Higher Ed Watch

A Blog from New America's Higher Education Initiative

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Did Congress Cut Interest Rates on the Wrong Student Loans?

  • By
  • Jason Delisle
June 29, 2012

Congress and the president are about to get an earful from angry college students and parents. Lawmakers just cut the interest rate on the wrong type of federal student loans. At least, that’s one take on a new Congressional Budget Office (CBO) report.

The CBO announced yesterday that most federal student loans made this coming school year will charge interest rates high enough to earn the government a profit. The only exception: Subsidized Stafford loans for undergraduates. Those loans still provide enough benefits to borrowers to show a cost to the government – and that was before Congress and the president agreed to cut the interest rate on those loans to 3.4 percent for another year.

To read the full post, visit Ed Money Watch.

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Grappling with Higher Education's Gordian Knot

  • By
  • Kevin Carey
June 28, 2012

Earlier this year I had a chance to spend some time in San Francisco and Silicon Valley, talking to a host of venture capitalists and ed tech startup companies about the recent surge of investment and entrepreneurialism in the education sector. It was fascinating and, coming from the traditionally-minded, government-focused world of Washington, DC, a lot like visiting a foreign country.

So it was fun to see many of the same people again last month, this time closer to home, on the top floor of Microstrategy’s semi-circular glass headquarters in Tyson’s Corner, Virginia. The meeting was co-hosted by Michael Saylor and former Lotus 1-2-3 CEO and current investor/philanthropist Mitch Kapor. One of the featured guests was Aneesh Chopra, the charismatic former Chief Technology Officer for the United States of America and rumored candidate for the Lieutenant Governor of Virginia who was once described by Jon Stewart during a Daily Show broadcast as the “Indian George Clooney.” 

My friend Michael Staton was there, representing the college social networking and student engagement company he founded, Inigral. So were the guys from New Charter University, a recently-launched low-cost online university startup, and Eren Baldi from the online learning platform Udemy, along with a collection of tech people, for-profit college executives, and Obama administration representatives. 

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Student Loan Interest Rate Fix Raises Questions

  • By
  • Jason Delisle
June 28, 2012

Congress appears set to pass a bill tomorrow that allows certain undergraduate students to borrow up to $5,500 for the coming school year at a fixed interest rate of 3.4 percent instead of 6.8 percent. The president spent months making the case for the one-year, low-rate extension, and Congress spent almost as much time debating how to pay for it. The whole episode raises a lot of questions that students, reporters and policymakers should have been asking all along.

To read the full post, visit Ed Money Watch.

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Don’t be Fooled—The Model Financial Aid Letter is Not Redundant

  • By
  • Rachel Fishman
June 27, 2012
Model Aid Letters

According to R. Barbara Gitenstein, president of the College of New Jersey, the model financial aid award letter will not solve the college affordability problem. She’s right. It also won’t solve global warming or cure cancer since that’s not its intention either. The purpose of the model aid letter is not to rein in college costs, but to provide students with something they desperately need—clear, comparable information about their personal financial aid offers.

In an opinion piece published by both The Huffington Post and Inside Higher Ed, Gitenstein’s main argument for why a model aid letter isn’t necessary hinges on her belief that it is too similar to existing voluntary efforts:

I think we can all agree that colleges and universities should be open and honest with prospective students about the actual cost of attaining a degree, not just enrolling for a year. Providing information that allows for simple, accurate comparison of institutions is a worthwhile goal, but I believe that adding a few data points to [the Voluntary System of Accountability's (VSA) College Portrait] would be a better strategy than implementing the [model aid letter].

The VSA’s College Portrait, which was developed by a consortium of four-year, public universities, can be a helpful resource to students and families. However, as the name suggests, it is voluntary. This is a huge problem—of the more than 6,600 Title IV institutions in America, only 300 are represented in the VSA’s database. If everyone could “agree that colleges and universities should be open and honest with prospective students” regarding college costs, then the voluntary resource would include 100 percent—not five percent—of institutions. 

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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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