Loan programs

Admissions officers on front lines of law school crisis

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In light of criticism about job placement and student debt in legal education, admissions officers discuss transparency in law school admissions.

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.

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