Higher Ed Watch

State Spending on Higher Ed Slows

Audit: Fifth Third Bank Provided Illegal Inducements for Loans

Moody's Issues Negative Outlook for Colleges

Some Colleges Helping Students Cope with Economic Crisis

At Higher Ed Watch, we were saddened to learn of the recent death of former Sen. Claiborne Pell, the Rhode Island Democrat whose work on Capitol Hill helped open the doors of college to tens of millions of low-income students. The Pell Grant program remains the cornerstone of the federal government's efforts to help the most financially-needy students obtain a higher education.

As Maura Casey, an editorial writer for The New York Times wrote in a moving tribute to the Senator on Tuesday, "Pell Grants have been around so long that few remember how much opposition they had to overcome or how revolutionary they once seemed."

In fact, Senator Pell -- "a wealthy New England aristocrat," as Casey described him -- had to fight an epic battle in 1972 against his Democratic colleagues in the House of Representatives and the higher education establishment to create the grant program that he first dreamed up, legend has it, on a ski slope in Switzerland. [Whether or not he had ever skied at all is a matter of much debate.]

Pell's vision was to create a new grant program to aid low-income students modeled on the GI Bill, which had helped pay for his graduate education. Under the Senator's plan, federal grants would go directly to students who could use them at the college of their choice. The idea, however, was met with fierce opposition from the leading national higher education associations who wanted the money to go straight to their member institutions. They argued that college officials were in the best position to determine which students were in most need of financial aid funds. The college groups had powerful allies on the House education committee, who fought on their behalf.

The holidays may be over, but the higher ed community is still waiting to see what Uncle Sam is going to put into its stimulus stocking.  Our bet is it will be much needed tens of billions of dollars, hopefully for both student aid and campus infrastructure.

At some point though, and it may not be in his first budget, President Obama is going to follow through on his campaign promise to grow investment in areas critical to America's economic and civic future while also taking a scalpel to government programs where there is poor targeting, inefficiency, or ineffectiveness.  Federal higher education programs won't be free from that examination, nor should they be.  The key for advocates and incoming Secretary of Education Arne Duncan, however, is to make sure that savings generated by identified cuts are plowed back into quality education programs. 

Since its inception, Higher Ed Watch has focused on identifying waste and inefficiency in the federal student loan programs, because that's where big taxpayer savings were to be had for redirection into increased student financial aid.  But other programs deserve examination as well.

[This is the fourth in a Higher Ed Watch series "Revisiting the 9.5 Student Loan Scandal." The series takes a closer look at the origins of the scandal with the purpose of trying to resolve unanswered questions and dispel lingering myths surrounding it. Links to earlier parts of the series are available here, here, and here and are included in the post.]

More than four years since the 9.5 percent student loan scandal was first exposed, a stubborn myth persists that lenders were engaged in perfectly legal activities. According to this myth, which was promoted by the student loan industry and unwittingly spread by journalists (including the author of this post when he was a senior writer at The Chronicle of Higher Education), a group of lenders gained windfall profits from the federal government by exploiting a legal loophole in federal student aid law.

In fact, there never was any loophole. As the U.S. Department of Education's Inspector General concluded in 2006, the lenders' scheme to aggressively grow the volume of loans they claimed to be eligible for 9.5 percent subsidy payments was "not in compliance with the HEA [the federal Higher Education Act], regulations, and other guidance issued by the Department." In January 2007, Education Secretary Margaret Spellings concurred with this opinion and barred the student loan company Nelnet and other lenders that refused to submit to independent audits from receiving any further 9.5 payments.

Higher Ed Watch will be taking a break from publishing until Jan. 6. Happy Holidays to all and we'll see you in 2009.

Obama Nominates Arne Duncan for Secretary of Education

Lump of Coal from Sallie Mae

Education Finance Partners May Not Pay Cuomo After All

Report Calls for Better Higher Ed Performance Data

It's undeniably been a busy year for higher education with financial crises, continued student loan controversies, and the Higher Education Act finally renewed after more than five years of deliberations. With Santa coming to town at the end of next week and Higher Ed Watch taking off for the holidays, it's time for us to take a look at who was naughty and who was nice in calendar year 2008.

NAUGHTY

• The State of New York. In January, the Empire State unveiled an ambitious plan to boost its public colleges and universities by creating an endowment and hiring more faculty members -- that was nice. But now facing revenue shortfalls and a sagging economy, the state is considering taking the budget axe to its public college and university systems. With the governor proposing over $350 million in cuts in spending on these colleges, students are expected to face significant tuition increases, including one early next year. Sadly, New York isn't alone in this inglorious honor -- California, Virginia, Pennsylvania, and others are all looking to slash spending on higher education.

Last week, we described how Key Bank has partnered with dozens of unlicensed and unaccredited trade schools to help thousands of students take on high-cost private student loans, and then refused to cancel them when the institutions shut down. Key Bank has apparently been able to avoid forgiving borrower debt at these defunct schools by engaging in a coordinated strategy that legally knocks out existing federal regulations and consumer protections for borrowers.

As we noted last week, a large part of Key Bank's strategy to avoid discharging borrowers' debt has been to intentionally disregard the U.S. Federal Trade Commission's Preservation of Claims and Defense Rule. Otherwise known as the FTC Holder Rule, this regulation requires schools and lenders that have "a referring relationship" to notify students that they have the right to discharge their private loans if the schools close unexpectedly.

Key Bank has refused to include the required notice in the private loan master promissory notes it provides students. The lender argues that it is not subject to the rule because it is not regulated by the FTC but by the Treasury Department's Office of the Comptroller of the Currency (OCC), which oversees national banks and does not have a similar requirement in place. Despite pleas from consumer advocates, FTC and other federal officials have so far failed to challenge the bank's interpretation of the law.

[Editor's Note: Throughout his presidential campaign, President-elect Barack Obama often talked about the need to make college more affordable for low- and middle-income students. In today's post, longtime student advocate Luke Swarthout offers a proposal for overhauling the college textbook industry that he believes will result in significant savings for students. Luke's views are his own and do not necessarily reflect those of the New America Foundation.]

By Luke Swarthout

As the incoming Obama administration prepares its policy agenda and searches for ways to help middle class Americans within the constraints of the current budget deficit, it should consider championing efforts to bring down the costs of college textbooks. This goal could be accomplished in a relatively inexpensive manner: not by more generously subsidizing the current system but by sparking reform in the way textbooks are created and sold.

The high cost of textbooks is a significant but often overlooked part of the college cost equation for millions of students from low- and middle-income families. The average student pays nearly $1,000 for books each year -- a significant sum. For students at low-cost public colleges, books can cost as much as 40 percent of tuition and fees. And to add insult to injury, students and their families are often frustrated to learn that they cannot resell their textbooks at the end of the semester because new, but substantively unchanged editions are at the printers.

Local politicians from both blue states and red states (and those in between) recognize the saliency of the issue. Legislators in states as politically diverse as California, Georgia, and Ohio have introduced bills designed to make college textbooks more affordable at their public colleges and universities.

College and Student Groups Push to Include Higher Ed in Stimulus Bill

Report Outlines Student Aversion to Borrowing

College Board Settles with NY Attorney General

College Board Presents Higher Ed Reform Proposals