Student Loans

Where They Stand: John McCain on Higher Ed

Ed Policy — Wed, 03 Sep 2008 19:58:00 -0400

Fifteen months after launching his presidential bid, Sen. John McCain (R-AZ) started laying out his higher education policy agenda last month. In a news release, the Senator outlined his policy priorities but provided few details about his proposals.

With the Republican National Convention in full gear this week, Higher Ed Watch decided to take a closer look at McCain's higher education policy plans. He aims to do the following:

Simplify the Federal Financial Aid System

McCain believes that many eligible students do not seek out federal financial aid because they find the aid application process too complex and don't understand their options. He would address these concerns by:

Consolidating Programs: McCain proposes combining various federal grant and loan programs as a means to simplify their administration and help students better understand their eligibility for aid. While he doesn't get into specifics, it's likely that he would follow the Bush administration's lead and take aim at the campus-based student aid programs, which primarily supplement Pell Grants for low-income students. Critics say these programs are not serving the neediest students well because a disproportionate share of the funding is going to students at the wealthiest colleges.

Streamlining the FAFSA: McCain supports efforts to shorten the Free Application for Federal Student Aid (FAFSA) to make it easier for students to fill out.

Redesigning Tuition Tax Breaks: The Senator proposes consolidating the various higher education-related tax credits and deductions, including the Clinton administration's HOPE and Lifetime Learning tax credits. "The existing tax benefits are too complicated, and many eligible families don't claim them," McCain says. "By simplifying the existing benefits, I can ensure that a greater number of families have a lower tax burden when they are helping to send their children to college."

"Fix" the Federal Student Loan Program

The Senator calls for creating a "simpler and more effective" federal student loan program but provides little explanation of how to accomplish this goal. Unlike his Democratic opponent, who has called for eliminating the Federal Family Education Loan (FFEL) program and providing loans entirely through the U.S. Department of Education, McCain believes that continued lender participation in the federal loan program is vital. He would, however, "demand the highest standards of integrity" from participating lenders, presumably to prevent a repeat of the pay-for-play student loan scandal that Higher Ed Watch helped expose last year.

Make Higher Education More Transparent for Consumers

McCain believes that the Department of Education can help students make better informed decisions about their college choices by publicly releasing "in a clear and concise manner" reams of data that colleges report to the federal government. The government already collects huge amounts of data from schools but "does nothing with the information." The Senator, however, would not impose any additional reporting requirements on colleges, saying that "the answer" to higher education's problems "is not to impose more regulations." He favors shining a light on information that is already available.

Eliminate Earmarks for Colleges

As part of his campaign against pork-barrel spending, McCain would bar lawmakers from providing Congressional earmarks to colleges for research spending. "Earmarking is destroying the integrity of federally funded research," he says. He would spend a portion of the money saved to increase government spending on university research that is competitively awarded by federal agencies like the National Science Foundation.

McCain's proposals are as notable for what they include as what they leave out. For example, his plan does not call for any new spending on federal student aid. This is in sharp contrast to President Bush, who pledged during his presidential campaigns to significantly boost spending on Pell Grants.

Sen. Barack Obama (D-IL), McCain's Democratic rival, has already criticized McCain for failing to call for expanding student aid. In his speech to the Democratric convention, Obama cited this ommission as evidence that McCain doesn't understand "what's going on in the lives of Americans."

"How else," he asked, could McCain offer "an education plan that would do nothing to help families pay for college?" McCain has not yet responded to this attack, but to be fair, many student-aid experts are skeptical about whether Obama's proposal to significantly expand spending on tuition tax credits is the most effective way to increase college access and affordability.

Stay tuned to Higher Ed Watch in the weeks ahead for more analysis of the presidential candidates' higher education proposals.

Higher Ed Roundup: Week of August 11 - August 15

Ed Policy — Fri, 15 Aug 2008 21:04:00 -0400

President Bush Quietly Signs Higher Education Act Into Law

No Need for Additional Loan Changes for Now, Congressional Research Service Says

Massachusetts Calls Off Plan To Rescue Lender

ACT Exam's Popularity Increases

President Bush Quietly Signs Higher Education Act Into Law

Without any comment or ceremony, President Bush signed into law on Thursday legislation to reauthorize the Higher Education Act for five years. The measure, which was approved by Congress with overwhelming bipartisan support late last month, has received a less-than-enthusiastic reception from the Bush administration. On the day the legislation won final approval, Education Secretary Margaret Spellings released a statement criticizing it for creating more than 60 "new, costly, and duplicative" programs. Spellings also complained that lawmakers were not tough enough on colleges. "While the legislation takes some positive steps forward, it fails to create the necessary reforms in accessibility and affordability, and it falls short on strengthening accountability," she said. "More work can -- and must -- be done to make achievement outcomes more transparent to students and families." Among other things, Spellings was reportedly peeved that the new law reduces the education secretary's power to regulate college accreditation.

No Need for Additional Loan Changes for Now, Congressional Research Service Says

The need for additional changes in federal student loan policy to deal with the credit crunch will depend on “how the current economic slowdown develops, and how financial markets react and evolve in the face of challenging economic conditions,” according to a recently released report by the Congressional Research Service. The report, “Economics of Guaranteed Student Loans,” surveyed the supply and demand functions of the student loan market and concluded that it was too early to determine whether difficulties faced by lenders and banks were endemic to the student loan market or an effect of global financial turmoil. As such, the report did not endorse any additional legislative changes, instead suggesting policymakers take a wait-and-see approach. Such a tactic also seems prudent given recent reports from states such as New Hampshire that students are still finding loans, overblown stories about the loan crunch notwithstanding.

Massachusetts Calls Off Plan To Rescue Lender

Officials in Massachusetts announced this week that they were abandoning a plan to try and bail out the state's nonprofit lender, the Massachusetts Education Finance Authority (MEFA), because they realized that there isn't a student loan crisis in the state after all. Last week, Gov. Deval Patrick (D) issued an eleventh-hour appeal to colleges and the state pensions agency to to come to the aid of MEFA , which stopped issuing federally backed loans on July 1, asking them to invest in an upcoming $425 million bond sale by the agency. The state, however, received no commitments from these parties. On Thursday, State Treasurer Timothy Cahill said that state officials had second thoughts after seeing a recent poll by the Association of Independent Colleges in Universities that found that 70 percent of schools in Massachusetts had 15 or fewer students still looking for a lender. "It seems like most of the students in the state of Massachusetts have gotten alternative funding sources," Cahill stated.

ACT Exam's Popularity Increases

Once a heavy underdog, the ACT is starting to overtake the SAT as the college admissions test of choice for many students. On Wednesday, ACT officials announced that 1.42 million high school seniors took the test this year, up 9 percent from last year, and 21 percent from 2004. Much of this increase was attributed to the growing number of states that now require all graduates to take the test as part of their state assessment regimen, including ones outside of the ACT's traditional base in the Midwest. Despite the increase in test takers, exam scores remained mostly steady.

Allowing Felons in FFEL

Stephen Burd — Thu, 19 Jun 2008 21:56:00 -0400

At Higher Ed Watch, we have written much about the U.S. Department of Education's lax oversight over the lenders and guarantee agencies that participate in the Federal Family Education Loan (FFEL) program. But until we read a recent investigative report in the St. Petersburg Times, we didn't fully grasp just how lax that oversight has been.

As that report revealed, the Education Department does not conduct criminal background checks on individuals who are seeking to become eligible FFEL lenders. The agency leaves it to student-loan guarantee agencies to verify eligibility for participation. But apparently most guarantors often don't even bother to ask about past criminal records of those who apply to become federal student loan providers.

As a result, the St. Pete Times reports, some convicted felons and others with criminal records have gained entry into the guaranteed-loan program and taken advantage of the rich rewards the government bestows on lenders that participate in the FFEL program.

The newspaper's report focuses on two individuals with criminal records who managed to set up and run student loan consolidation companies based in Tampa Bay that dealt in over $300 million worth of federal loans.

According to the articles, Roger Wayne Morgan, a native of North Carolina, "earned felony convictions for safecracking, breaking and entering, and larceny following his first arrest in 1992, when he broke into a North Carolina movie theater and made off with $400 in rolled quarters." In a separate incident, he was arrested and charged with "armed kidnapping in connection with a botched ecstasy deal." Prosecutors, however, ultimately dropped the charges, "citing trouble with witnesses." Morgan also "pleaded guilty to stealing from a cash register and no contest to writing an $18,000 bad check."

Meanwhile, Joseph Pursley of Michigan had a police record that included resisting arrest and public drunkenness. He also carried enormous debt, owing at one point "$2.8-million in unpaid bills" as the result of a failed real estate venture. In 1999, the state of Michigan rejected his application to practice law after the state bar's committee on character and fitness "cited his foul temper and a 'frivolous, cavalier approach to other people's money.'"

Despite their backgrounds, neither man ran into much difficulty starting his own federal student loan consolidation businesses. These companies -- Morgan's Academic Financial Services and Pursley''s Student Funding Services -- grew to be among the top 100 companies refinancing loans in the FFEL program. "It's a great business to be in," Pursley boasted to the St. Pete Times in 2006. "There's essentially no risk for anybody buying these loans."

The good times, however, were short-lived. According to the newspaper, both companies "have collapsed amid lawsuits and a federal raid, leaving creditors, employees, and aggrieved borrowers in the lurch." In March, Morgan was arrested on 24 charges of writing bad checks. Meanwhile, Pursley's company went under in May 2007, after federal agents raided its headquarters, carting away boxes of loan documents. The agents were apparently acting on a tip they had received from a whistleblower that company officials had been forging students' signatures on loan applications.

The St. Pete Times report has justifiably raised alarms on Capitol Hill. On Tuesday, Rep. Kathy Castor (D-FL) announced that she and Rep. George Miller, the California Democrat who is chairman of the House Committee on Education and Labor, plan to introduce legislation requiring background checks be conducted on all individuals wishing to become FFEL lenders.

While all the details of the legislation have not been worked out yet, this appears to be a common-sense solution -- so common-sense, in fact, that it is unbelievable that such a requirement doesn't already exist.

At Higher Ed Watch, we urge policymakers to move quickly to address this problem, so that we can restore integrity to the FFEL program and protect students from such shady operators.

Higher Ed Roundup: Week of May 12 - May 16

Ed Policy — Thu, 15 May 2008 19:16:00 -0400

Credit Crunch Easing for Student Loan Providers?

Dept. of Ed Relaxes Preferred Lender Rules

Sallie Mae Computer Glitch Sends Credit Scores Falling

Report Illustrates Disparities Between States in Community College Use

Credit Crunch Easing for Student Loan Providers?

There were signs this week that the effects of the credit crunch on the student loan industry may be lifting. Nelnet, a Nebraska-based lender, successfully sold $1.35 billion worth of bonds backed by federal student loans this week with substantially lower financing costs than its previous sales. Industry experts took this as a positive sign that investors are becoming less wary of federal student loans, which have long been considered among the safest investments because of their implicit backing from the government. Nelnet's sale follows on the heels of favorable sales of student loan bonds by JP Morgan Chase and the Rhode Island Student Loan Authority. The latter was the first successful "U.S. municipal offering backed by student loan revenue this year," according to Bloomberg News. Speaking at a loan industry conference on Thursday, some investment banking officials expressed cautious optimism. "We've still got a long ways to go," a Bank of America representative told the Chronicle of Higher Education. "But at least we're headed in the right direction."

Dept. of Ed Relaxes Preferred Lender Rules

Just months after the Department of Education put into place new regulations governing the relationship between colleges and federal student loan providers, the agency appears to be backing off to some extent. In a letter to colleges last Friday, a top Education Department official said that as a result of the credit crunch, some colleges may have trouble complying with the requirement that they recommend no fewer than three unaffiliated lenders to their students. In such cases, colleges will be allowed to recommend fewer lenders, as long as they make clear that they are not endorsing a specific loan provider. Under criticism from groups representing financial-aid administrators and the loan industry, the Department also reversed an earlier interpretation of the rules that would have blocked colleges from including affiliated loan providers on their preferred lender lists. As long as schools list at least three unaffiliated lenders, they now can add others that have the same owners. While college and lender lobbyists applauded the Department for being flexible, some advocates for students questioned whether the agency is relaxing the rules because the student loan scandals have receded from the headlines.

Sallie Mae Computer Glitch Sends Credit Scores Falling

Nearly one million student loan borrowers saw their credit scores plunge last weekend because a computer glitch at Sallie Mae caused their accounts to be coded as delinquent. On Friday, the student-loan giant mistakenly included borrowers who have taken advantage of graduated and extended repayment plans among those who have made only partial payments, leading the credit reporting firm Equifax to label their loans as overdue. As a result of the error, some borrowers' credit scores dropped by as much as 100 points or more. A Sallie Mae spokesman said that the situation has been corrected and that borrowers should not face any penalties as a result of the snafu.

Report Illustrates Disparities Between States in Community College Use

States that charge lower tuition for community colleges have higher enrollment rates, according to a new report from the Rockefeller Institute of Government in New York. Average tuition in California, which enrolls more than 5 percent of its 18-plus aged population in community colleges was $674 whereas New Hampshire, which charges $5,614 annually, has a community college enrollment rate of less than 1.5 percent. In all states, the cost of attending a community college is less than attending a four-year college and in 18 states, the community college tuition was half that of a four-year school or less. States with the smallest population, such as West Virginia and Maine, posted the largest growth rates in community college enrollment between 2000 and 2005 (66.7 and 40.5 percent, respectively).

Student Loans in the Coming Bush Budget: Don't Get Spun

Ed Policy — Sat, 02 Feb 2008 00:00:00 -0500

Lobbyists who represent Sallie Mae, Nelnet, and the rest of the student loan industry are anxiously awaiting the arrival of President Bush's Fiscal Year 2009 Budget on Monday morning. Last year, Congress cut taxpayer subsidies to banks that make government-guaranteed student loans and put those savings into lower-cost loans and bigger Pell Grants for students. Industry lobbyists will pore over the budget the moment it comes out Monday to find numbers that make their case that it is now cheaper to subsidize their retail loans rather than continue the wholesale approach known as direct lending.

[slideshow] The difficulty for the media and Members of Congress is that industry representatives will decide which budget numbers to use and how to portray those numbers in assessing the relative costs of the two programs. Unfortunately, their paychecks require them to reach a pro-industry conclusion no matter what story the numbers actually tell.

We at Higher Ed Watch and Ed Money Watch want federal student loans delivered as efficiently as possible. In the past, we have favored direct lending and auctions for government-guaranteed loans (FFEL loans) because both designs save taxpayer dollars relative to the traditional system and those savings can be plowed into financial aid for needy students. Now, we don't know what the new numbers from President Bush's Office of Management and Budget (OMB) will show about the post-reform cost of Direct Loans versus government-guaranteed loans. If they show that the cost differential has disappeared, we will say so, and the industry lobbyists of course won't disagree with our conclusion.

But here's the rub. If the numbers indicate that Direct Loans are still cheaper, then industry lobbyists will say we're just biased, dyed-in-the-wool "Direct Loan advocates" who can't be trusted to be objective.

To prevent the industry from accusing us of choosing and spinning the numbers after we see them, we are telling you - before the Bush budget is released -- where to look to get the answer yourself. We can do this because, unlike the industry lobbyists and front groups, we don't have financial ties that anchor us to any particular conclusion.

When the budget comes out on Monday, go to the OMB FY 2009 budget documents. Assuming the information is structured the same way as last year, from the Appendix, download the Department of Education portion. In the "Office of Federal Student Aid," look for the section that probably begins in a similar way as it did last year:

The following chart compares total FFEL and Direct Loan costs on a subsidy rate basis: program costs calculated under the Federal Credit Reform Act of 1990 and comparably projected estimates of Federal administrative costs, including expenses related to FFEL program oversight and servicing the Direct Loan portfolio.

In the chart, look at the bottom-line "total" for each program for 2009 (the right-hand column). If the Direct Loan number is bigger, then the student loan industry has reason to crow, because it would represent a major shift from past years.

But whichever direction those numbers point, a caveat is important to keep in mind: eliminating what appears based on that chart to be the lower-cost program will not necessarily save taxpayers money. That's because each program currently serves different sets of schools and different sets of borrowers, and this affects each program's costs. For example, defaulted borrowers are disproportionately placed into the Direct Loan program, adding costs especially to consolidation loans in that program. If Direct Loans were eliminated, those default costs would remain in FFEL. In addition, a new Public Service Loan Forgiveness benefit is only available in direct lending. If Congress decided to eliminate direct lending, presumably the new forgiveness benefit would be preserved, shifting those costs to the FFEL program.

It will be especially interesting to see if OMB puts forth a comparison of the relative Direct Loan versus FFEL costs for like student borrowers at like schools and otherwise in like circumstances. A bigger Direct Loan relative cost there should give the banks reason to seek a Congressional Budget Office (CBO) estimate of the savings that could be achieved by eliminating the Direct Loan program. The opposite, however, should encourage Congress to consider further action to cut excess FFEL lender subsidies more and shift the savings to further increased student financial aid.

In fact, regardless, a Member of Congress should request CBO to estimate the costs or savings associated with a 100 percent FFEL system and the costs or savings associated with a 100 percent Direct Loan system. If policymakers want to continue to have two student loan delivery systems, and there are reasons to, then so be it. But let a neutral arbiter in the form of CBO identify just what the taxpayer cost of that choice is. We shouldn't have to rely on Sallie Mae's interpretation of the numbers.

Four Steps to a Better Student Loan Program

Ed Policy — Wed, 16 Jan 2008 00:00:00 -0500

Yesterday's blog post on Higher Ed Watch argued that legislation under consideration by both the U.S. House of Representatives and the Senate does not go far enough in confronting conflicts of interest between colleges and lenders. …

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

Too Little, But Not Too Late

Ed Policy — Tue, 15 Jan 2008 00:00:00 -0500

In approximately three weeks, the U.S. House of Representatives is expected to take up legislation that would impose new restrictions on the relationships between colleges and student loan companies. While the effort is to be applauded, the legislation could go much further in eliminating the types of "pay for play" conflicts of interest…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

Who Will be Fired First: Al Lord or Isiah Thomas?

Ed Policy — Thu, 10 Jan 2008 00:00:00 -0500

They may share little more in common than the name Lord, but Isiah Lord Thomas (his given name), the much-maligned general manager and coach of the New York Knicks, and Al Lord, the oft-criticized Chief Executive Officer and former Chairman of Sallie Mae, are sitting on seats hot enough to…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

Sallie Mae's Blame Game

Ed Policy — Wed, 09 Jan 2008 00:00:00 -0500

When student loan giant Sallie Mae announced on Monday that it was removing Al Lord, the company's Chief Executive Officer (CEO), from his position as Executive Chairman of the board a little more than a month after he took the job, it went to great lengths…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

Naughty and Nice

Ed Policy — Thu, 20 Dec 2007 00:00:00 -0500

Santa has some tough decisions to make this Christmas. We've decided to help him out with our own list of who's been naughty and who's been nice this year in higher education.

Let us know who, if anyone, you think should be added to the list…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.