Student Loan Potpourri

December 9, 2008

Monday felt like the old days -- all the way back in early 2007, when news about student loans flew so fast and furious that it was almost hard to keep up. It probably felt that way, in part, because New York Attorney General Andrew M. Cuomo reared his head again in the student loan arena, announcing a $675,000 settlement with the College Board over its now-abandoned loan practices.

That agreement, which followed a finding by Cuomo's office and Connecticut's attorney general that the College Board had given discounts on some of its financial products and services to colleges that placed its loans on lists of "preferred lenders," was one of several student loan-related news developments Monday.

To wit:

  • Significant numbers of for-profit colleges say their students have had trouble paying for college because they lack sufficient financial support, and 70 percent of the institutions say they have seen increases in students registering for classes but not showing up, according a survey released Monday by the Career College Association. More than half of institutions responding to the survey say they are providing their own loans to students to try to close the gap between their federal aid and the students' cost of attendance.
  • A new report by the Institute for Higher Education Policy and Excelenciain Education takes an in-depth look at those undergraduate students who are least likely to borrow to finance their educations, analyzing not just who they are (older, financially independent students, part-time students at community colleges, and members of certain ethnic or immigrant groups) but how their decisions affect their chances of succeeding in college (the impact is not good).

Cuomo and the College Board

When the College Board announced 16 months ago that it would no longer originate federal or private student loans, its officials hoped to bury questions about whether the admissions and financial aid giant -- which is a trusted source of information for students and parents about college -- might have conflicts of interest in profiting from private loans that its own analysts decry. But the inquiry by the New York and Connecticut attorneys general -- while asserting that the board ceased its private loan operations "for reasons unrelated to the investigation" -- suggests another layer of problems with the College Board's now-defunct loan programs.

The investigation found that the College Board "gave significant discounts" on the products and services it provides to college financial aid offices (such as the PowerFAIDS software system and CSS/Financial Aid PROFILE) to "certain colleges in exchange for placement of the College Board’s loans on the colleges’ preferred lender list of student lenders," Cuomo's office said in a news release. In at least four instances, Cuomo's office said in its 45-page settlement agreement with the College Board, the board gave discounts of between 6.3 and 24.6 percent off the price of the financial aid products, saving the institutions a total of $79,000, in exchange for being placed on the colleges' preferred lender lists.

The Cuomo settlement states that the College Board's federal loan volume (and, in turn, its profits) from the four institutions in question increased by a combined total of $130,000 after the preferred-lender agreements were in place.The settlement asserts, as did all of the many such agreements that the New York attorney general signed with lenders and colleges during his yearlong investigation into student loan practices, that the College Board violated New York business law.

“Loans are hard enough to come by these days; the last thing we need are deceitful arrangements like this one that stand squarely in the way of students and parents getting the facts,” Cuomo said in a prepared statement. “We should be doing absolutely everything we can to guide students to the least expensive, least complicated option for affording higher education. With their national reach and extensive expertise in higher education, College Board is the perfect entity for helping students and parents borrow smartly.”

The board did not admit any wrongdoing in the settlement, and its officials said in a prepared statement that they were pleased that the settlement is "forward-looking and focused on how the College Board can best serve students and families as they prepare to finance their college education."

Under the settlement, the board agreed to invest $675,000 to create a set of tools to help students and financial aid officers compare student loan offers, and to provide the tools free for the next two financial aid cycles. The College Board has also agreed to create two student loan calculator tools. One calculator will help students and parents compare offers from different lenders. Under the other, the College Board will create a model "request for proposal" for colleges to use to find student loan providers, and then will let colleges use the information collected through the model RFP to provide "individually tailored advice about the terms available to particular students from particular lenders," the attorneys general said.

"These new services and tools will be especially valuable in the current economic situation, when students and their families are finding college financing increasingly difficult to obtain, loans are becoming more scarce, and families experience financial hardships," the College Board said in its statement.

Career Colleges and Loans

At times alone among higher education officials, administrators at for-profit institutions have been complaining that the student loan credit crunch is serious, and that it was affecting student access to college. Seeking to buttress anecdotes with data, the Career College Association, on the eve of an investment conference about postsecondary education in Washington, said a survey of 90 of its members, representing about 600 campuses, had found that significant numbers of students were having trouble closing the gap between available federal aid and the cost of college.

The association's survey asserts that nearly 70 percent of the responding institutions have seen an increase in the number of "no shows" -- proof, the career college group says, that "the gap in tuition financing has had a noticeable effect on the number of students pursuing postsecondary education."

About three-quarters of the institutions said that their students use private (or "alternative" loans) to close that gap, and that 42 percent use loans they receive from their own colleges, which are increasingly stepping up to try to close the gap. The association's survey found that 12 percent of responding colleges were offering institutional loans to all of their students, and that 45 percent offer such loans only to students who cannot obtain private loans to fill the gap. The size of the institutional loans varies, the association said; "17 percent say the average amount of institutional loan is less than $1,000; 15 percent say it is $1,000 to $2,000; 13 percent say it is $4,000 to $5,000; 6 percent say it is $10,000 or more."

“The private student lending market has almost disappeared, except for an economically elite few, as a result of the global credit crunch," Harris N. Miller, the association's president, said in a statement. "We are pleased to see that, in a time when students are having enormous difficulty obtaining the financing necessary to earn a college degree, our educational institutions are being proactive in ensuring lines of credit continue to flow by using their internal resources. Nontraditional students are particularly hard hit by harsh economic times, and this action on the part of many schools cushions the blow."

No information was available on how the rates of the institutional loans compare to those of private or federal loans.

Worries About Those Who Don't Borrow

While there are significant concerns among many policy makers some college officials about students who need to borrow and can't, or those who borrow too much, the report released Monday by the Institute for Higher Education Policy and Excelenciain Education focuses attention on another group: those who forgo borrowing and maybe shouldn't.

The groups' thesis, in "Student Aversion to Borrowing: Who Borrows and Who Doesn’t," is that by not borrowing, some students may be limiting their college choices in ways that are damaging, and that others may be hurting their chances of completing college. Among the report's findings:

  • In 2003-04, Hispanic and Asian students were less likely to borrow than their white and black counterparts -- 30 percent and 25 percent, compared with 35 and 43 percent, respectively. In addition, immigrants were less likely to borrow than native-born students. That is true even if they have substantial remaining financial need after receiving federal, state, or institutional grants.
  • Borrowing trends to pay for college have changed over time. In 1992–93, only 20 percent of
    all undergraduate students took out a loan, and very similar levels of white (19 percent), Hispanic (18 percent), and Asian students (18 percent) took out loans. In 2003-04, 35 percent of all undergraduate students, 35 percent of White, 30 percent of Hispanics, and 25 percent of
    Asian students took out a loan to pay for college.
  • Over all, students who did not borrow in their first year of college despite remaining need of at least $2,000 (after grants) were somewhat more likely than borrowers to have left college without a degree after three years: 36 percent compared with 31 percent. Non-borrowing Black and Hispanic students with remaining need who started college in 2003-4 were considerably more
    likely than borrowers from the same racial/ethnic groups to have left school without a degree by 2006.

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