President Bush has agreed to sign The College Cost Reduction Act of 2007 despite his initial opposition to it and fear that it will bring far-reaching changes to federal student loan programs.
The legislation was the result of widespread dissatisfaction with the practices adopted by student lenders to acquire more student loan business.
The changes, effective October 1st, include elimination of $22.32 billion in subsidies for for-profit lenders; 50% reduced interest rates on need-based loans; an increase in Pell Grants to $5,400 per year; and loan forgiveness after 10 years for students if they become law enforcement officers, firefighters, nurses, public defenders, librarians, or early childhood teachers.
Some of these changes will result in:
reduction of competition among student lenders
reduction of benefits, such as discounts on fees and interest rates, for student borrowers
reduction of profitability from student loan business
layoffs at student lending organizations
an increase in loan origination fees and late fees
an increase in penal charges and interest on defaulted loans
reduced discounts on loan consolidations
Student lenders that were heavily dependent on federal subsidy will be affected the most. This will force student lenders to find profitable ways to replace the subsidies.
Nonprofit lenders, however, are not under pressure to demonstrate profits to shareholders, and they do not they have to worry about capital flowing out of their student lending businesses. This is because some of them use tax-exempt bonds to finance student loans that will not be affected by the new legislation; thus, their products will remain unchanged in terms of fees and interest rates.
20 Январь 2009 г.
California Students Get Relief, 2007-2008 State Budget Passed
An impasse blocking the approval of the 2007-2008 California state budget that provoked widespread discontentment among students and parents was finally resolved on August 24. Governor Arnold Schwarzenegger approved the state budget after a 52-day deadlock, enabling students to access state grants just as their fall semesters began.
The budget released almost $11 million in grants to San Francisco State University (SFSU) students a few days before they started their classes, providing relief to those who depend on Cal Grants for their housing, textbook, and transportation needs.
For the University of California, the final budget allocated $3.27 billion (reflecting a 6.4% increase in funding from the previous year) for the fiscal year that began July 1.
The standoff resulted because 14 Republican state senators disagreed with parts of the budget and refrained from voting for its passage, preventing it from receiving approval by the required two-thirds majority. Finally, on August 21, Minority Leader Dick Ackerman and Senator Abel Maldonado decided to support the $145 billion budget.
During the standoff, the state controller's office accumulated about 60,000 unpaid claims submitted by hospital, school, and childcare programs. State education officials contend that there was a contingency plan in place to provide funding if the budget's approval was delayed further. Campuses with surplus funds were to provide loans to students that would have been repaid with Cal Grants.
As state legislators have missed the June 30 budget-approval deadline 13 times in the last 20 years, this year's delay did not come as a surprise to many.
The budget released almost $11 million in grants to San Francisco State University (SFSU) students a few days before they started their classes, providing relief to those who depend on Cal Grants for their housing, textbook, and transportation needs.
For the University of California, the final budget allocated $3.27 billion (reflecting a 6.4% increase in funding from the previous year) for the fiscal year that began July 1.
The standoff resulted because 14 Republican state senators disagreed with parts of the budget and refrained from voting for its passage, preventing it from receiving approval by the required two-thirds majority. Finally, on August 21, Minority Leader Dick Ackerman and Senator Abel Maldonado decided to support the $145 billion budget.
During the standoff, the state controller's office accumulated about 60,000 unpaid claims submitted by hospital, school, and childcare programs. State education officials contend that there was a contingency plan in place to provide funding if the budget's approval was delayed further. Campuses with surplus funds were to provide loans to students that would have been repaid with Cal Grants.
As state legislators have missed the June 30 budget-approval deadline 13 times in the last 20 years, this year's delay did not come as a surprise to many.
HEWI Reports Numerous Schools Offer No Choice of Lenders to Students
A large number of colleges and universities participating in the Family Federal Education Loan Program reportedly offer no choice of lenders to their students. According to a document obtained by Higher Education Washington, Inc., (HEWI) from the Department of Education, about 300 (32.5%) of the schools regarding which HEWI received information have 100% of their loan volume with just one lender.
A document containing a list of 921 colleges and universities was handed over to HEWI in response to a federal Freedom of Information Act request. The colleges and universities on the list have at least 80% of their loan volume with one lender.
Nearly 25% of the 291 schools that use only one lender have 100% of their loan volume with Sallie Mae, a major player in the education loan industry.
Based on this document, the Department of Education reminded the schools that they were restricting their borrowers' choice of lenders by using just one lender. Preferential treatment of lenders and their relationships with schools have recently faced state and federal investigations. New York Attorney General Andrew M. Cuomo started the investigations, and similar actions were soon taken by Congressional leaders. This has led to new laws in some states and pending federal legislation that has been passed by both houses but is still awaiting the president's approval.
This new federal legislation is aimed at ensuring that no lender gets preferential treatment from a college or university. The legislation requires lenders and schools to provide more information about loans to parents and students.
In August, U.S. Secretary of Education Margaret Spellings again urged schools, lenders, and guarantors associated with them to regulate themselves and adopt the practices suggested in the provisions of the proposed legislation. She also said she would use the tools available to her, ranging from compliance agreements to loss of federal funding, to check violations.
A document containing a list of 921 colleges and universities was handed over to HEWI in response to a federal Freedom of Information Act request. The colleges and universities on the list have at least 80% of their loan volume with one lender.
Nearly 25% of the 291 schools that use only one lender have 100% of their loan volume with Sallie Mae, a major player in the education loan industry.
Based on this document, the Department of Education reminded the schools that they were restricting their borrowers' choice of lenders by using just one lender. Preferential treatment of lenders and their relationships with schools have recently faced state and federal investigations. New York Attorney General Andrew M. Cuomo started the investigations, and similar actions were soon taken by Congressional leaders. This has led to new laws in some states and pending federal legislation that has been passed by both houses but is still awaiting the president's approval.
This new federal legislation is aimed at ensuring that no lender gets preferential treatment from a college or university. The legislation requires lenders and schools to provide more information about loans to parents and students.
In August, U.S. Secretary of Education Margaret Spellings again urged schools, lenders, and guarantors associated with them to regulate themselves and adopt the practices suggested in the provisions of the proposed legislation. She also said she would use the tools available to her, ranging from compliance agreements to loss of federal funding, to check violations.
The College Board Will No Longer Serve as FFELP Lender
The College Board was founded in 1900 as a not-for-profit association aiming to "connect students to college success and opportunity." Currently, the association includes more than 5,200 schools, colleges, universities, and other higher education institutions. It serves nearly 7 million students and their parents through a range of education-related programs and services. More than 23,000 high schools and 3,500 universities benefit every year from its efforts.
The College Board is a lender for the federal government's Federal Family Education Loan Program (FFELP). It has contracted with Sallie Mae and Citibank to initiate, service, and purchase FFELP student loans. This business formed a very small part of the board's diverse portfolio of programs and services.
However, The College Board will cease to be an FFELP lender and accept new loan applications after October 15, 2007. It will continue to serve its existing borrowers through the 2007-2008 academic year.
The College Board announced that this decision was a consequence of the enactment of new codes and legislation, as these changes have considerably affected its operations as a student lender. Though certain consequences of the new legislation were unintentional, they reportedly limited the ability of The College Board to fulfill its commitments as a membership association while maintaining its role as a student lender.
The College Board stated that the new laws and codes have imposed a host of restrictions on various operations, including the meetings of its member institutions. It added that its membership meetings were an indispensable aspect of the organization and took precedence over participation in the student loan business.
In the best interests of the organization and its members, The College Board announced, it is discontinuing its student loan business. The College Board maintains there are several other ways it can be of service to its members and is exploring an array of alternatives to meet its commitments to students and members.
The College Board is a lender for the federal government's Federal Family Education Loan Program (FFELP). It has contracted with Sallie Mae and Citibank to initiate, service, and purchase FFELP student loans. This business formed a very small part of the board's diverse portfolio of programs and services.
However, The College Board will cease to be an FFELP lender and accept new loan applications after October 15, 2007. It will continue to serve its existing borrowers through the 2007-2008 academic year.
The College Board announced that this decision was a consequence of the enactment of new codes and legislation, as these changes have considerably affected its operations as a student lender. Though certain consequences of the new legislation were unintentional, they reportedly limited the ability of The College Board to fulfill its commitments as a membership association while maintaining its role as a student lender.
The College Board stated that the new laws and codes have imposed a host of restrictions on various operations, including the meetings of its member institutions. It added that its membership meetings were an indispensable aspect of the organization and took precedence over participation in the student loan business.
In the best interests of the organization and its members, The College Board announced, it is discontinuing its student loan business. The College Board maintains there are several other ways it can be of service to its members and is exploring an array of alternatives to meet its commitments to students and members.
Spellings announces $12 million in grants for tribally controlled schools
Nine tribally controlled colleges and universities will receive federal grants worth nearly $12 million. U.S. Secretary of Education Margaret Spellings announced that the grant, provided under Title III of the Higher Education Act, will allow colleges and universities to develop activities to improve and expand their services for students with Native American heritages.
Spellings said, "Tribal colleges and universities provide thousands of students [with] the education foundation they need to be successful in the workforce and in life. They also perform a valuable service by helping to preserve the languages and rich cultural traditions of American Indians."
Schools in Montana, North Dakota, New Mexico, South Dakota, and Wisconsin were chosen for the grant awards totaling $11,982,128. The funds will help strengthen the schools' abilities to assist American Indian students.
The folloing is a breakdown of the grant awards for American Indian tribally controlled colleges and universities for the 2007 fiscal year:
Little Big Horn College in Crow Agency, MT—$1,199,531
Chief Dull Knife College in Lame Deer, MT—$450,000
Navajo Technical College in Crownpoint, NM—$475,000
Institute of American Indian Arts in Santa Fe, NM—$1,499,893
Turtle Mountain Community College in Belcourt, ND—$2,125,000
United Tribes Technical College in Bismarck, ND—$1,952,951
Fort Berthold Community College in New Town, ND—$1,639,753
Oglala Lakota College in Kyle, SD—$1,650,000
Keshena College of Menominee Nation in Keshena, WI—$990,000
Spellings said, "Tribal colleges and universities provide thousands of students [with] the education foundation they need to be successful in the workforce and in life. They also perform a valuable service by helping to preserve the languages and rich cultural traditions of American Indians."
Schools in Montana, North Dakota, New Mexico, South Dakota, and Wisconsin were chosen for the grant awards totaling $11,982,128. The funds will help strengthen the schools' abilities to assist American Indian students.
The folloing is a breakdown of the grant awards for American Indian tribally controlled colleges and universities for the 2007 fiscal year:
Little Big Horn College in Crow Agency, MT—$1,199,531
Chief Dull Knife College in Lame Deer, MT—$450,000
Navajo Technical College in Crownpoint, NM—$475,000
Institute of American Indian Arts in Santa Fe, NM—$1,499,893
Turtle Mountain Community College in Belcourt, ND—$2,125,000
United Tribes Technical College in Bismarck, ND—$1,952,951
Fort Berthold Community College in New Town, ND—$1,639,753
Oglala Lakota College in Kyle, SD—$1,650,000
Keshena College of Menominee Nation in Keshena, WI—$990,000
Scam Artists Targeting College Students Seeking Financial Aid
According to the Better Business Bureau, consumer complaints against loan, grant, and scholarship services increased by 60% in 2006 across the U.S. Steve Cox, spokesperson for the BBB, said, "There are many unscrupulous businesses and outright scams taking advantage of overwhelmed parents who are just trying to put their child through school."
In a report warning parents and college students to avoid financial aid frauds, the BBB reported on the following recent examples:
Financial Aid Seminar Scams
The BBB reported that parents from New York to California have complained that they paid a Utah-based company as much as $1,000 for help finding financial aid only to find the company had vanished. They reported that their college-bound children received an email from "College Money Matters" stating they'd "been accepted" to attend a free financial aid seminar. The BBB report says, "The seminar was essentially a sales pitch, and for a fee, the company would submit the student's Free Application for Federal Student Aid (FAFSA) form and find college scholarships and grants for the student. Victims report they paid $700 to $1,000 and never heard from the company again. Not only did they not receive the promised help for finding grants and scholarships, but many discovered that their child's FAFSA form was never even filed."
College Grant Scams
Students have complained of receiving emails or letters with offers of "Free Grant Money." The emails say the students are qualified for private or government grant money as financial aid for debt relief or to help pay off college bills.
The victim receives his or her "grant" in the form of a check and is instructed to deposit the check and then wire a smaller amount of money back to cover processing fees. Banks usually take weeks to spot the counterfeit checks. Not only do victims have to pay back the money withdrawn on the counterfeit checks, but they also lose the money wired to the scammers.
How to Avoid Scholarship Scams
The BBB says that no one can guarantee a scholarship or a grant. If a student wants to avoid student-aid frauds, he or she should watch out for people who make claims like:
"The scholarship is guaranteed or your money back."
"You cannot get this information anywhere else."
"We will do all the work."
There are no shortcuts to good things, and there are no alternatives to hard work.
In a report warning parents and college students to avoid financial aid frauds, the BBB reported on the following recent examples:
Financial Aid Seminar Scams
The BBB reported that parents from New York to California have complained that they paid a Utah-based company as much as $1,000 for help finding financial aid only to find the company had vanished. They reported that their college-bound children received an email from "College Money Matters" stating they'd "been accepted" to attend a free financial aid seminar. The BBB report says, "The seminar was essentially a sales pitch, and for a fee, the company would submit the student's Free Application for Federal Student Aid (FAFSA) form and find college scholarships and grants for the student. Victims report they paid $700 to $1,000 and never heard from the company again. Not only did they not receive the promised help for finding grants and scholarships, but many discovered that their child's FAFSA form was never even filed."
College Grant Scams
Students have complained of receiving emails or letters with offers of "Free Grant Money." The emails say the students are qualified for private or government grant money as financial aid for debt relief or to help pay off college bills.
The victim receives his or her "grant" in the form of a check and is instructed to deposit the check and then wire a smaller amount of money back to cover processing fees. Banks usually take weeks to spot the counterfeit checks. Not only do victims have to pay back the money withdrawn on the counterfeit checks, but they also lose the money wired to the scammers.
How to Avoid Scholarship Scams
The BBB says that no one can guarantee a scholarship or a grant. If a student wants to avoid student-aid frauds, he or she should watch out for people who make claims like:
"The scholarship is guaranteed or your money back."
"You cannot get this information anywhere else."
"We will do all the work."
There are no shortcuts to good things, and there are no alternatives to hard work.
Spellings Urges Colleges and Lenders to Comply with New Loan Rules
U.S. Secretary of Education Margaret Spellings sent out letters to colleges, universities, lenders, and guarantee agencies that participate in the federal guaranteed student loan program. The letters urge them to work together on the principles of the new regulations that the department proposed in June. However, the regulations, in light of the congressional "sunshine" acts and New York Attorney General Andrew Cuomo's code of conduct, will not be effective until July 2008.
In a conference call with reporters, Spellings stated that the letter urged for:
Full disclosure of information about loans to parents and students and disclosure of criteria used in the selection of preferred lenders
No acceptance any kind of gifts or benefits from lenders in exchange for being included on schools' preferred lenders lists
Lender employees not to identify themselves as school employees. They should not work in higher education institutions' financial aid offices unless the work is done at fair market value
Restriction of access to the National Student Loan Database System (NSLDS) that contains data on 60 million student borrowers
Providing preferred lists only for the best interests of student or parent borrowers
Spellings sent letters to 900 previously identified colleges and universities that have 80% or more of their loans provided by one lender. The letters also went out to those lenders who are sole loan providers for some schools.
Spellings said that the department was currently "monitoring" marketing practices, but it could use tools like compliance agreements, loss of federal funding, and "everything in between" if it found violations by colleges or lenders. She said that the department was waiting for final congressional action on federal student lending and was preparing its own regulations. Spellings said the department would undergo a nationwide search for a new federal student aid chief. Currently, Larry Warder is the acting chief.
The numerous steps taken by Spellings are answers to critics who have blamed her for her laxity toward student lending issues.
In a conference call with reporters, Spellings stated that the letter urged for:
Full disclosure of information about loans to parents and students and disclosure of criteria used in the selection of preferred lenders
No acceptance any kind of gifts or benefits from lenders in exchange for being included on schools' preferred lenders lists
Lender employees not to identify themselves as school employees. They should not work in higher education institutions' financial aid offices unless the work is done at fair market value
Restriction of access to the National Student Loan Database System (NSLDS) that contains data on 60 million student borrowers
Providing preferred lists only for the best interests of student or parent borrowers
Spellings sent letters to 900 previously identified colleges and universities that have 80% or more of their loans provided by one lender. The letters also went out to those lenders who are sole loan providers for some schools.
Spellings said that the department was currently "monitoring" marketing practices, but it could use tools like compliance agreements, loss of federal funding, and "everything in between" if it found violations by colleges or lenders. She said that the department was waiting for final congressional action on federal student lending and was preparing its own regulations. Spellings said the department would undergo a nationwide search for a new federal student aid chief. Currently, Larry Warder is the acting chief.
The numerous steps taken by Spellings are answers to critics who have blamed her for her laxity toward student lending issues.
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