When Grants Turn to Loans

Nearly all teachers who receive a federal grant aimed to steer instructors to high-need schools expect to meet the eligibility requirements for the program. But a Department of Education study released this month finds that 63 percent of TEACH Grant recipients who began their teaching service prior to July 2014 saw their grant convert to an unsubsidized loan after they failed to maintain eligibility.

That means those teachers can be on the hook for up to $4,000 in loans -- not counting interest -- for each year they received the grant.

The findings emerge as the department prepares to carry out an eligibility fix for borrowers who expected to qualify for the Public Service Loan Forgiveness program. The developments in both programs point to the challenges involved in complex benefit programs that promise full relief from any loan obligations years down the line.

Among the conclusions by the department, the report finds that recipients most often failed to meet grant requirements because of job-related factors, such as teaching in a field that did not qualify, or were tripped up by process issues such as annual recertification. It also found that institutions have often used the grant as a means to meet students' need for financial aid rather than the objective of the program.

The TEACH Grant is available to undergraduate and graduate students who agree to teach in a high-need field at an elementary or secondary school serving low-income students for four out of eight years after graduating. They must also submit recertification documents for the program annually.

Some teachers who had grants converted into loans told NPR, which first covered the report, that they had made career and life decisions based on their participation in the program. Some said they had maintained eligibility requirements but were penalized because of recertification paperwork that their servicer said did not arrive on time.

Tamara Hiler, a senior policy adviser at the center-left think tank Third Way, who has studied the teacher benefit for years, said not a single one of the department’s findings would be surprising to observers who had followed the program since it was introduced.

“There needs to be a conversation about the sustainability of the TEACH Grant program in general and if we think this is the best use of funds or if this is really the best recruiting tool to get teachers into the low-income schools and high-need fields that we want them to enter,” she said.

The challenges for grant recipients were also entirely expected. When the grant program was introduced in 2008, many colleges identified as a fundamental flaw the possibility that the grant could convert to a sizable loan if the recipient does not teach the right kind of subject at the right kind of school for the right number of years.

And a 2015 Government Accountability Office report had previously found that large numbers of grant recipients weren’t meeting grant requirements.

Analysis of the program indicate potential design problems with the TEACH Grant. But the Education Department report also points to failures by entities involved in administering the program.

Some of the blame for all that unexpected loan debt could also be laid at the doors of colleges themselves, the department’s report indicates. Among its key findings, the report finds institutions are more likely to use TEACH Grants to make a degree more affordable than they are to steer graduates into high-need fields at high-need schools.

That suggests that some colleges are using the program to fill gaps in financial aid, rather than for its intended purpose. And they’re able to do so by packaging the aid as a grant. If the TEACH Grants were counted against annual federal loan limits, however, 42 percent of students would have exceeded that limit in the 2013-14 academic year, the report found.

The biggest recipient of TEACH Grant funding in the first quarter of this academic year was Grand Canyon University, a Phoenix-based private for-profit, followed closely by Arizona State University and Northern Arizona University, according to data from the Office of Federal Student Aid.

Grand Canyon spokesman Bob Romantic said the university worked with the department during the completion of the report and monitors its results for the TEACH Grant closely. Between the 2009-10 and 2014-15 academic years, 55 percent of grant recipients at the university had their grants convert to loans, he said -- slightly better than the national average in the report. 

"GCU counselors go through an interview process with all prospective students to get to know them and find out what career path they are interested in and what they want to teach," Romantic said via email. "Based on that feedback, the counselor will determine if the student’s areas of interest are a good fit for the TEACH Grant requirements. We do everything we can to ensure that students are getting that grant for the right reasons, but in the end it is a federal grant and we can’t deny a student who decides to apply for it."

Loan servicers have come in for blame, too, for problems encountered by students who received the grant. Massachusetts attorney general Maura Healey in August sued FedLoan Servicing, the entity responsible for handling loan accounts for both programs, arguing that the company's failures in administering the TEACH Grant and Public Service Loan Forgiveness had endangered the progress of borrowers and teachers in getting full eligibility for those programs.

Kim Dancy, a policy analyst with the education policy program at New America, said the department could do more to hold servicers accountable and to monitor the quality of the colleges receiving the grant funds.

“It seems like they’re not going far enough to make sure that they’re fulfilling promises they’re making to these students,” she said. “That’s both disappointing on a moral level but also undermines the incentive structures of the program.”

A senior official at the Office of Federal Student Aid said in a statement that the high grant-to-loan conversion rate found in the report is concerning and the department needs to do more to understand why so many recipients are not meeting eligibility criteria.

“The study points to additional changes the department can make that may benefit program participants, and we are committed to reviewing them,” the official said.

After that 2015 GAO report, the department took steps, including an assessment of factors preventing grant recipients from meeting eligibility requirements and the creation of a new process for reviewing complaints from TEACH grant recipients, and shared new criteria with the servicer, FedLoan, for evaluating the merits of returning loans to grant status.

If a grant recipient believes their grant was improperly converted to a loan and does not receive a satisfactory response from the servicer, the department also encourages them to contact the Federal Student Aid ombudsman.

A lawsuit filed Wednesday by Public Citizen argues that the department has failed to turn over records that would shed light on challenges with the TEACH Grant program.

“Now more than ever, the public needs to know the full extent of the long-standing problems with the TEACH Grant program,” said Julie Murray, an attorney with the group.

The department said it does not comment on active litigation.

There are some common themes between the obstacles faced by grant recipients and borrowers who hope to qualify for the Public Service Loan Forgiveness program, which has received increasing scrutiny both for growing cost estimates and for the eligibility issues encountered by borrowers who expected to receive that benefit. Both programs reward recipients for public service employment but deliver fully on that promise years down the line and can present numerous bureaucratic hurdles to meeting full eligibility.

A plan from House Republican lawmakers to reauthorize the Higher Education Act proposed eliminating PSLF while grandfathering in current borrowers working toward eligibility. But that legislation hasn’t advanced since it was voted out of committee last year. And last week, Congress as part of an omnibus spending bill approved $350 million in additional funds to provide loan forgiveness for borrowers who expected to qualify but were placed in the wrong repayment plan by their servicer.

Bipartisan legislation introduced in the last Congress would overhaul teacher programs in a manner that streamlines benefits available to instructors in high-need areas. A bill co-sponsored by Senator Orrin Hatch, a Utah Republican, and Senator Mark Warner, a Virginia Democrat, would combine the TEACH Grant and several existing loan forgiveness programs. Representative Derek Kilmer, a Washington Democrat, and Representative Susan Brooks, an Indiana Democrat, have sponsored identical legislation in the House.

Hiler, of Third Way, said the new findings on the grant program should provide an impetus not only for more effective management, but also a fundamental reconsideration of how the federal government provides public service benefits to students.

“I think everyone agrees we need some kind of simplification of a lot of this system,” Hiler said. “But we want to make sure we’re not doing so at the expense of the kind of equity we want to see.”