Higher Ed Watch

A Blog from New America's Higher Education Initiative

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Gainful Employment Data Lets Too Many Poor Performers Off the Hook

  • By
  • Amy Laitinen
June 26, 2012

Today the Department of Education released the first round of its much-anticipated Gainful Employment (GE) data, giving us a peek into how programs and institutions might fare under the new regulations. These rules, which went into effect last year, are meant to address concerns about poor outcomes for students in vocational, career-focused programs that receive federal financial aid. Although institutions in all sectors (public, private, and for-profit) have “gainful employment” programs, GE was widely seen as the Department’s attempt to regulate the for-profit higher-education industry, whose students borrow federal loans and default on them at rates that are far disproportionate to their numbers.

Today’s data are informational only—they don’t result in sanctions for programs or institutions. While the data contains few surprises, they underscore the need for a more systematic approach to holding institutions that receive federal financial aid accountable for a bare minimum of outcomes.  

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A Better ‘Fix’ for Student Loan Borrowers Drowning in Debt

  • By
  • Amy Laitinen
June 21, 2012

As President Obama reminded us yet again in a speech from the White House today, time is quickly running out for Congress to extend the current 3.4 percent interest rates for subsidized Stafford loans. Without action (cue scary music or slow-jam here), interest rates will double to 6.8 percent on July 1st. Members on both sides have lined up to support an extension, and are now fighting over to how to pay for this one-year fix. But this one-year “fix” does nothing to help address the real problems—the skyrocketing costs of college and students drowning in debt.

We’re not likely to see any long-term solutions to rein in college costs in an election year. But as the interest rate debate demonstrates, there is the political will to respond to constituent anxiety about student debt and the specter of a lifetime of indentured servitude. Rather than focus on an expensive, one-year solution that will only affect a small portion of new loans and borrowers, why not do something that could help the most distressed borrowers now? Congress should allow private student loan debt to be treated like it used to be—like most other consumer loans and dischargeable in bankruptcy.

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An Unsettling Settlement in Class Action Lawsuit Challenging Sallie Mae's Subprime Lending Practices

  • By
  • Stephen Burd
June 19, 2012

Did Sallie Mae officials engage in an elaborate scheme to hide the rapidly deteriorating state of the company’s private student loan portfolio from Wall Street at a time when they were trying to complete a buy-out deal that would have brought them great riches? Were they systematically pushing subprime private loan borrowers at for-profit colleges into forbearance to mask the amount of risk they were taking on by making such high-cost loans to this vulnerable group of borrowers?

Unfortunately, we’ll probably never know the answers to these questions, which are at the center of a class action lawsuit that a group of investors have brought against the company (click here for part 1 of the suit and here for part 2). That’s because a federal district court judge in Manhattan – William H. Pauley of the Federal District Court in Southern New York – has preliminarily approved a $35 million settlement agreement between the parties that would not require Sallie Mae to admit to any wrongdoing. A final ruling on the settlement is expected in August.

While the shareholders will make out well from this deal, the real victims of Sallie Mae’s apparent scheme – the low-income and working-class students who never should have been steered to these risky loans in the first place – will not even get the satisfaction of seeing this case get its day in court. Sallie Mae will essentially get off scot-free ($35 million is hardly even a wrist slap for a company that holds nearly $140 billion of federally guaranteed student loans), many of these borrowers will be stuck with this debt hanging over them for the rest of their lives.

At a time when there is so much concern about a potential student debt bubble, the allegations made in this lawsuit should be getting more attention. With that in mind, I am re-posting a piece I wrote for Higher Ed Watch in October 2010 that lays out the investors’ case and shows why it is so regrettable that the questions posed at the top of this post may never be answered.

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Senate Appropriations Subcommittee Nearly Solves the 2014 Pell Grant Funding Cliff

  • By
  • Jason Delisle
June 19, 2012

Last week a subcommittee in the Senate passed an appropriations bill to fund nearly all federal education programs for fiscal year 2013, which starts October 1, 2012. That isn’t big news because the details of a final bill that would be viable in both the House and Senate are contingent on some major roadblocks: It’s an election year; the Labor, Health & Human Services, and Education Appropriations bill is the most contentious funding bill; automatic, across-the-board spending cuts loom in January; and so on. The bill is even less newsworthy because the Pell Grant program is temporarily on sound financial footing and no year-end funding crisis is in play as in past years. That’s why many might miss that the Senate bill solves next year’s Pell Grant funding crisis—well, just about.

To read the full post, visit Ed Money Watch.

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What Borrowers Don’t Understand About Student Loans May Hurt Them

  • By
  • Rachel Fishman
June 18, 2012

In March, the Consumer Financial Protection Bureau (CFPB) began collecting public comments in order to understand the problems borrowers face with their private student loans. Last week, the CFPB released the nearly 2000 responses it received. One thing is glaringly obvious: the bureau has its work cut out for it. Too many students are making bad borrowing decisions because they don’t understand their options and are confused about the terms and conditions of their loans, or even whether their loans are federal or private.

For example, one borrower wrote:

I am the first person in my family to go to college. My parents didn’t graduate high school. We had no idea how to approach college. FAFSA was no help. It was stressful to fill out… I got a few government loans but I was forced to turn to Sallie Mae for the bulk of tuition. I simply cannot pay all these loans.

Applying for financial aid is complicated and confusing, particularly for first-generation students who often must navigate this process on their own. Did this borrower exhaust all of his or her federal student aid eligibility before taking on riskier private loans? We don’t know. But this example shows that without good counseling borrowers may choose private loans instead of federal, over-borrow, and potentially default.

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A Pyrrhic Victory for Career College Lobbyists

  • By
  • Stephen Burd
June 13, 2012

Last week’s federal appeals court decision in a case challenging several of the Department of Education’s new program integrity rules was not as favorable to the for-profit higher education industry as some have reported. While the three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit ordered the Education Department to make changes to the rules, it upheld the regulations overall and rejected the central argument for-profit college lobbyists made in their lawsuit: that the Education Department acted “arbitrarily and capriciously” in forging new rules aimed at preventing unscrupulous schools from taking advantage of financially needy students.

The ruling came in a lawsuit that the Association for Private Sector Colleges and Universities (APSCU) filed early last year to get the court to strike down several regulations that the Obama administration enacted in July to rein in the industry. The rules in question eliminated the “safe harbors” that Bush administration officials put in place in 2002 to help for-profit schools skirt a long-standing federal law that prohibits colleges from compensating recruiters based on their success in enrolling students; bolstered the role that states play in preventing fraud, waste, and abuse in the federal student aid programs; and strengthened Department rules barring colleges from providing misleading information to prospective students and others about their programs.

In its suit, APSCU (which was formerly and more appropriately known as the Career College Association) portrayed its members as being innocent victims of an administration on a crusade against their institutions for no apparent reason. In this alternate reality, the abuses that the Department’s leaders sought to address were nothing more than figments of their imagination. “The final regulations are not the product of a reasoned decision-making process,” the career college group wrote in its initial complaint. “Their adoption dramatically affects private sector schools and their students, yet they are unsupported by factual evidence or logical reasoning.” The Department’s decision to overturn “the safe harbors,” for example, was not “a real solution to a real problem,” the group stated in a later filing.

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Student Loan Proposal Means Low Interest Rates Now, Cost Savings Later

  • By
  • Jason Delisle
June 12, 2012

Last week Senators Coburn (R-OK) and Burr (R-NC) introduced a bill that would replace the arbitrary interest rates on newly-issued federal student loans with rates linked to 10-year U.S. Treasury notes, plus 3.0 percentage points. Our sister blog, Ed Money Watch, explained in an earlier post how the proposed policy would make interest rates on student loans more responsive to changes in the market and allows student loans to reflect today’s low interest rate environment.  Fixed rates on all loans issued this coming school year would be about 4.75 percent. What’s more, the proposal is budget neutral in the long run, even under the Congressional Budget Office’s most recent estimate—but there is a catch.

To read the full post, visit Ed Money Watch.

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A New Chapter for Higher Ed Watch

  • By
  • Stephen Burd
June 11, 2012

Dear Higher Ed Watch readers,

I am happy to report that I have returned to New America and Higher Ed Watch. Last November I left New America and joined the extraordinary think tank Education Sector. It was a tremendous opportunity and experience, but my one regret was leaving the blog behind.

After all, when I arrived at New America in 2007, Higher Ed Watch was just getting off the ground. Over the years, our reporting, analysis, and commentary helped spur policymakers to overhaul the federal student loan programs, take positive steps to protect the most vulnerable students from predatory lenders and schools, and investigate widespread abuses in the for-profit higher education sector.

So I am very excited to get Higher Ed Watch up and running again. But I am even more excited to have a fantastic group of colleagues working with me on this endeavor.

Starting this week, our regular contributors will include Education Policy Program director Kevin Carey, deputy director for higher education Amy Laitinen, education policy analyst Rachel Fishman, federal education budget expert Jason Delisle, and, of course, myself. Our new contributors bring a tremendous amount of expertise in the areas our readers care most about – such as college access and completion, accountability, and affordability. The diversity of voices should enrich and enliven Higher Ed Watch, and greatly expand the range of issues the blog covers. Plus, anyone who has followed Kevin’s writings in the Quick & the Ed, The Chronicle of Higher Education, The New Republic, and elsewhere know how excited we are to have him writing for the blog.

This is an exciting new chapter for Higher Ed Watch. We hope you will join us for the ride.

Romney’s Tortured Logic On Reinstating the Guaranteed Student Loan Program

  • By
  • Jason Delisle
May 29, 2012

This was originally posted on Higher Ed Watch's sister blog, Ed Money Watch.

Last week, Mitt Romney’s campaign released a document outlining the candidate’s proposed education policies. Student loans are still making headlines, and Congress remains deadlocked over a one-year extension of the 3.4 percent interest rate on some loans, so readers were no doubt eager to see what the Republican presidential candidate has in mind for the federal student loan program. Front and center is a proposal to reinstate guarantees and subsidies to private lenders making federal student loans, or as the document reads, “Reverse President Obama’s nationalization of the student loan market and welcome private sector participation in providing information, financing, and the education itself.”

The “nationalization” to which the paper refers is the 2010 law that Congress passed to terminate the portion of the federal student loan program administered by private lenders, the Federal Family Education Loan Program (FFEL), and replace it with an expansion of the existing direct loan program. Both programs were required by law to provide the same loans to students (Stafford loans, Parent PLUS loans, etc.), but the FFEL program had higher costs because it paid subsidies and fees to lenders and guarantee agencies.

So why bring back the old system of delivering federal student loans that Congress replaced in 2010 with a full conversion to direct lending? The Romney campaign makes the case with tortured logic, utter contradictions, and an embarrassing misunderstanding that taxpayers aren’t on the hook for federal loan guarantees.

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Helping Students Understand the Cost of College

  • By
  • Rachel Fishman
May 24, 2012

This post originally appeared in The Quick and the Ed.

For many students, the excitement of opening an acceptance letter is quickly overshadowed with anxiety over how to pay for their education.  Colleges try to allay the concerns of students and their families with another letter, one that details the student’s financial aid award. This letter explains the financial aid students will receive and shows how much they will be expected to pay upfront—their overall “net price.” Unfortunately, because each institution creates its own letter, it is nearly impossible for students to understand how much they will owe and to compare packages among institutions. Today, Senator Al Franken (D-Minn.) introduced bipartisan legislation that seeks to end the confusing nature of these letters by requiring all institutions to adopt one standard letter.

Current financial aid award letters make it difficult for all but the savviest of students to figure out their financial aid. Fundamental questions like “How much will I owe when I graduate?” and “What will my monthly payments be?” are seemingly hidden, often making the college look like a better deal than it actually is. Many schools package scholarships, grants, work study, and loans all together yielding one seemingly gigantic “award,” even though students will have to pay the loans back. Some letters are riddled with jargon and acronyms, making it almost impossible for students to understand whether the aid is a loan or a grant. Here are just a few examples (including my own award letter) that illustrate just how confusing these letters can be:

Model letter from Georgia Tech Financial Aid Office

Model letter from the University of Texas-Pan American Financial Aid Office

Actual letter from Harvard Graduate School of Education

Franken’s “Understanding the True Cost of College Act” would require institutions to use the same letter—one developed by the Department of Education, in consultation with other federal agencies like the Consumer Financial Protection Bureau (CFPB). The legislation would require a number of seemingly common-sense measures to help give students and parents the information they need to make informed decisions about paying for college.  The letter must clearly illustrate the full cost of attendance and a calculation of a student’s net price after accounting for grant and scholarship aid. Loans would be kept separate from grants and scholarships. Private loans would be kept separate from federal loans. Institutions would be prevented from using jargon and acronyms. And the letter would also include estimated monthly loan payments on the ten-year standard repayment plan.

CFPB has already been working on a mock-up of such a letter. Compare this with the letters above:

While this mockup doesn’t include all the elements of the legislation and still needs to be field tested, it’s clearly a move in the right direction. College is a serious and (seriously) complicated investment for students and their families. Current financial aid letters at their best are puzzling, but at their worst are downright misleading. At the very least, students should be able to understand exactly how much they will need to take out in loans and what that means for repayment. Thanks to Senator Franken and the co-sponsors of this bill, we are one step closer to helping all students understand the true cost of college.

 

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