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With just three days until interest rates on subsidized Stafford loans are scheduled to double from 3.4% to 6.8%, Congress should not make college more expensive, either by letting rates permanently double or by making permanent changes that leave students worse off than doing nothing at all. Instead, Congress should freeze interest rates to avoid increasing the cost of college for millions of students and families already struggling to cover rising costs. The Reed/Hagan bill (S.1238) introduced today with more than 30 other senators would freeze rates for one year and pay for itself by closing a tax loophole. It’s scheduled for a Senate vote on July 10.

By contrast, the bill Senators Manchin, Burr, Coburn, Alexander, and King announced they will introduce today would be worse for students than doing nothing at all. It would let rates for subsidized Stafford loans more than double by 2018 and set no limit on how high rates on all new loans could rise.

There has always been a cap on federal student loan interest rates. As we, alongside other organizations that advocate for students and young people, recently wrote to Congress, a rate cap is essential to ensure that student loans remain affordable and that high interest rates don’t deter students from starting or completing college during periods of high and rising rates.

Nevertheless, some have objected to maintaining an interest rate cap, suggesting that the availability of income-driven repayment plans eliminates the need for any cap. But that’s simply not the case.

Still others have claimed that an interest rate cap isn’t necessary because federal consolidation loans would still have a maximum rate of 8.25%. However, the potential to consolidate is not a legitimate substitute for capping how high rates can rise. Consolidation comes with risks, which vary depending on the borrower’s specific circumstances. For example, consolidation can increase the total cost of the loan by lengthening the repayment period, and it can make it harder to qualify for Public Service Loan Forgiveness. We described these and other consolidation risks in our last post.

A recent alternative Democratic proposal would cap rates and keep subsidized loan rates below 6.8%, but rates on unsubsidized loans would be expected to exceed 7% by 2016. Because 82% of undergraduates with subsidized loans also have unsubsidized loans, keeping rates low on one while increasing rates on the other may not reduce costs for low- and moderate-income students, and could even increase them.

The table below compares how four recent long-term proposals compare to the current rates and scheduled rates for undergraduate subsidized Stafford loans over the next decade. Under three of the proposals, rates on subsidized loans would rise sharply—exceeding 7%, more than double the current rate, by 2018. The difference can be substantial. For a student borrowing the maximum allowable in subsidized and unsubsidized loans over four years, the difference in the rates can cost them over $5,000 more if they repay in 10 years, and over $7,000 more if they repay under an income-driven plan (for details, see our recent analysis here).

Projected Rates for Undergraduate Subsidized Stafford Loans

(based on CBO fiscal year projections for 10-year Treasury notes)

 

Years Rates Projected to  Exceed 7% (2013-2023)

Years Rates Projected to  Exceed 8% (2013-2023)

Cap on How High Rates Can Rise (Yes/No)

Scheduled Rate (6.8%)

NONE

NONE

Yes

Current Rate (3.4%)

NONE

NONE

Yes

Coburn/Burr/Alexander

2016-2023

2018-2023

No

Kline/Foxx

2013-2023*

NONE

Yes

Manchin/Burr

2018-2023

NONE

No

Alternative Dem

NONE

NONE

Yes

*Rate is projected to exceed 7% beginning in 2017 and would apply to all loans taken out after July 1, 2013, because under the Kline/Foxx bill, the rates for all loans vary each year throughout the life of the loans.
 

Both today’s students and tomorrow’s deserve affordable student loans, not so-called solutions that let rates double and rise even higher without any upper limit. Instead, current rates should be temporarily frozen so that Congress and the Administration have time to come up with a plan that makes real sense for both students and taxpayers and helps make college affordable for all. Both the Reed/Harkin bill, supported by a majority of the U.S. Senate and the Administration, and the new Reed/Hagan bill, do just that by extending current rates and fully covering the cost by closing unnecessary tax loopholes.

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We applaud the Department of Education’s recent improvements to the guidance for college net price calculators, which address several of the issues raised in our report last year. If colleges follow the new guidance, net price calculators will be much easier to find, use, and compare.

The new guidance directs schools to make these tools easier to find in several ways:

  • We found some net price calculators buried deep within school websites. The new guidance strongly urges colleges to post their calculators prominently where students and families are likely to look for information on costs and aid, such as on the Financial Aid, Prospective Students, or Tuition and Fees webpages.
  • Other calculators are hard to find because they are not consistently labeled. The guidance makes clear that these tools must be called “net price calculators” and not other names.
  • The Department also instructs colleges to provide direct links to their net price calculators for use in consumer tools such as College Navigator and the new College Scorecard. Previously, some schools provided links to their home page instead.

The new guidance also aims to make the calculators easier to use and their results easier to compare:

  • We found calculators that made it look like the user’s contact information was required to get a net price estimate. The Department’s guidance clarifies that the calculators cannot require contact information and says those questions should be clearly marked as optional.
  • Some calculators misleadingly used outdated cost information or emphasized the cost after subtracting loans as well as grants and scholarships, which is not the “net price.” The new guidance makes clear that the calculators must use the most recent data available and reinforces the importance of the legally required net price figure, which is the cost after grants and scholarships alone. Only by comparing net price to net price can consumers see meaningful differences in what they might have to save, earn, and/or borrow to pay for college.

Our report identifies several other improvements that would make net price calculators much more user-friendly, such as making the user’s “net price” estimate the most prominent figure on the page, limiting the number of detailed questions (especially those that are required), and making it clear which questions are really required.  But the new guidance – if followed – is an important step toward helping prospective college students and their families look beyond intimidating “sticker prices” and start figuring out which schools they might be able to afford.

To view the Department’s updated guidance on net price calculators, visit the Net Price Calculator Information Center and view the recent Dear Colleague Letter. For more information about net price calculators, visit our resource page.

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As promised in last night’s State of the Union Address, today the Administration unveiled its new College Scorecard. By providing information about colleges’ costs and outcomes in a clear and comparable format, it has the potential to be a game-changer for higher education. We have long touted the importance of the Scorecard and other tools designed to help students and families pick a college, and we applaud the Administration for supporting and promoting a higher education agenda that puts students first.

Overall, the data provided on the Scorecard are what students and families need to better understand their college options. Today’s version of the Scorecard includes some marked improvement over earlier drafts: it is more interactive and now links directly to colleges’ own net price calculators. However, two types of data on the Scorecard are less helpful and even downright misleading:

  • Loan default rates are provided without any context about how many students at the college borrow and are therefore at risk of ever defaulting.  For instance, American River College’s default rate of 27.5% is much higher than the national average of 13.4%. But what consumers can’t tell from the Scorecard is that only 8% of American River College students actually borrow federal loans. The default rate only represents the share of borrowers – not students – who default. Certainly American River should work on improving its default rate. But when 92% of its students never borrowed in the first place, implying that the default rate alone is indicative of student outcomes more generally does a disservice to would-be students.
  • The median borrowing figures provided are for all federal loan borrowers who entered repayment, regardless of whether the student entered repayment after graduating or dropping out after a semester or two. This makes colleges with high drop-out rates look like a good deal, compares apples to oranges, and undermines the value of other outcome information. Here’s an example. The Scorecard shows that the median federal debt of borrowers entering repayment at Grand Canyon University and Duke University (which both primarily grant bachelor’s degrees) is very similar: $9,500 at Grand Canyon and $8,840 at Duke.

Meanwhile, other federal data not reflected on the Scorecard show that these figures represent very different student outcomes. Because 41% of entering first-time, full-time students at Grand Canyon didn’t return for a second year, the low median debt for borrowers entering repayment reflects just one year of loans in many cases.  Indeed, the average federal loan amount for undergraduate borrowers at Grand Canyon in 2010-11 – what they borrowed in just that one year -- is a remarkably similar figure: $9,444. In contrast, all but 3% of entering first-time, full-time students at Duke return for a second year. And the average annual federal loan amount for undergraduate borrowers is $3,751, less than half their median debt at repayment. That makes sense considering 94% of their entering students leave with degrees.

In these cases, bad comparisons are worse than no comparisons.  Fortunately, both of these data problems have simple fixes.  It would be easy for the Department of Education to add the share of students borrowing to the loan default rate box and provide the necessary context for interpreting default rates. For the median borrowing figures, the Department is already taking steps to collect cumulative federal debt at graduation -- which would be an apples-to-apples comparison of students at the same point in their academic trajectory. Until those figures are available, the Scorecard should take the same approach to median borrowing as it already does to earnings information: make clear that federal data aren’t yet available and encourage prospective students to ask the school for more information.

For more about how to improve information for students and families and other ways to increase college affordability and completion, see TICAS’ new white paper (released yesterday): Aligning the Means and the Ends: How to Improve Federal Student Aid and Increase College Access and Success.  

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Since October 29, 2011, almost all U.S. colleges and universities are required to have “net price calculators” on their websites.  These new online tools can make it much easier for prospective students and their families to look past often scary "sticker prices" and start figuring out which colleges they might be able to afford. Armed with early, individualized estimates of what specific colleges would cost after grants and scholarships, students can discover that their dream school may be more (or less) affordable than they thought - before they have to decide where to apply.

To help spread the word about these new online tools, the Department of Education has launched a College Net Price Calculator Student Video Challenge. High school and college students are invited to produce and submit short videos about why net price calculators are a valuable resource during the college selection process. Submit your entry by January 31 for a chance to win one of three $1,500 cash prizes!

To find out more about net price calculators, visit our new net price calculator resource page, with links to our publications as well as resources from the Department of Education.

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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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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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Delinquency The Institute for Higher Education Policy released the report Delinquency: The Untold Story of Student Loan Borrowing, which examined data on 8.7 million student loan borrowers and 27.5 million student loans, focusing on the 1.8 million borrowers who entered repayment in 2005. The report highlights the scope of student loan borrowers who become delinquent on their loans, but who do not default, and was featured in a New York Times article which also cited data from the Project on Student Debt.

Key findings include:

  • For every student loan borrower who defaults, at least two more borrowers become delinquent without default.
  • Two out of five student loan borrowers are delinquent at some point in the first five years after entering repayment.
  • Certain student loan borrowers—those considered more at risk than their peers—may require additional attention and information to prevent delinquency and default. For example, the rates of delinquency and default were generally much higher for borrowers who had not graduated than for those who had.
  • More than a third of borrowers were able to repay their loans in a timely manner, while 23 percent were able to postpone repayment by using deferment or forbearance to avoid delinquency.

Read the report

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