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In California and nationally, very few former foster youth make it to or through college, and cost is a major obstacle. A new report shows that despite federal and state programs and policies intended to help them afford college, surprisingly few California foster youth who apply for student aid receive all the grants they should.

Together, federal Pell Grants, state Cal Grants, and jointly funded Chafee Grants can add up to almost $12,000 for a foster youth at a California community college, $16,000 at a California State University, and more than $20,000 at a University of California campus. Of identifiable California foster youth who filled out a FAFSA (Free Application for Federal Student Aid) in 2008-09, 84 percent were eligible for a Pell Grant, 17 percent were offered a Cal Grant, and just nine percent received a Chafee Grant, which is specifically for foster youth. Only four percent of these very low-income students received all three grants.

Our report, Hopes & Hurdles: California Foster Youth and College Financial Aid, examines the reasons behind this trend, from a lack of awareness about financial aid options to barriers within the aid programs themselves that pose particular challenges for foster youth. “The financial aid system isn’t working for foster youth,” said Debbie Cochrane, the report’s lead author and program director at the Institute for College Access & Success. “These students have beaten the odds to go to college, but not being able to get the grants they need puts their future in jeopardy.”

Early deadlines and GPA requirements make it harder for foster youth to get Cal Grants. Due to instability in their home and academic lives, these students are less likely to make college plans and apply for financial aid by the program’s March 2 deadline. In addition, many have attended multiple high schools, which must quickly cooperate to calculate a student’s GPA. Funding for Chafee Grants is so limited that fewer than half of the eligible applicants receive one. Also, Chafee Grants often arrive so late in the semester that students may have already fallen behind in classes or dropped out because they could not afford to buy books or pay their rent.

“Life in the child welfare system creates serious hurdles for foster youth who want to go to college, and problems with the way essential programs like Cal Grants and Chafee Grants operate can put higher education even farther out of reach,” said Cochrane.

The report recommends guaranteeing Cal Grants for foster youth; increasing cooperation between counties, the California Department of Social Services, and the California Student Aid Commission; extending foster care supports to age 21; and improving the funding and administration of Chafee Grants.

Read the report

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On Wednesday, September 23, the House Judiciary Committee's Subcommittee on Commercial and Administrative Law held the first ever hearing about student loans and bankruptcy, "An Undue Hardship? Discharging Student Loans in Bankruptcy." Lauren Asher, president of the Institute for College Access & Success testified as an invited witness.

Over the past decade, the private student loan market expanded dramatically along with the overall credit market, fueled by easy access to capital. As with subprime mortgages,lenders marketed private loans very aggressively and financed them primarily through securitization, maximizing short-term profits regardless of borrowers’ actual ability to repay. There were no regulations to limit the dangers of private loans or to restrict the way they targeted young people with no borrowing experience. Prospective borrowers were not even entitled to clear information about actual terms and costs that would enable them to shop around before signing a promissory note. Private student loans remain largely unregulated, Congress included some basic disclosure requirements in the HEOA will go into effect early next year.

Private student loan volume began mounting well before the change in bankruptcy law: it increased eight-fold between 1997 and 2005, and it peaked at $19 billion in academic year 2006-07. Student Lending Analytics, which monitors industry trends, projects that volume in 2009 will be $10-12 billion. This drop parallels changes in the larger economy due to the credit crunch, which hit the private loan industry hard in the fall of 2008. While quite a few lenders left the market and private loans are now more likely to require a co-signer and a higher credit score than in recent years, private student loans are still available. Sallie Mae continues to make a third of its profits from private loans, and they along with Chase, Citibank and other major lenders offer and actively promote their private loan products. As these lenders work to expand their market share, credit unions have entered the field and seek to position themselves as a source for more affordable private loans.

In a particularly disturbing development, some large, for-profit colleges have begun making a lot of their own private loans directly to high-risk students. For example, in a recent call with investors and analysts, Corinthian Colleges, Inc. said it plans to make $130 million of such loans in the current fiscal year, on top of $120 million last fiscal year. They fully expect a shocking 56 to 58 percent of the borrowers to default. Yet they consider these loans good investments because they will increase enrollment and with it a profitable flow of federal grant and loan dollars that outweighs the planned writeoffs. Corinthian owns more than 80 colleges across the U.S. through its Everest brands. According to the Associated Press, ITT Education Services, Inc. also expects to make $75 million in loans directly to its students this Calendar year, and Career Education Corp. expects to reach $50 million.

These are attempts to get around market corrections that have appropriately reduced access to subprime private loans for very high risk borrowers, and to justify prices for-profit education and training programs that may exceed federal aid limits. As mentioned above, Sallie Mae has stopped lending to these types of schools because of similarly high default rates and other questionable practices. But whether the source is their own school or an outside lender, the students who are sold private loans they cannot afford are stuck with them even in bankruptcy, while the lenders are free to move on.

Read Lauren Asher's oral testimony

Read Lauren Asher's written testimony

Read the coalition letter

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The Project on Student Debt has released Private Loans: Facts and Trends, using data from the U.S. Department of Education’s National Postsecondary Student Aid Study (NPSAS), a comprehensive nationwide survey conducted every four years. Our analysis from 2007-08 reveals that two-thirds of private loan borrowers did not take out all they could in safer, more affordable federal loans. The fact sheet also found that a majority of private loan borrowers in 2008 attended schools with tuition and fees of $10,000 or less, and that African-American students were the most likely to take out private student loans.

Like credit cards, private loans usually have variable interest rates that are higher for those least able afford them – as high as 18 percent in 2008. But unlike credit card debt, private loans are nearly impossible to discharge in bankruptcy. They also lack important consumer protections that come with federal student loans. Private loan borrowing has slowed since the credit crunch, but these risky loans remain available from major lenders.

Among the findings:

  • While experts agree that private loans should be used only as a last resort, the share of private loan borrowers who could have borrowed more in federal Stafford loans increased dramatically, from 48 percent in 2003-04 to 64 percent in 2007-08.
  • Private loan borrowing is not limited to students at high-priced schools. In fact, the majority of private loan borrowers (63 percent) attend colleges with tuition and fees of less than $10,000.
  • Among all racial and ethnic groups, African Americans are now the most likely to borrow private student loans. The percentage of African-American undergraduates who took out private loans quadrupled between 2003-04 and 2007-08, from four percent to 17 percent.

For more information about private loans, please visit Private Student Loan Publications and Resources

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IBR

Help is here!

The Income-Based Repayment option for federally-backed student loans went into effect July 1. It can help borrowers keep their loan payments affordable with payment caps based on their income and family size. For most eligible borrowers, IBR loan payments will be less than 10 percent of their income - and even smaller for borrowers with low earnings. IBR will also forgive remaining debt, if any, after 25 years of qualifying payments.

To apply for Income-Based Repayment, contact your lender directly. If you have Direct Loans from the U.S. Department of Education, start here. If you do not know who is servicing your loan, check the National Student Loan Data System database.

For more information about income-based repayment and public service loan forgiveness, please visit IBRinfo.org.

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NOW on PBS focused on student debt in America, following an unemployed single mother in Baltimore with over $70,000 in student loans. The Project on Student Debt was featured. Click here to visit the PBS website

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Information on IBR now comes in cartoon form! Check out our first-ever video, "Ditch Your Debt Gremlin," a two-minute animated introduction to IBR. Please share it on Facebook, email it to everyone you know, link to it from your blog, etc., to help get the word out about Income-Based Repayment before it becomes available on July 1.

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Top 10 List
We’ve updated our Top 10 List of student loan tips for students preparing to graduate and enter “the real world.” Many students are looking at their student loans more closely now than they ever have before, and wondering how they will handle the burden. Our tips can help young people keep payments affordable, avoid fees and extra interest costs, and protect their credit rating. Click here to read the Top 10 List

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The Project on Student Debt and Income-Based Repayment were both cited in a recent report "Repaying Student Loans In Tough Times" on CBS' The Early Show. Watch the clip below

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In direct contrast to federal efforts to increase college access during the current recession, today Governor Schwarzenegger proposed eliminating all new Cal Grants, along with deep cuts to public university systems and other essential state programs and services. The Cal Grant program has been an integral part of California’s commitment to college access and affordability for more than 50 years. Since 2001, all qualified graduating high school students have been guaranteed a Cal Grant.

“The Governor’s alarming threat to eliminate Cal Grants sends a discouraging signal about college affordability to all Californians,” said Lauren Asher, acting president of the Institute for College Access & Success. “Students and families are counting on Cal Grants in these tough times, and the proposed cuts will wreak havoc with college plans for this fall.”

The Governor seeks to cut approximately $250 million from the state budget by:

  • Eliminating all new Cal Grants for students at both public and private colleges; and
  • Reducing the value of renewal Cal Grants for all returning University of California (UC) and California State University (CSU) recipients by lowering the share of enrollment fees their grants will cover. (Renewal Cal Grant recipients at other colleges would not experience cuts.)

We estimate that more than 200,000 students statewide – over two-thirds of all current students offered Cal Grants – would lose all or part of the Cal Grant they were counting on to help pay for college this fall. These students will see their financial aid packages reduced by between $576 and $9,708. Based on our analysis, here is a snapshot of these high- achieving, financially needy students and what is at stake for them.

At least 118,300 students would lose their entire grant, worth up to $9,708, this fall: Eliminating allnew Cal Grants would deny approximately 118,300 students access to aid dollars they needed and expected for the 2009-10 academic year. These students have very low to moderate incomes, and vary greatly in age and type of college, although nearly half would have attended community colleges.

  • 26,000 students face cancelled Cal Grant A offers. A typical Cal Grant A student has a 3.45 grade point average (GPA) and a family income of $48,733.
  • 84,500 students face cancelled Cal Grant B offers. Cal Grant B students, who receive 70% of new awards and would therefore be among the hardest hit, come from much needier families. A typical Cal Grant B student earns slightly above a 3.0 GPA, and has a family income of $17,791.
  • 7,800 students face cancelled Cal Grant C offers. A typical Cal Grant C student has a 2.67 GPA and a family income of $21,859.
  • The elimination of new awards affects both young adults and older students: 88,000 new High School and Transfer Entitlement students, whose average age is between 18 and 22, would lose their grant offers, as would 30,300 new Competitive and Cal Grant C students, whose average age is between 29 and 33.
  • Eliminating new awards affects students at all types of public and private colleges, but community college students would lose the largest share – 45 percent – of new Cal Grant offers.
  • Cal Grants A and B provide four years of eligibility for students, including transfers from community colleges to four-year schools. An estimated 110,500 students would not be able to receive these new grants in 2009-10, and over four years could miss out on as much as $38,000 each in needed aid.

At least 90,000 returning students would lose part of their Cal Grant this fall: An estimated additional 90,000 UC and CSU students would see their promised renewal grants reduced by up to $600 for 2009-10, a result of the Governor’s proposal to eliminate support for fee increases.

“The loss of Cal Grants will push lower income students off the college track, delay their progress, or leave them even deeper in debt as they struggle to make ends meet. Making it harder for Californians to get the training and education they need puts our state’s troubled economy at even greater risk, now and in the future,” said Asher. The Public Policy Institute of California recently found that California needs more than a million new college-educated workers by 2025 to protect the state economy from decline.

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As July 1 (the first day the Income-Based Repayment option becomes available for borrowers) draws closer, coverage of IBR and Public Service Loan Forgiveness is ramping up.

The Institute's acting president Lauren Asher was featured in a recent USA Today article focused on IBR. An excerpt:

Starting July 1, borrowers will have a new option: a repayment program that caps monthly payments based on income. It targets borrowers who would have a hard time paying basic living expenses if they had to make standard monthly payments on their loans, says Lauren Asher, acting president for the Project on Student Debt. Under the income-based repayment program, such borrowers will never have to spend more than 15% of their discretionary income — an amount based on federal poverty guidelines — on student loan payments. Most who qualify for the program won't spend more than 10% of their income on student loans. Those whose income falls below 150% of the poverty level (see box) won't be required to make any payments, Asher says.

Read the entire article here

Additional Coverage

For more information about Income-Based Repayment visit IBRinfo.org

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