Online education appears to be a growing target for financial aid fraud, The Arizona Republic reported. Authorities have uncovered three schemes In the last three years at Rio Salado College, an online campus of the Maricopa Community Colleges, and those schemes involved hundreds of thousands of dollars. The Apollo Group, the parent company of the University of Phoenix, has referred 850 potential fraud cases to federal authorities since 2009, and about 25 of those cases have been prosecuted.
A majority of Americans want education programs protected from the possible deep, mandatory spending cuts that will go into effect at the end of this year if Congress does not reach a budget deal, according to a poll released Friday by the Committee for Education Funding and the Foundation for Education Investments. The poll, conducted by YouGov, found 55 percent of Americans thought education spending should be protected from the cuts. The Pell Grant was considered among the most important education programs: 53 percent of respondents said it should be protected. (In fact, the Pell Grant program is not immediately threatened by sequestration, as the mandatory budget cuts are called.)
Scientific research, another priority for many colleges and universities in the federal budget crunch, fared less well. Only 34 percent of respondents said they believed research should be protected from cuts. When asked about specific education programs, only 30 percent said it was very important to protect scientific and biomedical research at universities.
Student loan debt is soaring. Since 1999, average student loan debt has increased by more than 500 percent, and in 2010, it exceeded outstanding credit card debt for the first time in history. Total outstanding student loan debt, by some counts, exceeded $1 trillion this year.
While many approaches have been taken to the problem (trying to cut university costs, for example), there seem to be just two proposals for lessening the burden on the students themselves. These are to allow the loans to be discharged in bankruptcy or to forgive the loans altogether. Both have been the subject of Congressional bills.
Only one of these has the proper long-term incentive effects, and even it should be hedged with some restrictions: restoring limited bankruptcy protection. That is, students should be allowed to get out of their student loan burden as part of bankruptcy proceedings, just as they are able to get out of car loans now. However, this option should be restricted to private loans and should be allowed only after a set amount of time, such as 5 or 7 years, as it was prior to 2005.
While Senator Dick Durbin (D-Ill.) has proposed the idea of restoring bankruptcy protection for borrowers of private student loans several times, it has gone nowhere. Instead, there’s a growing chorus in favor of loan forgiveness. U.S. Representative Hansen Clarke (D-Mich.) introduced H.R. 4170, the Student Loan Forgiveness Act of 2012, earlier this year.
The law would allow students to pay just 10 percent of their discretionary income for 10 years, whatever their total loan amount; then, the remaining debt would be canceled. This is the “10-10 standard.”
In addition, under this bill, the current 3.4 percent cap on undergraduate student loan interest rates (enacted by Congress as a temporary measure) would be made permanent. Private borrowers whose educational loan debt exceeded their income would be allowed to convert their private loan debt into federal Direct Loans, and then enroll in the “10-10” program.
A critical part of the bill is to reward graduates for entering public service professions -- like teaching and firefighting -- with even greater forgiveness. Already, under the Public Service Loan Forgiveness, some graduates can have their loans forgiven if they work in public service for ten years. Few students use the current programs, however, because the rules dictating structure of repayment are relatively restrictive, as Inside Higher Ed recently reported.
The Clarke bill would lower the public service requirement to five years. Similarly, medical graduates would be rewarded for working in underserved communities by reducing the service requirement to 5 years from its current 10 years.
While this bill would benefit the small proportion of students who have extremely high debt levels, it would enormously distort incentives for students and universities -- causing larger problems in the long run.
The problem is that loan repayments will be the same whether students borrow cautiously to attend a state school or borrow extravagantly to attend an exclusive private university. Their payments will be capped at 10 percent of discretionary income for ten years. Because future students will know about the option of loan forgiveness, it will destroy any incentive for them to borrow prudently. They will have no reason to consider the varying costs of higher education.
Their unfettered willingness to borrow will have a ripple effect. Because the federal government will ante up (until it runs out of money), more and more money will flow to the schools through these loans, spurring them to continue to raise tuition and minimizing pressure on cutting costs. (Greater demand typically leads to higher prices.) Students would be simply middlemen -- passing government largesse on to colleges and universities that can’t stop their habit of seeking revenue wherever possible.
Limited bankruptcy protections would send a better message to both graduates and lenders. In 2005, Congress prohibited private student debt from being discharged through bankruptcy, except in rare cases. Government student loans have not been subject to bankruptcy protection since 1976, when Congress exempted them following reports that new doctors and lawyers were filing for bankruptcy to avoid paying student loans.
Indeed, if bankruptcy were available, many young graduates -- who often have no major assets such as a house or a car -- would be tempted to walk away from loan obligations. The federal government lends money to any student who meets minimum standards; it does not evaluate whether the student is likely to pay the money back.
Thus, restrictions are needed to make bankruptcy “work.” First, there should be a waiting period before students become eligible for bankruptcy protection -- perhaps five years after beginning to make payments on student loans.
Second, only loans from private lenders would be dischargeable through bankruptcy. The famous cases of student debt in the $100,000-plus realm tend to include large amounts of private loans. Lenders were able to rely on federal laws preventing bankruptcy -- so the sky was the limit. Federal loans, on the other hand, are capped at $31,000 for dependent undergraduates and $57,500 for independent undergraduates.
By making private loans dischargeable in bankruptcy, there would also be a ripple effect -- a good one. Lenders would become much more cautious. They would actually consider the likelihood that the student would be able to pay back the loan. Instead of relying on government policy to guarantee their profits, banks would have to return to time-tested, responsible banking practices. In the end, fewer students would take private loans and total debt would decrease.
Current student loan policy has led young people down the wrong path -- away from frugality and prudence to profligacy. It’s time to start sending better signals.
Jenna Ashley Robinson is director of outreach for the John W. Pope Center for Higher Education Policy in Raleigh, N.C.
Giving students and parents targeted information about colleges' pricing and outcomes is a worthy goal that could improve their decision-making about higher education, the Center for American Progress says in a report released today. But the federal government's process for developing its "College Scorecard" has fallen well short in practice, says the report, which offers a slew of recommendations for how the government could rework the document, particularly with advice from actual consumers. Among the report's findings are that the government should: test ways of communicating the concept of “net price”; emphasize four-year graduation rates, not six-year rates, if further testing confirms that the shorter time-frame is more relevant to students’ decision-making; and develop alternative measures of student debt that matter to students if further testing confirms that traditional measures such as repayment rate or default rate are not meaningful to students.
Florida Governor Rick Scott, a Republican, on Monday called for community colleges -- many of which in his state already offer bachelor's degrees -- to do so for total student costs of $10,000, The Orlando Sentinel reported. Those community colleges with bachelor's programs generally cost more than that. Texas Governor Rick Perry, a Republican, has championed the idea of the $10,000 degree and several such programs have launched in Texas. But close analysis of the programs suggests that students in other programs are subsidizing the $10,000 program students, and that the reforms have been more about pricing (for a small number) rather than college costs generally.
Florida officials have agreed to declare Florida Christian College's students eligible for a state student aid program, settling a lawsuit by the college, The News Service of Florida reported. The college "requires a Bible emphasis of all who earn a degree," and Florida officials had declared it too sectarian for its students to qualify for state aid. But the college argued that its programs have secular educational purposes, and that the state was discriminating against the college on the basis of its religious beliefs.
In a conference call with his major donors on Wednesday, Governor Mitt Romney attributed his presidential campaign loss in part to President Obama's "gifts" to various voting groups, including students, The New York Times reported. Romney cited the administration's positions on student loans and some provisions in the health care legislation. "With regards to the young people, for instance, a forgiveness of college loan interest, was a big gift," Romney said. "Free contraceptives were very big with young college-aged women. And then, finally, Obamacare also made a difference for them, because as you know, anybody now 26 years of age and younger was now going to be part of their parents’ plan, and that was a big gift to young people. They turned out in large numbers, a larger share in this election even than in 2008."
The California State University System is considering a series of fees that would be "incentives" for students to move to graduation in a timely way. Students would be required to pay extra for retaking courses, or those who have accumulated so many credits that they could have graduated. But The Los Angeles Times reported that student groups say that the plan is flawed, and incorrectly assumes that students aren't working as hard as they can to finish their degrees. A survey released by a student group says that the proposed fees are likely to force students to borrow more, not help them graduate on time.