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Statement of Debbie Cochrane Program Director, The Institute for College Access & Success  

We are saddened to see more than $300 million in Cal Grant cuts in the 2012-13 budget proposal released by California Governor Jerry Brown earlier today. Cal Grants are a crucial lifeline for hundreds of thousands of California students who couldn’t afford to attend or complete college without them.

Some of these cuts take a common sense approach to increasing accountability for all types of schools and preserving affordability at the state’s public colleges. For instance, prohibiting state grant dollars from subsidizing students’ attendance at colleges where more than one in four student loan borrowers default on their loans is smart policy in any budget climate. Also, the Governor’s proposal would maintain maximum award levels at all public colleges, where the vast majority of students in the state are enrolled.

However, some of the cuts would fundamentally transform the program from a true engine of opportunity for students who need a hand to a reward for those already much more likely to attend and complete college.  In particular, the Governor would dramatically increase the required grade point average for Cal Grant B awards from 2.0 to 2.75. These grants go primarily to low-income students at community colleges. This change would pull the rug out from under the underrepresented students whose college success is central to our state’s economic recovery. This is a dramatic cut to student eligibility, and one that would happen so suddenly that students who have long counted on a Cal Grant would instead find themselves empty handed.

We will continue to analyze the effects of these and other Cal Grant proposals on students as budget negotiations continue in the coming months.

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To help students better understand how much each college would actually cost them, the Consumer Financial Protection Bureau (CPFB) and the U.S. Department of Education (Department) have developed a Know Before You Owe financial aid shopping sheet. This draft form takes an important step toward helping students and their families make more informed decisions about how to pay for college and which college to attend. As President Obama remarked in Ohio earlier this week, “You don’t want to owe and then know.”

We recently submitted comments on the draft financial aid shopping sheet, pointing out the most critical elements to include (such as the full cost of attendance and net price) and providing recommendations to make the form even more helpful to students. For example, we emphasize the need to avoid appearing to endorse risky borrowing through private student loans.

We encourage you to submit your own comments on the CFPB’s “Know Before You Owe” webpage. Tell the Department and CFPB what information you wish you had known before deciding where to go to college and how to pay for it. Your feedback is valuable!

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At a time when college students are graduating with record amounts of debt and facing the highest unemployment rate in recent history, it is not surprising that the national survey of young adults (18-34 years old) released today found strong bipartisan opposition to charging students with financial need interest on their federal loans while they are still in school.

Yet this is exactly what House Majority Leader Eric Cantor recently proposed, and some have speculated that the so-called Supercommittee may be considering this as a way to reduce the deficit.  However, this proposal would simply shift the debt burden from the federal government to young people and adults working to get the education and training they need to compete in today’s economy.

Removing the interest subsidy on federal Stafford loans for undergraduates with financial need would increase the cost of college by thousands of dollars at the same time that the interest rate on these loans is scheduled to double from 3.4% to 6.8%, further increasing student debt burdens.

Just how much more would eliminating the in-school interest subsidy cost students who take out the maximum subsidized student loan amount and graduate in six years?

  • The scheduled doubling of the interest rate alone will cost them $4,600 more if they repay over 10 years and $10,400 more if they repay over 20 years.
  • The doubling of the interest rate combined with the elimination of the in-school interest subsidy would cost them $6,250 more when they start repayment (after the six-month grace period), $13,250 more over 10 years, and $21,850 more over a 20-year repayment period.

Rather than entirely eliminating the in-school interest subsidy on subsidized student loans and directing the savings to deficit reduction, the Senate FY2012 Labor-HHS appropriations bill proposes eliminating the interest subsidy during the six-month grace period after a student leaves school and using those savings to fully fund the Pell Grant program.

How much more would eliminating the interest subsidy during the grace period cost students who take out the maximum subsidized student loan amount and graduate in six years, assuming the interest rate doubles, as scheduled, to 6.8%?  Allowing interest to accrue during the grace period would cost these students almost $800 more by the time they enter repayment, $1,100 more if they repay their loan over 10 years, and $1,450 more if they repay their loan over 20 years.

The Senate Appropriators proposed this change in order to fully fund the Pell Grant program, but the House Budget Committee is blocking the Senate from using all the savings to fund Pell Grants next year.  This means that students would face larger debt loads and the Pell Grant program would still have a $900 million budget gap in FY2012.

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Updated March 19, 2012 Since October 29, 2011, almost all U.S. colleges and universities are required to have “net price calculators” on their websites.  These calculators can make it much easier to start figuring out which colleges you might be able to afford.  They provide early, individualized estimates of what a specific college will cost after grants and scholarships: the net price is what you might have to earn, save, or borrow to go to that school.  These new tools can help you move beyond often scary “sticker prices” and discover that your dream school may be more (or less) affordable than you thought - before you have to decide where to apply. Here’s how you can make the most of net price calculators: Finding them on the college website (they won’t always be in the same place)
  • Some calculators are easier to find than others.  A few are posted on the college’s homepage, but most are in the Financial Aid section, which is sometimes under Admissions. Otherwise, try looking in Consumer Information or Disclosures, or search for the calculator within the site or by using an outside search engine like Google.
  • It’s not always called a “net price calculator,” so also keep an eye out for the keywords “cost,” “estimator,” and “financial aid.”
  • The Department of Education has posted net price calculator URLs, as provided by colleges, on its College Navigator tool (http://nces.ed.gov/collegenavigator) under “Net Price,” as well as on its resource page.
Answering the questions
  • Be prepared to encounter all kinds of calculators, from the simple (as few as 10 questions) to the complex (50 or more).  Some calculators ask questions that require you to dig up detailed financial information from your (or your parents’) tax returns, earnings statements, and bank statements.  If you don’t have that information handy, answer as best you can or try to skip the question.
  • Colleges cannot require you to provide your contact information. If you aren’t comfortable giving them your name, email address, or other information, you don’t have to.
Interpreting the results
  • The most important number on the page is the “net price” – the full cost of attendance minus grants and scholarships.  Make sure you focus on that dollar figure when interpreting calculator results and comparing colleges.  Some colleges also subtract their expectations of how much you’ll earn and borrow to get a smaller cost figure, but it won’t be called “net price.”

  Remember that grants and scholarships don’t need to be repaid,     while work expectations must be earned and loans repaid with       interest. That’s why work-study and loans are called “self-           help.” You don’t want to accidentally compare one school’s net     price with another school’s figure that includes loans and work-     study.

  • Be wary of estimates that include unrealistic amounts of self-help.  We have found calculators that subtract $20,000 or $30,000 worth of expected loans to get to what might be called a “final” or “out of pocket” cost figure of zero.  This can make colleges look more affordable than they really are.  It may look like you will have no out-of-pocket costs, but the costs are just delayed.
  • The results are only estimates and colleges can calculate them differently, so use them to make ballpark comparisons between colleges.  Don’t draw conclusions based on differences of several dollars or even several hundreds of dollars – talk to the schools’ financial aid offices to find out more.
  • The estimates are only for your first year of college and apply to a particular academic year (e.g., 2011-12). If you expect to enter college at a later date, know that the college’s costs and financial aid policies may change.
  • Not all grants and scholarships are available for all years of college.  You can contact the college’s financial aid office (or try searching its website) to find out whether you can expect the same amount of grant assistance after your first year.
  • As all net price calculators are required to tell you, the estimates are not final or binding financial aid awards.  To get an actual aid offer, you have to apply to the school for admission and fill out the FAFSA (Free Application for Federal Student Aid, http://www.fafsa.ed.gov/) to qualify for federal financial aid, and you may have to fill other applications for aid from your state or college. Net price calculators can help you decide whether to take those next steps.
For more information about net price calculators, please visit our Net Price Calculator Publications and Resources Page: http://ticas.org/NPC_resources.vp.html.

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As TICAS has long advocated, for students and families to make sound decisions about paying for college, financial aid letters must be clear, comparable, and consumer-friendly. On each of these fronts, there is significant room for improvement. As a step in that direction, the U.S. Department of Education held a public meeting earlier this month to gather input on how to improve financial aid award letters. We submitted written comments and participated in both the panels and small group discussions at the meeting.

What emerged from this month’s meeting was a broad and growing consensus about the need for consistent core elements and common definitions across award letters. There was also continued discussion, but less agreement, about whether or not there should be a single award letter format, and whether standards for award letters should be made mandatory at some point in the future. All of the panelists and all of the small groups of participants reporting out listed most or all of the following as critical core components for all award letters:

  • Realistic estimates of the full cost of attending college for one year, whether paid directly to the college or not; federal law defines cost of attendance as including at least  tuition & fees, room & board, books & supplies, transportation & miscellaneous personal expenses.
  • Grants, scholarships, and other aid that does not have to be earned or repaid, often known as gift aid.
  • Any remaining costs after gift aid is subtracted, commonly referred to as net price.
  • The types and amounts of loans, work-study, and parent/student contributions recommended by the college to cover the remaining costs, often called self-help.
  • Contact information for the financial aid office.

These are consistent with our recommendations  emphasizing the importance of key principles and elements. While there is broad consensus on the elements, there was vigorous discussion about what to call them. Some participants were particularly concerned that terms like “cost of attendance” and “net price,” may not be accessible to students and families. There was general agreement that the next steps need to include several ways of gathering consumer input directly from those who actually receive award letters—students and their families—and those who help them interpret them—counselors and advisors from schools and community groups. In his remarks, David Hawkins of the National Association for College Admission Counseling (NACAC) noted that students and families expect high school counselors to be able to help them with financial aid questions, including interpreting award letters, but this is an area where the counselors themselves feel they need additional assistance. Among the ideas for how to engage consumers, U.S. PIRG pointed out the Consumer Financial Protection Bureau’s “Know Before You Owe” page, which brought in over 18,000 comments on how to simplify and improve mortgage disclosures, as an example of an innovative and successful effort of this sort.

We encourage the Department to build on the clear consensus that emerged from this month’s meeting about key elements and the importance of consistent and consumer-friendly terminology. In particular, the Department should engage with consumers both before and after drafting model award letter formats and recommendations, gathering input about how best to help them understand college costs and options for covering them.

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The New York Times ran the editorial "Help Needed for Student Debtors" yesterday, reviewing the recently-released official two-year cohort default rates for fiscal year 2009. The rates show a sharp uptick in defaults, with 8.8 percent of student loan borrowers who entered repayment in 2009 defaulting by the end of 2010, up from 7 percent for those who entered repayment in 2008.

Following-up on an article that ran earlier in the week, the NYT Editorial Board also promotes the Income-Based Repayment program, that can help struggling borrowers remain in good standing, writing "the government needs to make sure that borrowers at risk of default have access to this program." Read the editorial and article

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A recent New York Times blog post discusses the potential strengths and weaknesses of net price calculators, which will appear on almost all college websites by October 29. Here’s our take:

Net price calculators can indeed be a “game changer” for prospective college students and their families. Armed with early, individualized, and comparable estimates of college costs (after subtracting grants and scholarships), students will be able to make more informed decisions about college at all stages of the process. Net price calculators can help students look past “sticker price” and discover that their dream school may be more (or less) affordable than they thought – before it is too late and most of their college decisions have already been made.

The blog post focuses a lot of attention on how accurately net price calculators can predict a student’s exact financial aid package, but we think that’s the wrong question. Net price calculators are intended to provide estimates that help students figure out which schools might be within reach, before they decide where to apply. At that early stage of the process, ease of use is more critical than precision.

We have been monitoring net price calculators over the past year and found, as noted in the blog post, that there is a great deal of variation in the way colleges have been designing and posting their calculators. To best serve the needs of prospective students and their families, net price calculators should all:

  • Be easy to find – colleges should prominently post links to their calculators in areas of their websites that prospective students are likely to visit
  • Be easy to use – limit the number of required questions, make it clear which questions are required, and keep the questions simple
  • Present results that are easy to understand and compare – emphasize the “net price figure,” not what’s left after subtracting work-study and loans
  • Protect students’ personal information – make it clear that submitting contact information is optional, protect users’ privacy, and inform them about how owns and has access to their information

For more information about net price calculators, and to find out more about our findings and recommendations, please view our report, “Adding It All Up: An Early Look at Net Price Calculators.”

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Pauline Abernathy, Vice President of The Institute for College Access & Success, testified on June 7, 2011 before the Senate Health, Education, Labor and Pensions (HELP) Committee at the hearing entitled “Drowning in Debt: Financial Outcomes of Students at For-Profit Colleges,” discussing trends and disparities related to student debt, completion and post‐completion success at for‐profit career colleges compared to other types of schools.

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Last week the U.S. Department of Education released aggregate two-year cohort default rates for fiscal year 2009. The new numbers capture total counts of student loan borrowers who entered repayment in FY 2009 and had defaulted by the end of FY 2010.

Individual college’s CDRs will not be made public until September, but the aggregate figures show some alarming trends. Across all colleges, about 328,000 borrowers who entered repayment in 2009 defaulted by the end of 2010 – about 89,000 more than the 239,000 borrowers who entered repayment in 2008 and defaulted by the end of 2009. More than half of this increase came from students who attended for-profit schools: about 51,000 of the 89,000.

As in previous years, for-profit colleges overall continued to have the highest rates of default. For the FY 2009 cohort, 15.2 percent of borrowers from for-profit colleges defaulted – more than twice the rate at public colleges (7.3 percent) and more than three times the rate of non-profit colleges (4.7 percent). For-profit colleges also experienced the biggest increase between 2008 and 2009 rates – a 31 percent jump compared to 22 percent at public colleges and 18 percent at non-profits.

With a sharp uptick in the number of students defaulting, the new data clearly demonstrate the need for adequate protections for borrowers and accountability for schools. Last week we submitted comments to the Department with suggestions for where regulations could be strengthened on both of these fronts.

Check out our comments to the Department here.

Learn more about cohort default rates on our resource page, and see the new data from the Department on their site.

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