2008

By Lauren Asher, Vice President

In Monday's New York Times article about a new state student loan program for New York, a spokesperson for Governor Paterson's budget office said, "One of the big problems in the student loan program is that it is drying up. People who were able to get loans last year can’t get them this year." This kind of misleading statement encourages students and parents – already rattled about how to pay for college – to believe they’ll have trouble getting the most common and affordable type of student loan: a federal loan. In fact, federal student loans remain fully available to all eligible students and parents.

The New York program will encourage undergraduates to borrow up to a stunning $50,000 in state loans, even though dependent undergraduates can already borrow up to a total $31,000 in federal Stafford loans. These federal loans have lower interest rates than the New York loans and come with significant borrower protections and guaranteed access to affordable repayment options.

While it is true that the availability of private student loans has declined due to changes in the broader financial markets, only 8% of the undergraduate class of 2007 used private loans, and an estimated 40% of them had not maximized their federal borrowing options first.

If the goal of the new loan program is to make college more affordable, it misses the mark. Nationally, more than two-thirds of students who graduate from four-year colleges already carry an average of about $22,000 in student loan debt – with similar numbers for New York state. Struggling students should not be burdened with more debt, which will leave them even less able to buy a home, support a family, or save for retirement when the economy picks up again. Instead, tough economic times require states and the federal government to invest in higher education in ways that reduce the need to borrow.

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We joined 12 other national organizations to send a letter to Congressional leaders urging that their economic stimulus bill include major new investments in college affordability. Our proposal includes a dramatic Pell Grant increase, a boost in funding for Federal Work-Study, more access to PLUS loans, and emergency federal loan funds for some students. Read the letter

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by Debbie Frankle Cochrane, Research Analyst

This morning, the National Center for Public Policy and Higher Education released their fifth biennial Measuring Up reports. This series details how well individual states are doing on important performance measures including preparation, participation, affordability, completion, benefits, and learning.

By Measuring Up’s standards, California received the highest grade (C-minus) in the nation for college affordability. In fact, it received the only non-failing grade in this category. Because of the way this category is measured, California has always performed relatively well: low fees at community colleges help the state appear more affordable than it is for many students.

This (barely) passing grade should not be overblown, as the report also points out that the affordability of California colleges is declining. For every federal dollar that goes to Californians in grant aid, the state itself puts in only 56 cents, relatively little of which goes to community college students. When considering total costs and taking financial aid into account, the lowest income students still need 58% of their family income to afford to attend a California community college. Thanks to higher amounts of financial aid available to them, those same students would need slightly less – 57% of family income – to attend a public four-year college in the state. So how exactly are community colleges the affordable college option?

Low fees are only part of the affordability puzzle. To stay afloat, California needs to increase its commitment to college affordability by increasing grant aid – which can cover all related costs, not just tuition and fees – for the students who need it most.

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U.S. Treasury Secretary Henry Paulson's plan to prop up private student loan providers as part of the $700 billion dollar economic bailout package is misguided and will be harmful to students and borrowers if it doesn't require new consumer protections for private loans. We need you to keep the pressure on and demand that any government bailout for lenders who make these risky, high-cost loans address the needs of borrowers as well.

Dear Secretary Paulson,

As representatives of students, consumers, colleges, administrators, and counselors, we write to urge you to reconsider the plan you announced last week to allocate funds from the $700 billion economic rescue package to private student loan providers.

Most students and families do not use private student loans to pay for college, nor should they. Private loans are risky and expensive, and lack the protections, oversight, and regulations of safer federal loans. Furthermore, providers of private student loans already receive special treatment in bankruptcy at borrowers’ expense. Billions of taxpayer dollars should not be spent enabling lenders to continue making these high-risk loans. Most students do not use private loans to pay for college.

  • The Project on Student Debt estimates that only about eight percent of undergraduates who graduated last year took out private loans.
  • Financial aid experts and lenders agree that private loans should only be used after all federal financial aid options have been exhausted. These include Parent PLUS loans that are available up to the full cost of attendance.
  • Federal student loans are as available as ever, despite the credit crunch. In fact, Congress increased the maximum federal student loan limits and has taken other steps to ensure the continued availability of federal student loans. If a parent doesn’t qualify for a PLUS loan due to an adverse credit history, his or her child is eligible for additional federal loans. Private loans are risky and expensive.
  • Private loans have high variable interest rates that are dependent on the credit scores of borrowers and co-signers. There is no limit to how high interest rates can rise – they are often two or three times as high as the fixed rate on federal Stafford loans. As with subprime mortgages, the lowest income borrowers are typically saddled with the highest interest rates and the worst terms.
  • Unlike federal loans, private loans have no real protections for borrowers who fall on hard times. In cases of unemployment, disability, periods of very low income, and even death, private loan borrowers and their families have few or no options for relief. This is not true of federal loans, which can be deferred or repayed in amounts based on the borrower’s income.
  • The only relief for struggling private loan borrowers actually plunges them deeper into debt. Lenders often charge fees to grant a forbearance – a temporary postponement of payments – on a private loan. Forbearances are only available for a limited amount of time, during which interest accrues and is added to the principle when payments resume. Private loan providers already enjoy powerful government protection.
  • Private loans are nearly impossible to discharge in bankruptcy, unlike other similar forms of consumer debt. Someone who racks up thousands of dollars buying jet skis on a credit card can get relief through bankruptcy, but a teacher with private loans who can't work because of a disability has no way out.
  • The special treatment of private loans in bankruptcy protects lenders’ investments at the expense of students and consumers. Lenders that are protected against losses in this way will continue to make risky loans to borrowers without strong prospects for repayment – that is bad for students and the economy. There is a real, but limited, demand for private student loans. Undocumented students, international students, and those who attend schools that don’t participate in the federal loan programs are not eligible for federal loans. Those students, and the small percentage of others who really do need to borrow more than is available federally – and for whom doing so is a sound investment – need safe and reliable options, not more of the same risky private loans. We would welcome an opportunity to work with you on solutions that use tax dollars appropriately and serve the best interests of students and consumers. If you continue with some form of the current plan, we strongly urge you to make receipt of taxpayer dollars contingent on lenders’ acceptance of provisions that increase protections for private student loan borrowers. Private lenders that receive federal rescue funds should be required to offer more affordable fixed interest rates, income-contingent repayment options, and discharges in cases of a borrower’s death or disability. There should be ways for current private loan borrowers – not only future borrowers – to renegotiate more reasonable terms for their loan repayment. Congress must also reconsider the treatment of these loans in bankruptcy. A bailout for the providers of usurious private student loans will not solve the college affordability crisis caused by the failing economy, and would actually be detrimental to many students and consumers. However, if you continue to pursue any form of rescue for private student loans, it would be unconscionable to do so without also providing better consumer protections. Ultimately, the best way to make college affordable and strengthen our nation’s economy is to increase federal, state, and institutional grant aid and reduce the need for students to borrow in the first place. Sincerely, American Association of Collegiate Registrars and Admissions Officers American Association of State Colleges and Universities Campus Progress Consumers Union National Consumer Law Center The Project on Student Debt National Association for College Admission Counseling U.S. Public Interest Research Groups United States Students Association

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Barack Obama and his administration will soon be making important decisions about the types of financial resources available to students and their families, as well as how easy those resources are to find out about, apply for, and use. We sent a letter to President-Elect Obama congratulating him on his election and urging him to focus on reforms that will make a real difference to college access and success. Read the letter.

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Matthew Reed, a Policy Analyst at the Institute for College Access & Success guest blogs this week at Higher Ed Watch, a higher education news and policy initiative from the New America Foundation.

Student debt is up again, according to the data that we at the Project on Student Debt released today. One of the lessons we have learned from putting together these reports for the past three years is just how difficult it is to get timely and accurate information about students' loans. Congress and the next leadership of the U.S. Department of Education could take some simple steps to improve that situation. For our purposes, the most useful data comes from annual surveys of colleges by college guide publishers such as Peterson's. The utility of this data, however, is limited because so much of the information is missing or unreliable. Colleges self-report and many fail to respond to the survey on an annual basis, resulting in missing or repeated data. In addition, colleges use different methodologies to calculate these figures, depending on the capabilities of their data systems and the expertise and interest of the staff members responsible for filling the surveys out. While student debt figures for some schools stay the same for years as no one bothers to update them, at other schools, they fluctuate wildly from year to year as staff turn over or new software is used make the latest calculations. The Department of Education maintains a database tracking students loans -- the National Student Loan Data System (NSLDS). Unfortunately, the Department doesn't make sufficient use of it. At the Project on Student Debt, we believe that expanding the information entered into this system and the reports generated from this system would go a long way toward providing more useful information for policymakers, student borrowers, and the public. Judging by the legislation authorizing NSLDS, Congress clearly expected the Department to use the database to not only provide lenders and institutions with the information necessary to operate the loan programs, but to provide borrowers with information about their own loans and policymakers with information about student borrowing generally. The Higher Education Act directs the Department to use the database in part for research and policy analysis regarding student debt levels. This includes analyzing factors such as family income and the type of institution attended. It also identifies providing information to student borrowers about the current status of their loans as another important purpose of the system. As of now, Department officials have made very limited use of the database for these purposes. The agency currently uses NSLDS to calculate cohort default rates for colleges, and to report on the aggregate student loan volume, broken down by program (Direct Lending versus the Federal Family Education Loan Program for example), type (federally subsidized or unsubsidized Stafford Loans, for example), state, and sector of higher education (two year versus four year schools, for instance). While this is useful information about the overall size and growth of these programs, it does not give us any indication of the debt burden faced by students at particular institutions. The Department needs to make much more detailed data on student borrowing available. Using NSLDS, the Department should publish the following information each year: - Loan volume by loan program and loan type for each institution (unsubsidized/subsidized Stafford loans, PLUS loans, etc.) - Average cumulative debt levels for students graduating from college each year at the state, national, and institutional levels - Average cumulative debt levels for students leaving college without completing a degree or certificate program - Data on borrowing patterns by income level and level of demonstrated financial need - Data on borrowing patterns by students who receive federal Pell Grants These statistics would provide valuable and timely information to policymakers regarding trends in student borrowing and indebtedness. Moreover, we believe that publishing this data would provide some accountability for institutions regarding the way in which they package student loans. But to truly get an accurate picture of student borrowing trends, one additional step is needed - because private student loans, which up until recently have been the fastest growing form of student loans, are not currently included in NSLDS. We are urging Congress to require lenders to report all the private loans they make to NSLDS. Such a requirement would be beneficial to both students and policymakers. As of now, we don't know the full extent of private loan borrowing that is occurring. In many cases, these high-cost loans are marketed directly to students and neither the institutions nor any government agency is aware that they have been made. As a result, students often take out these loans without realizing that lower-cost federal loans are available. Requiring the inclusion of private loans in NSLDS would fit in perfectly with one of the main purposes of the database: to give borrowers a place to go to see all of their student loans. It is important for borrowers to have access to information on the current holders and servicers of their loans, as well as the current balance and payments due. They should be able to see this information for all of their loans, not just federal ones. Students are often unclear on the distinctions between the different programs under which they borrow, especially when the loans may come from the same lender. Only later during repayment do many students realize the importance of knowing which lender holds their loans and what program it was made under. As student debt levels continue to increase, it is crucial that policymakers and the public have accurate, timely information about patterns of student borrowing. The Department of Education should use the data already available in NSLDS to provide this information. In addition, lenders should be required to report private student loans to NSLDS. Taken together, these steps will ensure that students and policymakers have the information they need to make good decisions regarding student loans.

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By Laura Szabo-Kubitz, Policy Associate In times of financial instability, the need is even greater for programs that promote college accessibility and affordability. Bad economic times lead more people to turn to education as a solution, which we’re seeing with record numbers of students across the country applying for aid. While larger reforms are needed, those who work in financial aid can make a big difference in students’ lives by taking small steps. Recently, I visited the financial aid office websites of more than twenty colleges to find out whether or not their schools participate in federal student loan programs. I was surprised at how often I had difficulty finding an answer, so I began to look for office phone numbers to ask directly. Some sites had user-friendly layouts where I was able to find information quickly. However, I was surprised how difficult several schools’ sites were to navigate. In an attempt to offer students helpful information, some sites offered an overwhelming amount of it. As a result, key pieces of information – like contact information or types of available aid – got lost in the mix, thus negating the sites’ intended purpose as a helpful tool. If students are unable to locate a simple phone number on a website, how are they supposed to get the vital information they need? Putting the aid office’s contact information very clearly and visibly on the financial aid office homepage is a simple step that all financial aid offices – not to mention all student services – should take today. It’s quick, easy, and it just might make all the difference.

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I'm glad Secretary Spellings is taking a step forward: developing specific examples and proposals forces people to think and be creative in response. But I have to admit that the sample form raises a lot of questions about what the Department's proposal is, and whether it will require legislation to implement. Are a student's own earnings going to be completely eliminated from the eligibility formulas? The form asks for the student or the parent's income, not both. One minor point about the "26" questions: in some cases the numbers were removed but the number of questions remained the same (for example, the two questions about selective service registration have one number on the new form but two numbers on the old form). Counted by the same method as the 106 on the old form, the sample form has 41. But focusing on the raw number of questions is sort of like looking at test scores without context. Families don't mind having to answer easy questions like their street address or whether they have other children already in college. The goal should be to eliminate the difficult, show-stopper questions that require the applicant to do research or to be a tax expert. To accomplish that goal, the Department will have to go beyond this first step. Congress last year paved the way for the Secretary to work with the IRS on a system that, with the taxpayer's permission, would feed information directly from the tax form into the financial aid application process. Yet there is no evidence in this announcement of any IRS cooperation. The form still asks applicants to find numbers on particular lines on their tax forms. -Bob Shireman

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The California Postsecondary Education Commission (CPEC) recently took a look at how affordable a community college education really is for students and their families. The Institute for College Access & Success submitted the following comment to the Commission prior to their September 23-24 meeting, where the report was discussed.

Commissioners: The Institute for College Access & Success conducts research and advocacy geared toward helping students access and succeed in college, regardless of income or background. A primary focus of the Institute is looking at college affordability issues within California, and for community college students specifically. We would like to commend the Commission for looking at this issue, which is rarely addressed in a broader context than the system's low fee levels. The report brings much needed attention to the fact that a CCC education is less affordable than it used to be, and that the problem is worst for the lowest-income students and families. We are concerned that the Commission's analysis of California community college affordability is too narrow. By focusing only on students who live with their parents, the analysis excludes the majority of students enrolled in the colleges, including four out of every ten full-time students. Also, the definition of "minimum costs" used throughout the report dramatically underestimates the costs that students face, or what the institutions themselves tell students about college costs. Using such a narrow focus minimizes the extent of the affordability problem at the community colleges. Financial aid is a crucial element in looking at college costs, and we are glad that the issue was broached in this analysis. By looking only briefly at grant aid amounts for students who receive it, and in tandem with the Commission's definition of "minimum costs", this again undercuts the true scope of affordability challenges for community college students. Specifically, the Commission's analysis failed to mention how relatively few community college students receive Cal Grants, the state's own need-based aid program, and how Cal Grant award levels have stagnated, worsening affordability issues even for the lucky recipients. We would welcome an opportunity to discuss these issues and concerns around community college affordability with Commissioners or Commission staff. Sincerely, Debbie Frankle Cochrane Research Analyst Robert Shireman President

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The Rethinking Student Aid study group released "Fulfilling the Commitment: Recommendations for Reforming Federal Student Aid," a report that evaluates the current federal student aid system, and develops a new strategy for financial aid programs. Members of the media have asked the Institute for College Access & Success' President Robert Shireman for his thoughts on the recommendations, and here's what he has to say:

There are enough specifics that the proposals could have legs. Too often these types of commissions produce unrealistic wish lists and vague exhortations. In contrast, this group took a more hard-headed analytical approach. They came up with some creative ideas and made some tough choices. The proposals are clear enough that policymakers could actually follow up. Of course, being specific and not asking for the moon also means that there will be dissent. The proposals will prompt the type of discussion that can yield actual improvements in college access and success. The savings proposal is the newest and most interesting. Telling a low-income family that some money has been put aside in an account sends a much stronger signal than telling them 'there's a program you can apply to.' Money in the bank, when the child is in middle school and still has high aspirations, will help parents and students to plan and prepare both financially and academically. In principle it makes a lot of sense to have just one loan program. But that subsidy shouldn't just be taken away. It should benefit students with improved help in repayment and more grant aid. The idea of increased loan limits needs to be approached carefully. We need to pay attention to how colleges may respond, and also how parents respond. It would be best to encourage parents to take on some of the burden before students take on more. An incentive fund for states makes a lot of sense, but it's been difficult for the idea to get traction. It's not very sexy. But given the huge state role in funding higher education, it's probably one of the most important things the federal government could do, if done creatively.

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