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Pell Grants Face a Potential $6 Billion Budget Shortfall


Sep 18, 2008

According to a Department of Education memo cited by the New York Times, the Federal Pell Grant program could face a budget shortfall of up to $6 billion in 2009 due to increases in grant amounts and numbers of applicants.  The cap on Pell awards has risen from $4050 to $4731 between 2006 and now, and will increase to $6000 for the 2009-2010 academic year (if funding is available) according to the recently reauthorized Higher Education Act.  Meanwhile, the number of FAFSA applications has risen by nearly 17 percent in the last year alone, driven by a worsening economic situation. [...]

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The House of Representatives voted Monday to extend the Ensuring Continued Access to Student Loans Act (ECASLA) into the 2009-2010 school year.  The act also has broad support from lenders and financial aid administrators.  The ECASLA was signed into law this May in response to concerns that the credit crunch would have a serious impact on the availability of student loans. [...]

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Seven student loan lending agencies agreed to a settlement with New York Attorney General Andrew Cuomo Tuesday, following an investigation by Cuomo's office into potentially deceptive lending practices.  This is the latest group of lenders to settle in an inquiry that's been going on for nearly a year, after accusations first came to public attention last October. [...]

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New York Attorney General Andrew Cuomo is preparing a lawsuit against Goal Financial, the student loan company that also runs the website eStudentLoan.com.  According to the New York Times, Goal Financial stands accused of misleading consumers about loans, and offering them gifts such as iPods to influence their choice in lenders.  While other lenders accused of dishonest practices have repented and agreed to follow a code of conduct outlined by Cuomo, Goal Financial has not, hence the pending lawsuit. [...]

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The results of a poll conducted by Sallie Mae and Gallup were released today, painting a picture of where Americans across income levels find money for college.  The study found that sources of funding varied, with parent borrowing (16%), student borrowing (23%), and parent income and savings (32%) taking care of the majority of college costs.  Scholarships and grants followed closely behind, making up 15 percent of college funding. [...]

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Nearly 17% more students completed a Free Application for Federal Student Aid (FAFSA) between January and June 2008 compared to the same period in 2007 according to a report released last month by the Department of Education.  Several states, including California and North Carolina, have seen an even more marked increase, with at least 20% more students applying for federal student financial aid for college this calendar year. [...]

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Earlier this week, Massachusetts Governor Deval L. Patrick asked his state's wealthiest universities (such as Harvard University and the Massachusetts Institute of Technology) to help bail out the Massachusetts Education Financing Authority (MEFA), which announced last week that it would not be able to provide loans to over 40,000 students this fall.  However, as an article published today in The Chronicle of Higher Education explains, many parties regard this request as well-intentioned but highly problematic, mainly due to recent lawsuits and legislation regarding potential conflicts of interest in relationships between colleges and student loan providers.  The Massachusetts state treasurer, who vetoed the governor's request to invest money in MEFA, stated that bailing out MEFA was not a good investment and could set a dangerous precedent for use of state funds.  While several colleges said they would consider investing in MEFA to help them provide enough loans to be able to receive assistance from the federal government, none have yet said yes, and many express concerns about what people will think of their relationship with the lending agency once the economy recovers.  When viewed in light of last year's preferred lender list scandal, such hesitation is understandable. [...]

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Brazos Higher Education Service Corporation, Inc., the fourth largest holder of guaranteed student loans and the largest nonprofit loan provider, will not be able to issue new student loans to college students this fall. The company had initially announced in March that it would suspend providing Federal Family Education Loan Program (FFELP) student loans, but after emergency legislation passed this summer to help FFELP lenders, it looked like Brazos may be able to stay in the game. However, they recently issued a news release stating they would not be able to provide new loans to students this fall, citing the short amount of time between the passage of the Ensuring Continued Access to Student Loans Act and fall semester loan disbursement dates. "We have simply run out of time to secure financing to disburse loans as soon as they are needed," said Brazos CEO Murray Watson. [...]

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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. [...]

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The Department of Education Advisory Committee on Student Financial Assistance recently released a report entitled Early and Often showing the financial aid community what can be done to help students and families better prepare to pay for school.  The report provided recommendations on what information students needed to know before deciding whether to attend college, when the students needed to know it, and how it could best be disseminated to students and their families, stressing four categories of knowledge that students need to make informed decisions about attending college.  [...]

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The morose state of the lending industry, recent cuts in federal loan subsidies and a loss of interest in loan securities investing have caused chaos within the student loan market over past months. According to Forbes, Student Loan Corp., a previous division of Citibank, has become the latest victim in the student loan credit crunch, announcing plans to lay off 146 of its 523 employees. [...]

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Kathy L. Hardy, her two daughters and two other associates are being charged for having allegedly taken out numerous fraudulent private student loans since 2005. The five women were accused of having received a combined sum of more than $690,000 by filling out over 70 student loan applications, reported U.S. News. [...]

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On Tuesday, a Senate panel approved a budget that would increase, among other things, the Pell Grant funding for the 2009 school year. Currently, students who demonstrate financial need—as determined by a Department of Education's FAFSA calculation—can receive no more than $4,300 in Pell Grant money, but not all eligible students receive the full sum.   For the upcoming year, the Pell Grant cap will be $4,731. If the Senate panel’s budget is approved by the Senate Appropriations Committee and by the Senate, students could be eligible for up to $4,800. [...]

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Students who enter into loan agreements can be bombarded with unfamiliar terms and overwhelming agreements. The meaning of a student lender is obvious enough--it's the entity in charge of borrowing money--but the role a guaranty agency plays in the student lending process is a bit less obvious. The information below will give you a better idea of how guaranty agencies work, and how their work affects you. [...]

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Affording a college education is becoming increasingly difficult, but help is available. Students who demonstrate financial need can look to numerous sources for assistance in paying for tuition and living expenses. Even those who do not demonstrate exceptional merit can qualify. Below is a list of financial aid resources students may be eligible to receive based on financial need. Additional need-based awards may be found by conducting a free college scholarship search. [...]

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GreenNote, a new peer-to-peer lending company has embarked on the business of pairing college students with familiar faces willing to lend them money. Stressing that the company itself is not a lender, GreenNote instead plans to help users obtain student loans from the people they know…officially.To create a match, GreenNote asks that students contact their family, friends or community to find individuals who are willing to provide them with financial aid. GreenNote’s role in the partnership lies in the paperwork. For a 2% borrower loan fee and a 1% lender management fee, the company sets up a legally binding agreement, complete with tax work, credit bureau reporting and school disbursements. It’s like asking the people you trust for some assistance—with an official contract and [...]
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Students who took out Stafford Loans shortly before July 1, 2006 may have fumed upon finding that rates would be fixed for future lenders. Those repaying older, variable-rate loans during the 2007-2008 school year were stuck with a 7.22% interest rate (6.62% during in-school or grace periods) while those whose student loans were disbursed after July 1, 2006 were secure knowing their annual rates would not exceed 6.8%. Well, the tables may be turning. During the 2008-2009 school year, interest rates on variable loans will be cut to 4.21% (3.61% during in-school and grace periods) while fixed rates will barely budge. For those with fixed loans first disbursed between the July 1, 2006 and June 30, 2008, these changes will be meaningless--their annual 6.8% rate will still apply. Those whose [...]
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Weighed down by an economic downturn and a cut in federal subsidies, student lenders have been lining up at the FFEL exit sign for months. But if the past two days are a sign of what’s to come, many are reconsidering their departure. On Wednesday, Margaret Spellings sent a letter to numerous student lenders pledging the Department of the Treasury’s support in helping them get back on their feet. [...]

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Following talks of purchasing FFEL loans and using a lender of last resort program to ensure student access to federal college funds, the Department of Education officially agreed on a temporary bail-out plan. For the next year, the Department has agreed to purchase loans federally subsidized student lenders have trouble selling at a profitable rate. [...]

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More than a year after their controversial ad suggested that financial aid officials were profiting at the expense of student borrowers, MyRichUncle’s in-your-face marketing tactics have again caused an uproar among college officials. The ads in question, ones recently found in The New York Times and USA Today, portray a split head—no brains—with the slogan, “I didn’t use my brain, I went straight to the financial aid office,” reported The Chronicle of Higher Education. [...]

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After passing the Senate and the House in varying formats, a compromise was reached on legislation that would help lenders stay afloat in a troublesome student loan market. The Ensuring Continued Access to Student Loans Act of 2008 was sent to the President yesterday, and rapid approval is expected. [...]

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Financial aid in the form of scholarships and grants is a student’s best bet when searching for college funding. Families who cannot pay for a student’s education without outside assistance should first turn to cost-free resources. When these prove insufficient, students can consider borrowing money for college.

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To alleviate the affects of the intensifying credit crunch, Sallie Mae has been lobbying for government assistance. In past months, student lenders have been struggling to find buyers for both their loans and their loan securities. Sallie Mae, the largest student lender in the business, has turned to the government for assistance, asking that the US Treasury assuage loan market tensions by purchasing their securities. [...]

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