Loan programs

Law school leaders discuss issues of past year at annual meeting

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Law school professors and administrators agree that the past year has been difficult — but find less consensus on what to do in the future.

Occupy protests focusing increasingly on student debt

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Student debt has emerged as a major focus of the protests. Some worry that prospective students are hearing the wrong message -- while others see important shifts in the political debate about borrowing.

Financial aid 'experiment' would let colleges set borrowing limits for some federal loans

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An experimental financial aid program would let colleges restrict students' borrowing for federal unsubsidized loans as part of a test run.

Obama proposes changes to student loan programs

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Obama proposes changing income-based repayment and pushing students to consolidate their loans -- part of a campaign to work around lawmakers.

U.S. warns colleges about financial aid 'fraud rings'

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Education Department calls on colleges to do more to prevent and detect financial aid "fraud rings."

Counterpoint: Lenders Respond

The final report of Education Secretary Margaret Spellings’s Commission on the Future of Higher Education, released late last month, is already generating a strong debate, including a column by Senator Edward M. Kennedy.

The Spellings commission and Senator Kennedy are right about the need for increased federal support for higher education.  Achieving “a higher education system that is accessible to all qualified students in all life stages,” a Commission goal we all share, will require new and significant federal investments in both need-based grant aid and low-cost student loans.

The reasons are largely demographic. The largest secondary school classes in history are graduating over the next few years. Equally important, the growing diversity of secondary school graduates creates challenges; there are cultural and information barriers that need to be addressed.   

Senator Kennedy is correct in pointing out that the federal student loan programs are the single largest source of financial aid, making them an essential component of any plan to increase the accessibility and affordability of postsecondary education.

So while America’s Student Loan Providers agrees that “every student in the nation should have the opportunity to pursue postsecondary education,” we do not believe that this shared policy goal can or should be achieved by eliminating the guaranteed loan program, as the senator suggests. This would jeopardize the fulfillment of educational goals for the millions of students and 6,000 colleges, universities and technical schools that rely on guaranteed loans. 

Such a one-size-fits-all government solution wouldn’t be good for students, parents or schools.  Nor is it good policy.  

Indeed, it is the public-private partnership of the guaranteed loan program that will make $56 billion available to nearly 7 million students and parents this year alone.

Equally troubling is the assertion that the program is without risk to lenders and other guaranteed student loan participants and that it somehow encourages students to default on their loans. When a student is unable to repay his or her loans and goes into default, it harms the student, the lender, and the taxpayer. That’s why student loan providers have implemented innovative strategies to assist borrowers in understanding and meeting their repayment obligations, and that’s why student loan default rates today remain near the lowest level in history.  

Finally, it is widely recognized that the federal methodology used to calculate program costs overstates the cost of the guaranteed loan program and understates the cost of the direct loan program. Other analyses conclude that costs of the two programs are either virtually identical or that the guaranteed loan program is less expensive. The point is that major decisions about the future of the loan program that millions of students depend on shouldn’t be based solely on questionable cost assumptions.

For 41 years, the guaranteed loan program has helped make postsecondary education possible for millions of Americans. One of the original Great Society programs, it has been hailed by Democrats and Republicans alike. It’s one reason why a 2000 Brookings Institution study called increased access to postsecondary education one of the federal government’s most significant accomplishments.

Clearly, this is one government program that is deserving of support.  We welcome the opportunity to work with the Congress and administration for the benefit of those seeking educational advancement.

Author/s: 
Kevin Bruns
Author's email: 
newsroom@insidehighered.com

Kevin Bruns is executive director of America's Student Loan Providers.

Student Loans, the Baby and the Bathwater

It is not often that one’s research topic is the lead story in the national media, but the topic of financial aid has been in the forefront of the American consciousness from San Diego (home of Student Loan Xpress) to Albany, N.Y., (home to New York Attorney General Andrew M. Cuomo) and points in between.

The stories of scandals, kickbacks, influence peddling, and fleecing -- to highlight just a few of the phrases used by politicians and reporters -- in the student loan business have dominated the headlines the last two weeks. I have chuckled at the many e-mails and comments I have received from far-flung friends and relatives who have asked, “Have you read about this student loan stuff?” That is a little like asking somebody who works in the U.S. Justice Department if they have heard about Attorney General Gonzales and the U.S. attorney firings.

We have a couple of key players to thank for much of the scrutiny. Upon taking office earlier this year, Attorney General Cuomo began investigating the relationship between higher education institutions and student loan providers. He was looking to see if colleges and universities receive benefits from the providers in order to place them on the preferred lender lists used to direct students to loan providers. And the New America Foundation, through its Higher Ed Watch blog, broke the story of three financial aid directors around the country (as well as an official in the Department of Education who oversaw lenders) receiving and subsequently selling stock in Student Loan Xpress.

Attorney General Cuomo’s investigation received a fair amount of media coverage, but the story gained real legs and moved to the front pages when the focus shifted from relationships between loan providers and universities to relationships between lenders and specific financial aid officials at the institutions.  As with most scandals, it is a much better story when the media can put the name and face of a real person on it, rather than just the moniker of a multi-billion dollar higher education institution.

Stirred up by the initial disclosures by the New America Foundation regarding high-ranking financial aid officers at Columbia University, the University of Texas at Austin, and the University of Southern California, reporters around the country have uncovered other apparently untoward relationships between financial aid officials and student loan companies. At this point, until all the facts are out, I think it is fair to categorize all that has been reported as “allegations.” 

But the student aid profession is very much on edge these days, with perhaps more officials out there living in fear that something they had done in the past will be discovered by the news media or Cuomo. Dallas Martin, head of the National Association of Student Financial Aid Administrators, has been on the defensive throughout the scandal and probably is rather tired of hearing the phrase “damage control.”

The initial reports of stock grants and sales have been followed by others involving Student Loan Xpress payments of tens of thousands of dollars to financial aid directors at Johns Hopkins, Widener and Capella Universities for consulting or other purposes, including the paying of tuition for one aid director to attend graduate school.

All of these officials (including the Department of Education employee) have been placed on leave by their employers while the institutions try to sort out the facts. If the allegations are proven true as they have been reported in the media, it will be a serious stain on the reputation not just of these officials and their employers but on the financial aid profession as a whole.

Regardless of whether their relationship with Student Loan Xpress influenced decisions regarding preferred lenders, or steering students toward certain loan providers, these officials (and their institutions, if aware of the relationships) should have been more cognizant of the appearance of conflict of interest.  It is not enough to declare that the relationship with Student Loan Xpress did not influence any decisions they made; people will assume the worst.

From these disclosures of fees paid to financial aid officials, the attention in the last few days has shifted to the advisory boards maintained by many student loan providers. In addition to the board maintained by Student Loan Xpress, most of the larger lenders, including companies like Sallie Mae, Citibank, Wachovia, and Wells Fargo, have similar boards made up largely of financial aid officials.

While the companies say they do not pay any compensation to the board members, they do generally pay their travel expenses to attend meetings of the boards. Trying to head off any notion of these meetings as junkets, the loan companies and financial aid officers have been quick to point out that many of these meetings have been held in such less-than-exotic places as St. Paul, Minn., and airport hotels. (We can discuss whether Las Vegas and Orlando, where some of these meetings have taken place recently, fall into the less-than-exotic category).

Both the student loan companies and the financial aid officials have said that these boards are used to help advise the companies on how to best structure their loan programs to meet the needs of students. Since the financial aid officials are on the front lines of working with students, they are in the best position to recommend new programs or changes to existing loan programs that will help their students.

I have sat on numerous advisory boards, and I have firsthand knowledge of the role they can play (my disclosure is that none of these have been for student loan providers). Both the lenders and financial aid officials are correct in stating that the advisory boards provide an important role, one that ultimately can benefit students. It would be a shame if in the wake of this scandal, these boards get dismantled and the dialogue between financial aid officers and lenders is hampered or, worse, forced to go even more underground.

Given the recent allegations, I feel comfortable arguing that there should be no honoraria paid by the lenders to advisory board members. And the lenders should be cautious regarding where these board meetings are held, keeping in mind that they must not be construed as junkets by the media, policy makers, or most importantly, students and their families. Even though I believe that the great majority of financial aid officers are honest individuals who would not be swayed by receipt of a modest honorarium for their service, or through attending a meeting in a warm, inviting climate, the scrutiny under which they find themselves dictates that they have to be squeaky clean.

We should be cautious not to throw out the proverbial baby with the bath water in responding to this scandal. Yes, those officials who made what are clearly some very poor -- and perhaps, even stupid -- decisions should be held accountable for their actions. But let’s not go overboard by eliminating a valuable mechanism for financial aid officials and student loan providers to work together to improve service to students. If we do so, in the end it will be the students who suffer for it.

Author/s: 
Donald E. Heller
Author's email: 
newsroom@insidehighered.com

Donald E. Heller is associate professor of education and senior research associate in the Center for the Study of Higher Education at The Pennsylvania State University in University Park.  His research focuses on financial aid and college access.

Presidents and the Student Loan Mess

Presidents and financial aid directors are the two educational leaders on campus who are directly responsible for the success of the whole student, I used to tell audiences, with more than too much bravado.

I was trying to make a point. Every administrator needs to be involved to achieve institutional success, of course. But presidents and financial aid officers deal with a big picture stakes – success or failure of the student.

If the student fails, the institution fails. The president takes the blame.

If the institution fails the student, the student loan may not be repaid. The financial aid officer is on the line.

The latest public crisis in student loans reignites a question that has always haunted me: Why do college presidents too often leave the field of public debate when it comes to the specifics of student loans?

“Unfathomable”, “administrative nightmare” and a “policy backwater” are descriptions of the lending debate that would have encouraged CEO indifference to the politics of student loans in the past.

Collectively, financial aid officers, banks, student advocates and executives of national higher education organizations have controlled the options and the course of the nation’s college financing scheme -- they were the ones with time to deal with the arcane.

Today, however, loans account for more than 30 percent of all payments for college tuition costs. Loan volume has more than doubled in a decade and is still growing. Private college loans, providing funds beyond the federal program limits, have increased by 734 percent in a decade, to $14 billion in the 2004-5 school year.

Can individual college presidents, with so much else on their plates, ignore the foundation, structure and details of the nation’s publicly financed student loan programs, and a thriving private sector alternative?

At their peril. And, at threat to the complicated, but working, system of higher education finance in America.

The latest blow-up is over lender payments to colleges and administrators who designate loan products on preferred lender lists. This is just a seasonal hurricane compared to the climate change in store for student lending over the next decade.

Essential public policy issues, emerging new private sector loan products and direct-to-the-student marketing techniques are going to change the way Americans afford to pay for college.

It can happen with or without college president resolve to assure that the interests of their students and institutions come first.

Off campus “student advocates” or “higher education policy experts” are gaming the current crisis politics to achieve long sought ideological change in these loan programs, which may or may not match a student and institutional requirements.

Among a host of issues, there are some that will directly redefine the nature and extent of student loan availability:

  • The future of the bank-based Federal Family Education Loan Program (FFELP) and its sibling the Ford Direct Loan Program (DLP), the latter representing about 25 percent of all federally guaranteed student lending. Advocates for government-as-lender will use the latest crisis to limit the bank program and prefer expanded borrowing from the government, not the market place. Sustainability into all economic futures is the issue here. Will the government assure colleges' access to loan-supported tuition financing under all circumstances? Student loans have become the third largest of the nation’s asset-backed securities markets -- after credit cards and mortgages. The private marketplace has made lending at these levels possible. If not the private market place, can the government swallow the growing need for student loans to pay tuition into the future? At the levels of debt that future costs will require? College presidents might want to assure continued direct access to the market place, not exclusively through policy makers who have various and sometimes conflicting agendas.
  • The role of state-based student financial aid agencies as the Congress and president impose a continued financial squeeze on FFELP administration costs, default prevention efforts and default collections revenues. It could mean the end to federally contracted, state-based guaranty agencies, the student financial aid agency in 27 states that are often the backbone of information and training to colleges, students and families. They are the sponsors of Internet-based, go-to-college and early career and college awareness programs. Many agencies also administer state grants and often the college savings program -- assuring local policy continuity at the state level.
  • Direct-to-consumer lending, bypassing the college financial aid office and making direct deals with students and parents, may end the current coordinated and guided match between grants, loans and college work -- all without assuring that low-cost, federally subsidized loans are considered before more expensive private loans.
  • Consolidation of lenders:Sallie Mae’s recently announced sale to two private financial services companies and two of the largest student loan banks (Bank of America and JPMorganChase) is another signal that market forces -- not public interest -- are driving the federally subsidized student loan business. While Sallie Mae holds 40 percent of total FFELP assets and services 10 million students and parents attending 5,600 colleges, new loan volume at growing value is originating not with banks, but with marketing companies that securitize their loans, selling them to American and foreign financial markets.
  • Time to payoff: With the boom in student loan consolidations, the time to payoff of student debt has lengthened from the nominal 10 years to 15 and 20 and 30 years, in some cases. The cost of college is exploding exponentially after graduation by extending interest-bearing loan payments so far into the future. With a possible average payback time easily approaching 15 years for most future borrowers, is it not time to look at other alternatives? British and European loan programs delay repayments further into work life. ”Student securities” plans based on percentage of earnings are being pioneered by the Robertson Educational Empowerment Foundation, allowing a match between future income and debt. These and other innovations should be explored that avoid mortgaging student futures -- drawing out loan payments and interest expense so far into their future

College presidents most often represent the aspirations of their institutions, faculty, and their clients, the students. The president may be the only policy actor to assure that student loans -- the essential, largest, and growing educational financial scheme of the 21st century -- meets the needs of both the academy and student

Student and family interests should coincided with institutional success. I think only the CEO sees that conjunction and must speak out to assure that government, lenders and the entire higher education community meets the financial needs of both colleges and students into the future.

The times are changing. And college chief executives need to reenergize the student loan debate, assuring that the outcome serves the whole student and his or her institutions.

Author/s: 
Robert Maurer
Author's email: 
newsroom@insidehighered.com

Robert Maurer, formerly President of New York’s student aid agency, the Higher Education Services Corporation, is a writer and consultant on college financial aid and instructional technologies.

Maggie ... Yer Doin' a Heck of a Job!

News of New York Attorney General Andrew Cuomo’s investigation of questionable student loan practices was initially met with dismissive contempt from most of the permanent players in the loan programs. The student loan industry lost precious crisis-management time to cognitive dissonance with the very idea of an enforcement agency that it didn’t control. The student aid profession and its leadership, meanwhile, went through a very public demonstration of the seven stages of grief with the vilification they suffered because of their years of coziness with lenders.

As public outrage at what was, until a few short weeks ago, perfectly respectable business-as-usual began to build, the players finally understood the Cuomo investigation for what it really was: a rout. Like ragtag remnants of a defeated army in retreat, they shed the insignia of their true identity to don the uniform of the winning side, no matter how ill-fitting and grotesque. Some of the most predatory lenders agreed to abide with the letter -- but of course not the spirit -- of the Cuomo code of conduct. Organizations that had long ago reduced their ethics to those of an impeccably honest auctioneer retreated from their prior moral stance of always letting the highest bidder win their support in contested policy debates.

Some aid organizations decided to deal with their addiction to loan industry money by going cold turkey. Others chose the associations’ equivalent of methadone treatment by refusing some lender money while accepting it in other forms. The postmodern moment was at hand when the Republican Congressional leaders -- whose previous 12-year tenure in majority will forever be remembered as the Gilded Age of loan industry rapacity -- indicated that they, too, would introduce legislation to restore integrity to the system they had done so much to create. They even joined the Democrats to pass emergency loan legislation, if only to quickly declare the endemic problems of the loan program resolved and to prevent more meaningful reform of the corporate welfare program they have set up for their political supporters in the loan industry. The point of this street theater of contrition, atonement and conversion, of course, is not real change, but a sufficiently convincing appearance of reform.

By the time Cuomo appeared before the House Education and Labor Committee for the Washington equivalent of his triumphant march, the chorus of special interests had practiced their new reformist tune enough at least to delude themselves and maybe even fool the inattentive passerby. But the careful staging suffered one fatal flaw: one of the lead actors had apparently slept through the rehearsal and was loudly and unabashedly singing off-key. Enter Margaret Spellings, stage left!

Far from striking an apologetic -- or at least conciliatory -- note for having so miserably failed to do her job while student loan corruption festered under the department’s nose, the secretary of education has chosen instead to sing an all too familiar tune of brazen defiance. On the very day of Cuomo’s testimony -- a day that, like others implicated in the scandal, she should have wisely spent away from the public eye -- she actually issued a remarkable press release to refute the reality that everyone else could by now discern.

The secretary’s statement, and her subsequent testimony Thursday before the House committee, combined outright ignorance of some of the facts already in evidence and denial of others. It also unapologetically rejected any personal responsibility for the debacle, citing the complexity of the job, which Spellings has apparently only grasped after Cuomo stepped into the vacuum created by her inattention. In fairness, the secretary’s testimony did manage to identify mistakes at her agency, but they all dated back to the period before 2001, when the administration effectively handed the loan programs to past and future employees of the student loan industry to run as they saw fit! As a rhetorical device, her Congressional appearance combined the tenuous grasp of facts, irritated denials, and vague promises that are the hallmarks of having been caught asleep on the clock. It is déjà vu, all over again: think Tommy Thompson and his ludicrous public comments as anthrax was being mailed around the country; the hapless Brownie as Katrina ravaged New Orleans; or Alberto Gonzalez as he explained to the Senate Judiciary Committee how he didn’t really run the Department of Justice.

Like so many other hopelessly under-qualified Bushies in high office, Spellings brought little by way of independent accomplishments hitherto expected of a cabinet appointee. Not only was she no Dick Riley or Lamar Alexander, her non-patronage résumé was actually even less impressive than that of her predecessor, Rod Paige! What she lacked in independent credibility for the job, however, she has made up with officious self-importance and a messianic belief that she is the right person in the right place in history to transform American higher education. Ironically, the euphemism Spellings has used repeatedly to describe this obsessive illusion of grandeur is, of all things, “accountability!”

In the Spellings lexicon, accountability is codeword for a prosecutorial assault on the traditional collegiate sector for alleged evils that range from lack of transparency, profligacy, inefficiency, and incompetence to political tendentiousness. There is no denying that, like every other human endeavor, American higher education partakes of all these qualities to some degree. And a thoughtful examination of the future of higher education would certainly not be a bad idea. But Spellings has approached the effort not only with dogmatism, but also with a Vaudevillian’s knack for committing every one of the sins for which she has taken higher education to task.

Her tenure in office has thus far consisted of a quixotic frolic to assert substantive federal control on colleges and universities through a variety of politically motivated and legally suspect maneuvers. Describing this detour from her legal responsibilities as overseer of the loan system in terms of sheer incompetence would, in a very real sense, be the more charitable explanation of the loan debacle. A more cynical mind could take the secretary’s pugilism on the collegiate front as a sideshow intended to distract attention from the wholesale looting of the treasury by the administration’s loan industry friends. But the authenticity of her performance at the hearing tends to favor the more charitable interpretation: I for one am now willing to accept that Spellings simply doesn’t get it. That she has been pursuing ill-advised policies for which she has no legal authority (like federalizing transfer of credit rules), while she failed to do what she has had ample authority and legal responsibility to do (like overseeing lenders and protecting the students and taxpayers), is apparently too complex a proposition for the secretary to be contemplating even now, after it has become clear that she has been playing the fiddle while Rome burned.

Whatever else it may bring about, the Cuomo investigation has demonstrated the emptiness of the secretary’s haughty pronouncements on accountability. What is already known of the department’s inaction -- if not outright complicity -- in the scandal amply demonstrates that accountability was the last thing this secretary demanded of the companies feeding at the federal trough on her watch. The disingenuous nature of the Spellings gospel of accountability becomes all the more apparent in light of her post facto reaction to the scandal. Her press releases and disavowal of authority and responsibility are ample enough proof that the thought that accountability applies to her as well has yet to cross the secretary’s mind.

And what’s the average borrower confronting this debacle to think? One apt thought may well be that you go to college with the Department of Education you have, not the one you ought to have. A heck of a job indeed!

Author/s: 
Barmak Nassirian
Author's email: 
info@insidehighered.com

Barmak Nassirian is associate executive director of the American Association of Collegiate Registrars and Admissions Officers.

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