studentaid

Trump administration seeks comment on student loan bankruptcy standards

Education Department signals interest in revisiting rules making student loans eligible for bankruptcy -- a priority for some Democrats and consumer groups.

Borrowers With High Debt Levels Struggle to Repay Loans

The share of borrowers graduating with high student loan debt balances has shot up in recent years. And, increasingly, those borrowers are struggling to pay back those loans, according to a Brookings Institution paper released last week.

The paper's authors, Adam Looney and Constantine Yannelis, find that between 2000 and 2014, the share of those borrowers graduating with $50,000 in student loans more than tripled, from 5 percent to 17 percent. Those borrowers now hold the majority of outstanding student loan debt.

The profile of those borrowers has also changed. Before, large-balance borrowers typically attended graduate or professional schools and saw strong salary returns. But today, those borrowers are often parents or independent undergraduate students and see a much higher share of their income go to loan payments. Meanwhile, the share of borrowers taking out those kinds of high loan volumes only for graduate school has declined. And high-balance borrowers were more likely to have attended less-selective institutions and for-profit colleges.

Those borrowers have taken advantage of options like income-driven repayment but are seeing interest accumulate on their loans faster than they can pay them down.

Looney and Yannelis recommend policy makers consider targeted responses, including smaller loan limits and accountability measures for colleges based on outcomes for graduates and parent loans.

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Senate Democrats want Public Service Loan Forgiveness fix in budget agreement

Senate Democrats want to use $4 billion from the budget deal for Public Service Loan Forgiveness, but some higher education groups have other ideas for the money.

After Borrower Defense Negotiation Fails, Department to Craft New Rule

Negotiators failed to reach consensus Thursday on new language for borrower-defense regulations, clearing the way for the U.S. Department of Education to craft its own version of regulations designed to protect defrauded student borrowers.

The Obama administration crafted the borrower-defense rule to establish a national standard for student fraud claims after the collapse of Corinthian Colleges and ITT Tech led to a flood of loan-relief claims. Education Secretary Betsy DeVos blocked the rule from going into effect last year and said she would rewrite the regulations to better balance the concerns of students, taxpayers and institutions.

The department was required by law to go through the negotiated rule-making process, in which a panel representing various higher-ed interest groups attempts to seek consensus on the details of a new rule. Without negotiators reaching consensus, the department will aim to issue its own proposed rule by Nov. 1. Members of the public will have another opportunity to comment on the proposed regulation at that point.

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Trump budget proposal reflects congressional GOP priorities on higher ed

White House budget proposal isn't likely to serve as framework for Congress, but it reflects many of the same higher ed priorities as House Republicans.

A proposed new cap on student loan borrowing will hurt graduate and professional education (opinion)

Anyone can get a car loan, right? And people don’t get those off the backs of taxpayers. That’s what private lenders are for. What’s so different about student loans? Private lenders will fill the gap, just like they do for people who can’t buy cars with cash, and everybody’s happy.

Perhaps at first blush that argument appears to make sense, but it leans on a false equivalency that places the future of real people at risk and creates the potential that society will ultimately become less than it could be.

Exhibit A is a provision to reduce the annual federal student loan borrowing cap to $28,500 for most graduate and professional students that is included in HR 4508, known as the PROSPER Act, which passed the education committee of the U.S. House of Representatives in December.

Presumably, since such a limit will not cover the cost of education for many graduate and professional programs, the committee expects that private lenders will fill the void. That supposition, however, is betrayed by a fatal flaw: collateral.

Privately financed student loans do not -- and cannot -- work in the way consumer loans do.

Obviously, an education cannot be repossessed, but that’s far from the whole story. The linchpin underlying lending decisions is an assessment of an applicant’s willingness and ability to repay the obligation. A credit score, which typically acts as the fundamental tool to identify a generic willingness to pay, is of less predictive value given the limited credit history for many student borrowers.

Assessing ability to pay is even more challenging -- after all, student loans for professional school are typically taken out by people who, by definition, have little or no income and expect no income improvement for multiple years.

Further complicating the picture is the fact that, unlike with other consumer loans, loans to students typically do not require payments until a borrower leaves graduate school, often well into the future. During this period, tens of thousands of additional student loan debt and other financial or family obligations may accumulate, materially changing an applicant’s financial profile. Moreover, even graduation is no guarantee that a person will earn sufficient income to repay the debt, due to a shifting job market, failure to get a necessary license or otherwise.

Such conditions are less than ideal for a bottom line-driven private lender, and in many cases, lending to certain persons might be seen as unsound from a commercial point of view. No private entity will, at least not for long, knowingly operate in a way that generates ongoing losses, no matter how noble the cause.

A primary purpose of government is to ensure that important policy goals -- and societal values -- are not frustrated by the failure of private markets. In fact, the impetus for the creation and the maintenance of the Higher Education Act reflects the value for society in ensuring that access to higher education not be limited to those with wealth and the ability to access private credit.

The annual federal lending cap contained in the PROSPER Act will, literally and figuratively, change the complexion of graduate and professional education. Its impact will be felt most severely among those historically underrepresented students in postbaccalaureate programs: racial minorities and those from economically disadvantaged backgrounds. In an era when advanced degrees are of increasing importance, limiting access will stall -- or even reverse -- decades of progress and return us to an era when the zip code of your high school effectively determined your ability to pursue an advanced degree.

Fortunately, there are various ways to maintain expanded access while allowing the private market to pick up some of the slack. For example, the federal government could act as a lender of last resort for students from economically disadvantaged backgrounds, ensuring that only people negatively impacted by the private market failure would be served.

The stakes are high. And the answers are not simple. But policy makers must understand and appreciate the implications of a federal student loan cap and act judiciously to maintain the promise of the Higher Education Act for all.

Christopher P. Chapman is president and chief executive officer of AccessLex Institute, a nonprofit organization that conducts and commissions research to illuminate the latest data and evidence on the most crucial issues facing legal education. AccessLex also advocates for policies that make legal education work better for both students and society at large.

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After Brief Government Shutdown, Budget Deal Helps Kentucky Colleges

The budget deal senators approved Friday morning would benefit two colleges in Kentucky, the home state of Senate Majority Leader Mitch McConnell. But because the Senate did not approve the deal until Friday, a government shutdown started. The House of Representatives approved the deal Friday as well, so the shutdown will only last hours and should be over by the start of the workday today.

The budget agreement exempts Berea College, a nonprofit Christian college, from a provision taxing private college endowments in the Republican tax plan passed in December.

The deal also grants the secretary of education added authority to waive sanctions on colleges with high student loan default rates. That provision will most likely affect Southeast Kentucky Community and Technical College, which for the past three years has skated close to the cutoff point for access to Title IV federal student aid.

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UW Madison Unveils Free Tuition Program

The University of Wisconsin Madison on Thursday announced a free tuition plan for many in-state students that will start in the fall, the latest development in the spread of free public college.

UW Madison will pay four years of tuition and segregated fees for incoming freshmen from Wisconsin who come from families with annual adjusted gross household incomes of $56,000 or less under a new program dubbed Bucky’s Tuition Promise. Transfer students meeting the income requirements will have two years of tuition and segregated fees paid. About 800 new students will have tuition covered each year, the university estimates.

The $56,000 cutoff was chosen because it is close to Wisconsin’s median household family income of $54,610. Income only -- not assets -- will be counted, and students will not have to fill out a separate application. The award will be made using information from the Free Application for Federal Student Aid, which students will still need to file annually.

Those are important differences from some other states and public institutions that have put free tuition programs into place. The University of Michigan this summer announced a program offering four years of free tuition for in-state students with family incomes up to $65,000 per year, but that program has asset limits. New York State’s much-publicized Excelsior Scholarship requires a separate application.

UW Madison’s plan will cover the cost of tuition and fees no matter how many credits students take -- another key difference from New York, which requires a student to complete 30 credits per year. The university is urging students to enroll full-time, however, as the program is limited to eight semesters for incoming freshmen and four for incoming transfers. The program only covers fall and spring semesters.

The university expects the program to cost about $825,000 per year, per class, above current institutional financial aid spending. That means the university will spend roughly $3.3 million per year once four classes are enrolled. Funding will be drawn from private gifts and institutional resources. Tax dollars won’t be used, according to the university.

The program is a last-dollar award, meaning it is structured to plug the gap between the tuition and fees students are charged and any financial aid they receive. Students could still receive additional financial aid to cover other expenses like housing and food. They could also take out loans for living expenses.

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Education Department to Propose Compromise in Borrower-Defense Negotiations

As part of the ongoing negotiations over a student loan forgiveness rule, the Trump administration is proposing a change to evidentiary standards for debt relief claims that would be a compromise between the positions of colleges and student advocates.

The borrower-defense rule -- crafted by the Obama administration to clarify how students defrauded or misled by their institutions could apply to have their federal loans forgiven -- was originally set to take effect last year. But Education Secretary Betsy DeVos blocked the rule and announced she would pursue an overhaul that reflected the concerns of colleges.

A panel of negotiators representing a range of higher education stakeholders is set to meet next week for a third negotiating session, where the department will propose that borrowers filing a loan forgiveness claim meet a "substantial weight of the evidence" standard -- essentially, the borrower's claim they were defrauded, plus some form of evidence. That would be a compromise position between the tougher "clear and convincing" standard sought by college representatives and the lower "preponderance of evidence" standard pushed by student advocates.

The department's proposal also drops what amounted to a "rogue employee" exception for borrower-defense claims. But it maintains an "intent standard" for those claims, leaving in place potentially the biggest hurdle for negotiators to reach consensus on a new rule.

The proposal also adds a three-year limit for the government to seek reimbursement from a college after it determines there is reason to approve a borrower-defense claim.

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CBO: House Bill Would Reduce Spending by $14.6B

A Congressional Budget Office score released Tuesday for House Republicans' update to the Higher Education Act finds the bill would reduce federal direct spending by $14.6 billion over 10 years, primarily because of changes to student loan programs.

The PROSPER Act, as Republicans have named the legislation, would cut spending on federal student loan programs by $26.3 billion and boost mandatory spending on the Pell Grant program by $12.2 billion, the CBO finds.

Among the changes to student loans that would be made in the legislation are the elimination of subsidized loans and an increase in the unsubsidized loan limit for undergraduates. The bill would also cap graduate student lending and parent lending.

Some of the biggest savings would come from the elimination of Public Service Loan Forgiveness and reducing forgiveness through income-driven repayment programs.

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