is on the rise across America. Our students are graduating with so much debt it’s like their first mortgage,” said Mikulski. “American families are stressed and stretched, and students are looking for help. We must make access to higher education a priority for everyone.”

College Affordability Solutions on the Way

Our government officials, in particular Mikulski and Kennedy, who also serves as chairman of Senate Health, Education, Labor and Pensions, finally may have given voice to what many college students and their parents have known for quite some time. It is getting exorbitantly expensive to achieve the American dream of attending college. A recent survey I came across stated that many students now are “settling” for their second choice of schools, in order to incur less debt. Hopefully, the new bill, which appears poised to help borrowers and instigate much-needed change, will quickly become law.

According to the press release, “The legislation outlines relief for student debt by addressing a number of critical issues including:

· Pell Grants: Increases maximum Pell Grant to $5,100.

· Interest Rates: Cuts student loan interest rates in half – to 3.4 percent for subsidized undergraduate student loans over 5 years.

· Debt Relief: Caps federal student loan payments at 15 percent of a borrower’s monthly discretionary income, and forgives student loans after 25 years.

· Public Service Loan Forgiveness: Provides loan forgiveness for social workers, teachers, police officers and other public sector employees after 10 years.

· College Tuition Tax Deduction: Extends college tuition tax deduction and increases allowable deduction to $12,000.

· Consolidation/Reconsolidation: Allows students to reconsolidate loans, repeals the elimination of in-school consolidation.

· Origination Fees: Reduces origination fees in Direct Loan program by 1 percent to track FFEL program origination fee reduction, and gives secretary explicit authority to reduce origination fees (as FFEL lenders have).”

It is important to keep up to date on the effects of legislation and news on student loans and education. What goes on in government and in your state can have a great impact on your student loans and your college education.

For all the information you need about student loans, go to NextStudent.com. And to find more information on debt relief for unsecured debt visit ThinkDebtRelief.com.

Be sure to tune in next Wednesday for my next blog on student loan legislation in the news.

Student Loan Girl

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