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by Scholarships.com Staff

Student loans have received a lot of attention lately, especially in light of the ongoing recession. As average student debt increases and post-graduate job prospects become less certain, borrowers are struggling to make payments and avoid default on their loans. Meanwhile, lenders are tightening credit requirements or opting out of the student loan industry altogether. While Congress and President Obama are contemplating additional reforms to student lending on top of recent fixes that have provided some help to borrowers, relying on loans to pay for school is still a scary idea for many students.

However, there are some innovative private sector solutions students may want to consider. Alternative lending programs, such as peer-to-peer lending have received much publicity lately, as has a new program called Student Choice that makes it easier for students to find private loans through credit unions. On top of this, BridgeSpan Financial has launched a new service called SafeStart, which acts as insurance for students' Stafford loan payments.

In exchange for a down payment of $40 to $60 per $1,000 they've borrowed, SafeStart will extend an interest-free line of credit to students facing financial hardships in the first five years after graduation, allowing them to continue making payments on their Stafford loans and avoid defaulting or seeing loan amounts balloon as interest accrues during a forbearance period. SafeStart will cover up to 36 loan payments in the first 60 months of the loan, provided a student's loan payments exceed 10 percent of their monthly income.

Currently, SafeStart is only available for Stafford loans, and not PLUS loans or private loans. Stafford loan borrowers already have several other options for repayment if they find themselves struggling, including the new federal income-based repayment plan, which allows borrowers to only make payments if they meet certain income requirements and forgives remaining loan balances after 25 years. Students can also apply for temporary forbeareances if they need, though interest on the loans will still accrue.


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by Scholarships.com Staff

Rising unemployment rates and other symptoms of the ongoing recession continue to drive more people to attend college and look for ways to pay their bills, causing an uptick in state and federal financial aid applications. However, states are also hurting for money to meet financial aid requests and other budget demands. According to the Associated Press, 12 states have made significant cuts to state grant programs so far this year, with additional cuts likely. At least anecdotally, these cuts are already leading to more reliance on student loans, especially among groups that, according to a brief published this week by the College Board, may already be finding themselves overburdened with debt.

This week, the College Board released some new numbers on student debt loads and borrowing habits, culled from the National Postsecondary Student Aid Study, data released every four years by the Department of Education. Students at for-profit colleges are the most likely to borrow (96 to 98 percent graduate with some amount of loan debt), have the largest average debt loads at graduation, and are also some of the poorest college students (students at for-profit schools received 19 percent of the Federal Pell Grants disbursed in 2007-2008 despite making up only 7 percent of the college-going population). With additional sources of need-based aid drying up, these students may find themselves even more burdened with debt.

Students at other types of schools have also had to do more borrowing in recent years, according to the study. A full 59 percent of college students graduate with some amount of student loan debt, including 66 percent of bachelor's degree recipients. While most students took on manageable amounts of debt, 10 percent of students at four-year public schools, 22 percent of students at four-year private colleges, and 25 percent at four-year for-profit colleges borrowed more than $40,000 to attend college.

The average loan debt of undergraduate students in 2007-2008 was $15,123 (this is all students, not graduates), up 11 percent from the last time the survey was conducted. While increases in loan burdens were most modest at four-year state and non-profit colleges, reductions in state grant programs that are often earmarked for students at state colleges or nonprofit private colleges could send these numbers climbing.

You may want to consider statistics on student debt as a factor in your college search, but keep in mind that there are alternatives to borrowing. Scholarship opportunities exist for students at every type of college pursuing many different types of degree programs.


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by Scholarships.com Staff

As the start of the fall semester approaches, students across the country are finding themselves in a precarious position when it comes to financial aid. As we've previously mentioned, several states have been forced to make deep budget cuts this year, canceling or reducing funding for scholarships and grants, in some cases after award notices have already been sent to students. This has left students scrambling for last-minute student loans, and in some cases facing the difficult decision of whether to take a semester off while trying to procure alternate funding.

The Wall Street Journal and U.S. News both feature articles this week that offer up alternatives for students who have come up short on funding for the fall. While scholarship opportunities are still available for the coming academic year and should be pursued, students who need immediate sources of funding may want to check out private loans, peer-to-peer lending, and emergency loans and other aid offered by some universities and state agencies. Reducing to part-time enrollment or transferring to a cheaper school are also last-resort options that may be better choices than taking an entire semester off or putting tuition on a credit card.

An appeal to your college's financial aid office can also produce more financial aid, especially if your financial situation has changed since you completed the FAFSA, or if your parents were turned down for a federal PLUS loan. Additional loans, and even some grant aid, may be available if you ask.

In addition to trying to find new sources of funding, some college students are also petitioning their state legislators to get grant and scholarship funding restored.  Lawmakers in Utah have listened, promising to reinstate full funding to the state's New Century Scholarship program, whose awards they had previously planned to cut nearly in half. Students in Michigan also may yet get a reprieve from budget cuts, as the governor of Michigan and numerous state legislators are vowing to do what they can to keep the state's popular Promise Scholarship program intact.

Even if states manage to find funding for grants and scholarships this year, the next fiscal year could also prove challenging. Students in cash-strapped states who are planning to rely on state scholarships to pay for college may want to start looking into alternate funding now.  One of the best ways to do this is to start with a free college scholarship search.


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by Emily

The rise of the online auction service eBay has prompted people to attempt to sell just about anything they can affix a price to. So while it's not surprising to find some pretty out there listings from time to time, it's still not every day you see a student auctioning off a stake in his future.

A college student in Georgia attempted this week to fund the last 18 credits of his Master of Business Administration degree through an unusual source: selling a share of his potential earnings on eBay. The student, Terrance Wyatt of Clark Atlanta University, has been paying for college with financial aid for the last six years, but according to his eBay listing, he found himself $10,000 short of his funding needs this year.

So, being a business graduate student, he began looking for a way out of this financial quandary by marketing himself and seeking investors in his future. While his listing has been removed (eBay frowns on the selling of intangibles or the use of the site for fundraising), Maureen Downey's Get Schooled blog for the Atlanta Journal-Constitution has the partial text of the ad, as well as more information about the student.

While eBay may not have been the best venue for Wyatt's ad, his idea of seeking investors in his future is not so far-fetched. Recently, a number of peer-to-peer lending sites have launched, allowing students and individuals to arrange for anything from straightforward student loans to buying shares in a student's future success. These alternatives to alternative loans are still operating on a small scale and relatively unknown, but students like Wyatt may find the funding they need through such programs.

There are also scholarship opportunities for MBA students, and really anyone who has come up a bit short on financial aid.  Business school scholarships and scholarships for graduate students could easily bridge the gap for students who need more money and want to avoid student loan debt. Depending on your school and your program, you could even land a fellowship or assistantship that could fund your graduate education.


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by Agnes Jasinski

A new study offers surprising news in an uncertain economy: families are actually borrowing less money to cover college costs.

The study, titled "How America Pays for College," shows that about 58 percent of families did not borrow money for college for the 2008-2009 school year. Despite rising tuition prices of up to 5 percent over the last year, according to the College Board, high unemployment rates and deep budget cuts at schools across the country, it seems more families are relying on their own savings, scholarships and grant funding. While parents paid for about 36 percent of college costs, about 25 percent of students' costs in the year surveyed were covered by grants and scholarhips, and more than half of the respondents received some form of free aid, according to the study. The reliance on grants and scholarships increased by  15 percent over the last year, which could show more of an awareness by students to money available outside of lending in a struggling economy.

The same survey last year showed that about 53 percent of families chose not to take out loans for college. According to the New York Times, the numbers do not suggest that students would rather skip college than take out loans. In fact, fewer students than last year said taking out loans would stop them from pursuing an undergraduate degree, according to the article.

Other highlights of the study showed that:

  • 67 percent said they were confident in their ability to continue to meet the cost of college in the current economy.
  • 5 percent used credit cards to pay for college expenses.
  • 10 percent of costs were covered through students' own savings and employment.
  • 6 percent of costs were covered through students' relatives and friends.
  • 91 percent said that pursuing higher education led to a better life.

Of those who did borrow for the last school year, 25 percent took out federal student loans and 12 percent borrowed private education loans. Those who did borrow also spent about 30 percent more on their educations than those who did not, suggesting a higher cost of education for those who took out federal and private loans.

The study was conducted by Gallup for Sallie Mae last spring with more than 1,600 college-going students and parents of undergraduates responding.


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by Scholarships.com Staff

According to newly released data, default rates on federal student loans continued to climb in 2008, reaching a nine-year high of 6.7 percent, most likely as a result of the recession. The annual cohort default rate, released by the Department of Education on Monday, covers federal student loans that went into repayment between October 2006 and September 2007 and had gone into default by September 2008.

The 2007 cohort default rate was 1.5 percentage points higher than the rate for the previous year, as significant increases took place across the board. Defaults were higher in the bank-based Federal Family Education Loan (FFEL) Program than in the Federal Direct Loans Program, which is typically the case, but the discrepancy between the two grew this year. A total of 7.2 percent of loans in the bank-based system were in default, compared to 4.8 percent of the loans in the Direct Loans program.  he numbers for 2006 were 5.3 and 4.7 percent, respectively.

Much of this discrepancy can be attributed to a higher percentage of students at proprietary schools participating in the FFEL Program, as these schools carried a default rate of 11.1 percent, compared to rates of 6.0 percent and 3.8 percent at public and private colleges. Still, the lower default rate in the direct lending program is likely to be brought up as Congress debates moving all lending from FFEL into Direct Loans.

Default is defined as failure to make payments on a student loan according to the terms of the master promissory note the borrower signed, and federal student loans are considered in default only after several months of missed payments. This means that 6.7 percent of students in this cohort had stopped making payments for 270 days or more within 1-2 years of their first loan payment coming due. It's likely that the cohort default rate numbers released paint an optimistic picture of the number of borrowers currently having trouble making payments on student loans.

New repayment options may help troubled borrowers, though, and several have been introduced in recent months. One is the federal Income-Based Repayment Plan, which allows students to make payments they can afford and forgives all remaining debt after 25 years. Borrowers worried about repayment can also look into loan forgiveness programs offered in exchange for public service, which have been expanded under the Higher Education Act and national service legislation.

The best way for students to avoid the prospect of defaulting on loans is to limit borrowing as much as possible. Put some serious effort into a scholarship search, and consider affordability when doing your college search, as well. Practices such as keeping your options open and landing a scholarship can go a long way towards reducing your loan debt and your risk of being unable to pay once you graduate.


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by Scholarships.com Staff

The House of Representatives is poised to vote today on legislation to eliminate the Federal Family Education Loan Program and increase funding for Federal Pell Grants. The bill, currently known as the Student Aid and Fiscal Responsibility Act of 2009, is widely expected to be approved by the House, possibly with some amount of bipartisan support.  While most of the provisions in the bill have relatively widespread backing, one element has generated a fair amount of controversy. Under the proposed legislation, all federal student loans, such as Stafford Loans and Plus Loans, originated after July 1, 2010 would be part of the Federal Direct Loans Program, rather than the current bank-based system.

While initially both sides appeared ready for battle over the proposed legislation, controversy and rhetoric have cooled since the legislation was introduced. Alternative proposals that preserve some element of FFEL or otherwise grant a larger role to banks than in the bill currently before Congress have been proposed, but ultimately failed to generate the savings the Congressional Budget Office estimates this plan to carry, and thus have gained little momentum. Some Representatives still suggest submitting the proposal for further study and reviewing alternatives, but the plan to eliminate FFEL has gained the most widespread support.

Many Republican lawmakers still oppose the proposal to switch entirely to Direct Loans, with some making comparisons to the bank bailouts of earlier this year and the healthcare legislation currently being debated. The move to direct lending has also been repeatedly framed as eliminating choice for students, though the choice of direct loans versus bank-based loans has always rested with colleges and never with student borrowers.

Despite these objections, though, the bill appears to have the support necessary to pass the House and move on to the Senate, where it may face greater challenges. The option of passing it through the process of budget reconcilliation, which requires only a majority vote in the Senate, has been proposed, but whether the Senate goes that route remains to be seen.


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by Agnes Jasinski

Despite some Republication opposition, The House of Representatives voted 253-171 to approve a bill Thursday that would stop lending from the bank-based Federal Family Education Loan Program in favor of the Department of Education-run Federal Direct Loans Program by July 2010. The bill, known as the Student Aid and Fiscal Responsibility Act of 2009, would also increase the current maximum Federal Pell Grant from $5,350 to $5,550 and provide for annual increases to the grant in the years to follow through a $40 billion pool of funding over the next decade.

The bill is expected to have more of a fight when it comes before the Senate, where even Democrats have voiced concerns about the potential for job losses in states that headquarter private loan agencies. Many Republican lawmakers argue that the student loan industry has served college students well, and oppose the government takeover.

Amendments to the bill that failed before its passage looked at ways to allow the private sector to continue student lending as a way to offer the college-bound more choice in financing their educations. Amendments that passed included strengthening support services to borrowers and making part-time students eligible for Year-Round Federal Pell Grants, according to the National Association of Student Financial Aid and Administrators.

The bill would also:

  • use the projected $87 billion in savings from the move to direct lending to expand aid to students and colleges.
  • provide $10 billion in grants to community colleges as part of the Obama administration's American Graduation Initiative, a project that aims to nearly double the number of two-year institutions across the country.
  • overhaul the Perkins Loan program and expand its funding from $1 to $6 billion per year.
  • provide $8 billion in grants targeting early-learning programs over the next 10 years.
  • make interest rates on need-based federal student loans variable starting in 2012.
  • simplify the financial aid application process.

The legislation has broad support from the Obama administration. The president called the bill a "historic set of reforms," adding in a statement that the bill "will end the billions upon billions of dollars in unwarranted subsidies that we hand out to banks and financial institutions." Currently, about one-forth of students' loans come through the government's direct loan program.


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by Emily

For-profit career colleges have had a rocky history, being met with skepticism and criticism from traditional academic institutions, as well as undergoing a great degree of government scrutiny over the years, as some institutions have been revealed to engage in a variety of questionable practices. So, when the Government Accountability Office announced an investigation of proprietary institutions that participate in federal student financial aid programs, few in the education industry were surprised. The results of these investigations were released on Monday, and they indicate that in at least some cases, distrust towards career colleges may still be warranted.

For-profit colleges have higher student loan default rates than any other sector of higher education, with two-year cohort default rates topping 11 percent according to recently released annual Department of Education data, and four-year default rates clearing 23 percent according to the GAO report. By comparison, state colleges have two-year default rates of 6 percent and 9.5 percent respectively, with the default rates for private colleges falling even lower.

While acknowledging that much of this discrepancy is likely due to the different student populations these institutions serve, the GAO found that part of this high default rate could be connected to questionable admission and aid application practices at for-profit colleges. Under current federal law, in order for students to qualify for financial aid, they need to demonstrate "ability to benefit" from higher education. This means that they must have either earned a high school diploma or GED or passed a test indicating they are prepared for college-level instruction. Some of the proprietary colleges investigated by the GAO encouraged students to purchase high school diplomas from diploma mills to circumvent the testing process.

It appears that in at least one case, employees of a career college helped prospective students cheat on an ability to benefit test, even changing their answers after the fact to ensure their scores were high enough. GAO investigators posed as sudents at a school in the Washington, DC area and attempted to deliberately fail this test.  According to the report, they were given some of the answers to the test and also saw evidence of the school tampering with their scores to ensure that they passed and qualified for aid.

These practices allow students who wouldn't otherwise qualify for federal aid access to college instruction and money for school, but also can saddle students who are likely to be unable to complete and benefit from college coursework with large amounts of student loan debt. The Career College Association, which represents proprietary colleges, assures that these practices are not widespread and that strict standards are in place. However, the GAO still urges the federal government to provide more oversight of ability to benefit testing and financial aid disbursement at for-profit colleges.

If you're considering attending a career college, be sure to make sure its practices are legitimate and you are likely to enhance your earning potential by completing a degree or certificate there. Do your research about the school's reputation, the program's reputation and job and salary prospects for graduates of your prospective program.  Also, be wary about borrowing and make sure you don't get into a position where you've taken out too many federal or private loans to be able to pay them back. Attending a career college can help you land a better job or a higher salary, but this report indicates that there are still schools with dodgy practices out there, so diligence is still required when choosing a college.


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by Emily

The global economic recession of 2008-2009 has had an impact on seemingly every aspect of life, especially large expenses like college tuition. There has been much speculation about the economy's effect on college financial aid, and as the fall semester gets underway at colleges across the nation, information is starting to emerge that helps paint a picture of paying for school in a recession. So far, the results are mixed.

While a poll by Gallup and Sallie Mae showed fewer students borrowing for college this year, a survey conducted by NASFAA, the National Association of Financial Aid Administrators, shows more students applying for and receiving federal student financial aid this year than last year. Additional data from the Department of Education also backs this up, showing 25 percent more borrowing in federal student loan programs this year.

The NASFAA survey of nearly 500 financial aid offices shows that in comparison to the same time last year, 61 percent of colleges and universities are seeing an increase of 10 percent or more in financial aid applications, with 63 percent of institutions also seeing a significant increase in Pell Grant awards this year. Only 8 percent of institutions saw no increase in aid applications, with only 5 percent reporting no increase in Pell awards. Also, despite 65 percent of schools seeing an increase in financial aid appeals by 10 percent or more, 51 percent saw an increase of 10 percent or more in the number of students with unmet financial need.

Additionally, the majority of colleges have increased institutional aid (such as scholarships and grants), with 74 percent of four-year colleges and universities offering some increase in aid. Community colleges were the majority of institutions not increasing aid, with many citing a lack of available funding as the reason for this decision.

Many of the changes found by NASFAA and the Department of Education can be attributed to the federal response to the economic downturn. The increased borrowing is most likely due to the increases in loan limits, with larger unsubsidized Stafford loans being made available to both undergraduate and graduate students in the last two years. Financial aid administrators speculate that the increased aid awards are likely due to a combination of the increasing unemployment rate, changes in rules for adjusting financial aid awards, and nationwide awareness campaigns to let those collecting unemployment benefits know they are eligible for increased financial aid for college.


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