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by Emily

As Congress moves forward with a federal budget plan for 2010, rhetoric is ramping up on both sides of what is proving to be one of the most contentious budget debates so far:  whether or not to eliminate the Federal Family Education Loan Program.  President Obama initially proposed this move in his budget outline, saying that a move to Direct Loans would result in a savings of $48 billion, money that could be put towards expanding the Federal Pell Grant program.

After the Congressional Budget Office revised the estimated savings to $94 billion over 10 years, many members of Congress and several higher education professional organizations have been offering up tentative support for the plan.  Democrats on the joint budget committee have even begun paving the way for this portion of the budget to be eligible for reconciliation, a filibuster-proof process that will allow portions of the budget to pass with a simple majority vote in the Senate.

However, lenders and other groups have begun suggesting and campaigning for alternatives that would allow the bank-based student loan program to continue to exist while still cutting costs to some extent.  Concerns have been raised that Direct Loans will not be as efficient or as kind to borrowers in the long run, though the credit crisis has made the program especially appealing as FFELP has required repeated government interventions to avoid grinding completely to a halt.  With many schools voluntarily making the switch to direct lending based on the program's current stability, concerns have also been raised about a rapid expansion in Direct Loans overwhelming the program as it currently stands.  Others worry that eliminating FFELP may speed lenders' exodus from private loans, ultimately leaving many students in a worse place financially than they find themselves in now.

What's emerging is a war of words between banks and the President.  In a speech on Friday, Obama characterized lenders as, "gearing up for battle," to which he responded, "So am I. . . And for those who care about America's future, this is a battle we can't afford to lose."  Considering the President's popularity and lenders' tarnished reputations from crisis after scandal after crisis over the last two years, we may see big changes happening soon in student loans.


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by Emily

Student loans and credit cards make up the two most dangerous, and often difficult to avoid, debt traps for college students.  While some amount of borrowing for college can make life easier for students, too much debt can make life nearly impossible for graduates.  The same goes for credit cards.  Having a card is great for emergencies and your credit rating, but running up a large balance while in college can really hurt, especially for students who were approved during days of easy credit and are now seeing rates soar and credit limits plummet.

However, Congress is working to make things easier for current credit card holders and also to make the choice of whether or not to open a credit account less nerve-wracking for new college students.  Legislation in both the House of Representatives and the Senate seeks to create a "credit card holders' bill of rights," curbing confusing and predatory practices by banks issuing credit cards.  While the bills have received bipartisan support, including a ringing endorsement from President Obama, there is still some concern about possible backlash in the form of even more stringent credit requirements for people who want to open credit card accounts.

Still, picking up a poorly screen printed t-shirt along with a new line of credit with an 18+ percent interest rate is a campus tradition unlikely to be missed by many.  With college students' credit card debt still on the rise as of 2008 and relief from private loans still nowhere in sight, any new consumer debt protection will likely be welcomed by many college students and recent graduates.


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by Emily

A little over a week after announcing his plans to gear up for battle with student lenders over the future of the Federal Family Education Loan Program, President Obama has begun calling in the troops.  An e-mail message sent to young Obama supporters by the Democratic National Committee is urging students to speak up in favor of the President's proposal to switch all federal lending to the Direct Loans program and to use the savings to expand Federal Pell Grants.

Students have been asked to call, write, or e-mail their Representatives and Senators to let them know what they think of the proposal to eliminate FFELP for Stafford Loans and PLUS Loans.  The text of the e-mail, as reported by The Chronicle of Higher Education, urges students to stand against "special interests" and to help "fix a broken system."  Rhetoric on the other side has focused primarily on preserving jobs and preserving choice (technically, the choice is primarily left to schools, not students, as students aren't able to choose freely between DL and FFELP until they graduate and consider consolidation loans).

Regardless of whether you favor or oppose this plan, now is a good time to let your people in Congress know how you feel, since changes in federal student financial aid are likely to affect you directly.  So, what do you think?  What changes, if any, should Congress make to student loans? Do you plan on writing to Congress about this issue?


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by Emily

Yesterday, Congress held a hearing to begin the process of determining the fate of the Federal Family Education Loan Program, the bank-based federal student loan program that President Obama has proposed eliminating in the 2010 federal budget. Voices from both sides of the debate chimed in, with one clear theme emerging: in 2010, student loans are definitely going to change. The questions at this point are to what extent federal student lending will change and whether the banks currently involved in FFEL will still have a place in the new system.

The Obama administration proposes switching all federal Stafford and PLUS loans to the federal Direct Loans program, then using the savings from eliminating lender subsidies to increase Federal Pell Grants and make funding mandatory, while also greatly expanding the federal Perkins Loan program and spending more on college completion. Opponents of this plan, primarily consisting of FFEL lenders and representatives of schools that participate in FFEL, have suggested alternatives that would restructure student lending, but still leave a place for lenders to service the loans. Not one witness at the hearing advocated keeping the system as it is, though, and it seems that a shakeup in student lending is inevitable. Hopefully, this will result in more available financial aid for students.  Inside Higher Ed has more information on the hearing.


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by Emily

With President Obama's proposal to end the bank-based Federal Family Education Loan Program, there has been much speculation on what role would be left for banks in student loans, as well as which banks would be allowed to play that role.  An announcement made yesterday by the Department of Education indicates that at least four banks will remain involved in federal student loans for the forseeable future.

The Department of Education has selected four companies to service loans made through the federal Direct Loans program.  Sallie Mae, Nelnet, American Education Services/Pennsylvania Higher Education Assistance Agency, and Great Lakes Education Loan Services will all be awarded contracts of five to ten years to manage the increasing volume of student loans the federal government owns.

The servicers selected will be responsible for the student loans currently in the Direct Loans system, as well as loans the federal government has purchased as part of the federal rescue plan.  If all federal student loans are moved into Direct Loans, these agencies will also service them.  For now, what this means for student borrowers is that you may be dealing with different people if you have questions about your Stafford loans next year.  However, if Congress eliminates FFEL, this news could become more significant.


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by Emily

As part of his campaign's focus on education, President Obama pledged his administration would address issues of the financial aid application process, such as the length and complexity of the Free Application for Federal Student Aid, or FAFSA. Education Secretary Arne Duncan has previewed some of the administration's proposed changes, with a formal announcement expected today. While not as sweeping as the two-page FAFSA EZ Congress already mandated when renewing the Higher Education Act last year, these changes are still a step towards simpler financial aid applications.

Changes will be rolled out in phases, with the first phase being a smarter FAFSA on the Web.  Rather than forcing students to read fine print to determine whether they need to provide information requested by each question, as of next January, the application will use the information students have provided to determine which questions they need to answer.  Students with independent status will not be shown the questions about parental income and low-income students will not be shown certain questions about assets that they don't need to complete.  This is a fairly simple step to save time and hassle, and eliminate some of the barriers that keep students most likely to be eligible for federal grant programs from applying.

A pilot program has also been initaited to test the feasibility of allowing students to access their tax information online to complete the FAFSA.  If successful, it could be expanded to all users, saving headaches involved in finding their 1040s, W2s and related forms, then scouring each for the correct lines to copy into the FAFSA.

Duncan also stated that the administration will seek permission from Congress to begin taking steps that could eventually result in eliminating the FAFSA entirely and relying solely on tax information to apply for federal student financial aid.  While not explicitly stated by Duncan, it could be an end result of his request to Congress to remove questions from the FAFSA that do not pertain to information reported to the IRS on a student's (or their parents') 1040.  Once the complicated need analysis formula of the FAFSA has been set aside in favor of this simplified process, the idea of allowing students to apply for aid by checking a box on their tax return seems almost within reach.


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by Emily

Technology, rental programs, and new laws could finally reverse the trend of rising textbook costs, according to a recent article in U.S. News and World Report.  Students, parents, and professors alike often recoil at the astronomical pricetag of some textbooks, especially for introductory courses students are required to take.  For many, textbook purchases can represent the last hurdle in the race to pay for school, as students who have managed to find money for college tuition and housing still may not be able to foot a textbook bill of several hundred dollars per semester.

Now, a combination of factors may finally bring some relief to students in this predicament.  In recent years, schools and private companies have piloted textbook rental programs that have been met with a great deal of enthusiasm from students who are now able to rent many of the general education textbooks that they would likely sell back to the bookstore at the end of the semester.  E-books and open source projects have begun to catch professors' attention as alternatives to requiring students to purchase an expensive hard copy of a textbook. 

Finally, a bill currently under consideration in Congress would require textbook companies to provide professors with accurate pricing information before book orders are placed.  This would allow professors to choose textbooks based on price, in addition to quality of information.  The proposed law would also require publishers to provide unbundled versions of currently bundled textbook packages, which often have high prices due to the inclusion of workbooks or electronic content that many students and professors wind up electing not to use.

Cheaper textbook options such as these can help students save money in college, which is a relief for every student, whether they are paying with scholarship money, federal financial aid, or their own savings.


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by Emily

A survey released yesterday by the National Association of Financial Aid Administrators (NASFAA) indicated that 90 percent of financial aid administrators are at least somewhat concerned about the current student loan crunch.  As lenders continue to opt out of Federal Family Education Loan Programs (FFELP) and to reduce the number of schools they make loans available to, many financial aid administrators remain concerned that students at their institutions may have decreased access to money for school.  While overall administrators expressed confidence that the recent Ensuring Continued Access to Student Loans Act will help students pay for college this year, 52 percent said that more needed to be done to make sure students will have sufficient access to college loans in the future, and more than half stated that they believe it will be more difficult for students to borrow additional private loans in the upcoming school year.

A number of schools are turning to the federal Direct Loans program to ensure continued loan availability for their students, while others are calling for other solutions to the student loan problem, putting an emphasis on federal student aid. Many NASFAA members stressed the importance of increasing access to federal grant programs and scholarship money in order for students to continue being able to afford a college education.  NASFAA President Dr. Philip Day summarized this position, stating, "Too many students rely on loans to pay for their education. I do not accept the premise that student loans are here to stay, especially for needy students. If the student loan crunch has shown us anything, it is that our neediest students have no place in the student loan marketplace. We should help them find as many alternatives to borrowing as possible by providing them with grants and scholarships to meet their educational costs."

The survey also asked what financial aid administrators were doing for students and their families to help them find money for college. Many financial aid offices continue to maintain a preferred lenders list, despite recent media criticism and policy changes, something NASFAA stresses is both wanted and needed by families needing to find private student loans or new FFELP lenders on short notice.

NASFAA is also backing a new piece of legislation known as the Preventing Student Loan Discrimination Act, which if passed, will prohibit FFELP lenders from denying loans to eligible students based on the institution they attend, the length of their program, or their income level. These provisions will help students pay for school in the short term, but the report stressed that more needs to be done to make college affordable in the future.

The full survey is available through the NASFAA website.


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by Emily

The new version of the Higher Education Act (HEA) is at last moving to the floors of the House and Senate for a vote. After seven years of waiting and debating, Congressional reauthorization of the HEA could finally happen in the next week, setting the stage for a number of changes in federal student financial aid for college students.

Among other things, the reauthorized HEA would:

  1. Set a ceiling on the maximum Federal Pell Grant of $9,000, and allow for students to receive Pell Grant funds year-round, instead of just during the traditional academic year. (The current maximum Pell Grant is $4,731.)
  2. Implement changes to make it easier for students to get information about their financial aid awards and to generally simplify the process by which students - particularly those from low-income families - can find money for college.
  3. Expand the Academic Competitiveness Grant program to part-time students as well as those seeking certificates and puts states in charge determining whether a high school program qualifies as a rigorous course of study.
  4. Make several changes in private student loans, such as: requiring lenders to provide up-front disclosures of loan rates and terms, require private loans to be certified by higher education institutions, and requiring colleges to establish Codes of Conduct to prohibit financial aid employees from receiving anything of value in exchange for advantages sought by lenders, such as placement on colleges' preferred lender lists.
  5. Require more disclosure of costs from both colleges and textbook publishers.

Many other changes appear in the 1,158 pages of the bill, which has been a long time coming.  The Higher Education Act is supposed to be reauthorized every 5 years, but it has been 10 years since the previous version passed.  The new HEA should help financial aid programs adapt to the present situation students face, and should help students better assess and plan for the costs of a college education.


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by Emily

The Higher Education Opportunity Act (HEA), approved by a joint committee earlier this week, passed both houses of Congress yesterday.  While members of the Bush Administration have expressed some reservations about the bill, the President is still expected to sign it into law.

Reactions to the HEA have been mixed, with many universities and organizations critiquing the bill's broad scope, increased requirements for schools, and timing, as it may be nearly impossible to implement all of the changes required by the bill in time for the 2008-2009 school year.  Especially under attack is the act's mandate for schools to provide students with legal alternatives to illegally downloading media, where possible.  While this could be good news for students, many critics fail to see how this provision relates to the bill's intended purpose of dealing with education funding and federal student financial aid.

Aspects of the HEA that have been praised are the allowance for a substantial increase in Federal Pell Grants (awards could reach $6,000 next year and $8,000 per year by 2014), the adoption of a code of conduct for financial aid offices when dealing with student loan agencies, the mandated simplification of the FAFSA (a two-page "FAFSA EZ" form should debut soon), and the general push for increased transparency regarding college costs, ranging from tuition increases, to student fees, to textbook prices.  All of these changes should make it easier for families to pay for school.

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