Student Loan Blog

Wyoming’s Largest Student Lender to Stop Making Student Loans

Student Loan Girl — Mon, 02 Nov 2009 15:02:00 GMT

Nonprofit Wyoming Student Loan Corp., the state’s largest student loan lender, has announced that, as of April 1, 2010, it will no longer be issuing any new parent or student loans.

In a statement from president and CEO Phil Van Horn, the company, also known as WyoLoan, said that it will continue to fund any student loans that are already approved for the current 2009–10 academic year and for which all loan proceeds will disburse by March 31, 2010 (WyoLoan announcement of student loan suspension, Oct. 20, 2009).

“WyoLoan is making this announcement at this time so that any student who has applied or who may apply for a loan and for which funds would be released after March 31, 2010, can make other arrangements through their respective school financial aid offices,” the statement reads. “At the present time, we estimate the number of students who will have to resubmit applications to be less than two dozen.”

The company will also continue servicing its current 25,000 customers who already hold student loans, which total $350 million, The Associated Press reported (“WyoLoan to Stop Making Student Loans,” Oct. 30, 2009).

In the lender’s 30-year history, the company website says, WyoLoan has issued over $1 billion in education loans to more than 75,000 students and parents.

Congress Considers the End of the Road for Student Loan Lenders

The company’s decision comes in response to proposed federal legislation moving through Congress that would put an end to the federal student loan program known as FFELP (Federal Family Education Loan Program), which allows private third-party lenders like WyoLoan to issue government-backed student loans.

Currently, the government pays these private FFELP lenders a subsidy for the federal parent and student loans they originate. A second federal student loan program — the Federal Direct Student Loan Program, begun in 1992 — issues federal student loans directly to borrowers through the U.S. Department of Education, with no third-party involvement from a bank or other FFELP lender.

Under the proposed legislation, known as the Student Aid and Fiscal Responsibility Act (H.R. 3221), all federal parent and student loans would become Federal Direct loans, issued directly to borrowers through the government rather than through third-party FFELP lenders — effectively putting most private lenders like WyoLoan out of business.

President Obama has been a vocal backer of the SAFRA bill, maintaining that FFELP subsidies funnel government money to banks and away from students. Supporters claim that the elimination of FFELP subsidies will generate $87 billion in savings to taxpayers over the next decade.

Critics, however, dispute this savings figure and say that the legislation amounts to a government takeover of student loans, stripping students of their right to choose their own lender.

Wyoming’s congressional delegation has come out alongside WyoLoan against the SAFRA bill.

The bill was approved by the House of Representatives on Sept. 17 and now awaits a Senate vote.

Should the measure fail to pass, Van Horn said, WyoLoan will consider lifting the suspension of its student loan program.

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SEC Investigates University of Phoenix Owner, Apollo Group

Student Loan Girl — Thu, 29 Oct 2009 19:03:00 GMT

Apollo Group Inc., the parent company of the University of Phoenix, the largest for-profit college in the country, announced on Tuesday that the Securities and Exchange Commission has launched an “informal inquiry” into the company’s revenue accounting practices.

This new probe, being conducted by the SEC’s enforcement unit, marks the second time this year that the SEC has targeted Apollo’s accounting operations for investigation. In February, the corporate finance division of the SEC also revealed it was reviewing Apollo’s revenue recognition practices.

“The ‘revenue recognition’ issue revolves around how Apollo determines when a student drops out of a class and how much income Apollo can leave on its balance sheet, and for how long,” The Associated Press explains in its reporting on the new SEC inquiry (“Ahead of the Bell: Apollo Shares Sink on SEC Probe,” Oct. 28, 2009).

Nearly 90 percent of Apollo’s income — most of which is generated from student tuition — comes from federal student loans and other government financial aid. Federal student aid accounted for roughly 86 percent of the company’s revenue in the 2009 fiscal year, Bloomberg reports, up from 82 percent in fiscal 2008 and 48 percent in fiscal 2001 (“Apollo Shares Plunge as SEC Starts Accounting Inquiry,” Oct. 28, 2009).

Apollo Defends Accounting Policies

In a conference call with investors on the same day that it released the news of the SEC probe, Apollo defended its accounting practices (webcast of Apollo’s fourth-quarter 2009 earnings conference call, Oct. 27, 2009).

Analysts on the call directed questions toward Apollo’s revenue recognition policies, asking the company about its attendance records and how revenue is booked when a student drops a class.

Apollo responded that it stops recognizing revenue not immediately upon a student’s withdrawal from a course but only once a tuition refund is processed. The company books full tuition revenue for a course if a student attends more than 60 percent of the class sessions. In the case that a refund is delayed for any reason, the company will make the necessary revenue adjustments, Apollo said.

“The policies are straightforward and they are in accordance with GAAP — all of them,” said Apollo’s chief financial officer, Brian Swartz, referring to Generally Accepted Accounting Principles, the standard financial accounting guidelines that publicly traded companies are required to follow.

Analysts: SEC Targeting of More For-Profit Institutions Unlikely

After Apollo’s announcement of the SEC inquiry, the company’s shares plunged nearly 20 percent to their lowest levels in more than 19 months in New York trading.

But blowback from the news of the government’s scrutiny didn’t remain limited to Apollo: Shares of other for-profit education companies traded lower yesterday, the day after Apollo’s announcement, The Wall Street Journal reported, as investors questioned whether the SEC probe into Apollo is a precursor for an industry-wide crackdown (“Education Stocks Drop After Apollo Announces SEC Probe,” Oct. 28, 2009).

“For-profit colleges have come under fire numerous times for their methods of recognizing revenue,” the article in The Wall Street Journal notes.

Perhaps with this history in mind, “some investors have opted to scrutinize the company’s practices on student refunds and bad-debt expense, the implication being that this could be the beginning of an industry-wide review of practices,” a Wedbush Morgan analyst wrote in a note to investors Wednesday.

However, the Wedbush Morgan note went on to caution, “we remind investors that it’s plausible that the issue could equally relate to other parts of the business.”

Trace Urdan, who follows Apollo for the Signal Hill Capital Group, believes a larger regulatory examination into for-profit colleges is something to be taken into consideration. “I think there’s sort of two possibilities,” Urdan told The Arizona Republic. “Either the SEC’s got something on Apollo specifically and they’re moving in, or there’s something related to the industry” (“Apollo in Accounting Investigation,” Oct. 28, 2009).

Other analysts, however, feel the SEC action doesn’t represent anything broader in scope than a check into Apollo itself.

While downgrading their ratings of Apollo, analysts at Morgan Stanley noted there’s no reason to believe the SEC investigation signals a larger industry issue, The Wall Street Journal reported. And in a note to clients, RBC Capital markets analyst Robert Wetenhall asserted that his firm is confident the SEC accounting probe is specific to Apollo.

“We feel that the issues that are affecting Apollo are unique to it and not applicable to the broader sector” of for-profit education companies, Wetenhall said.

Analysts at Deutsche Bank, consulting with financial legal expert David Seide, concurred. In their estimation, the StreetInsider reported, the SEC issue “is probably company-specific, not part of an industry-wide sweep, as the SEC enforcement division focuses on potential violations, not policy” (“Apollo Group Can’t Find Traction After Disclosing SEC Probe,” Oct. 29, 2009).

Seide “did not rule out an industry sweep, but this seems like a lower-probability event.”

A Move Toward Increased Oversight of For-Profit Colleges?

Some market-watchers wonder if the SEC probe of Apollo, while not ushering in a federal swoop-down on for-profit colleges, may still be an indication of significant changes in regulatory attitudes toward these schools looming in the wings of the White House.

In this view, the SEC inquiry may have arisen out of the move toward generally increased consumer financial protections within the new government administration.

“It is no secret to insiders that the Bush-era education team has been favorable to for-profit education,” Citron Research declared, noting that Sally Stroup, the assistant secretary for post-secondary education during the Bush administration and the highest-ranking official overseeing for-profit schools, was a lobbyist for the University of Phoenix for eight years (“Citron Releases the Document That the Apollo Group Does Not Want You or the U.S. Government to See,” Jan. 13, 2009).

Citron has been fiercely critical of what it argues are Apollo’s fraudulent business practices and unethical, strong-arm recruitment tactics (“Citron Exposes Apollo’s Big Dirty Secret,” March 4, 2009).

“Count on the Obama administration to take a fresh, critical look” at Apollo, Citron predicted in January. “As the largest single recipient of student loans in this country, [Apollo] is a for-profit institution whose insiders have sold hundreds of millions of dollars of stock while collecting over 75 percent of their revenue from government-guaranteed loan funds, while delivering an education of questionable value amid a history of unsavory business practices.”

Continuing Legal Embroilments for Apollo

The changed tenor at the White House notwithstanding, specialists in financial circles say the SEC’s investigation into Apollo may never go any further than the current “informal inquiry.”

“We do not believe a formal inquiry or fraud allegations are a foregone conclusion,” Deutsche Bank analysts told the StreetInsider.

In fact, out of the roughly 800 informal investigations initiated each year by the SEC against corporations and individuals, only slightly more than half, about 450, result in formal investigations, the StreetInsider reports. Just 100 result in actions.

At the same time, even if this newly launched SEC review of Apollo’s accounting practices fades away with no further repercussions, corporate observers can’t escape the fact that this latest government probe is adding yet another chapter in a growing string of recent legal troubles for the company:

Sued by employees: In its fourth-quarter and year-end earnings report issued on Tuesday, the same report in which it disclosed the SEC inquiry, Apollo also revealed it took a charge of $80.5 million for the quarter to cover a possible settlement pending in a federal whistleblower suit (“Apollo Group, Inc. Reports Fiscal 2009 Fourth-Quarter and Year-End Results,” Oct. 27, 2009).

The lawsuit, brought in 2003 by two former University of Phoenix enrollment counselors, accuses the University of Phoenix of violating a federal ban that prohibits schools from paying recruiters based on the number of students the recruiter enrolls.

Apollo paid $9.8 million to the U.S. Department of Education in 2004 to settle alleged violations of the same rule, Bloomberg reports.
Sued by shareholders: That same year that Apollo settled with the Education Department for illegal recruiting, Apollo officials, after receiving a scathing report from government regulators on the company’s recruitment practices, decided not to publicly disclose the contents of the government report, out of concern for the potential negative reaction from shareholders.

The decision to hold back this information led to a securities class-action lawsuit from Apollo shareholders, accusing the company of misrepresenting and of failing to disclose “material adverse facts.”

In January 2008, a federal jury unanimously found Apollo guilty of securities fraud for misleading investors, delivering a verdict of $277.5 million, although the judgment was overturned seven months later on appeal.
Sued by students: Apollo has also been taken to court by its students: In December 2008, three former University of Phoenix students filed a federal class-action lawsuit against Apollo and the University of Phoenix, accusing the institutions of improperly denying them the use of federal student loans, in violation of the Higher Education Act.

The students alleged that, when they dropped courses shortly after enrolling, the University of Phoenix returned all of their federal student loan funds to the lenders without the students’ “knowledge or consent,” even though the students had already incurred tuition charges. The school then demanded immediate repayment from the students for the partial tuition owed.

By charging the students directly and not allowing them to use their federal student loans as payment, the complaint stated, the University of Phoenix denied these students the borrower protections and more generous loan repayment terms offered by the federal government.

Returning the students’ federal student loan money was also a “transparent attempt” by the University of Phoenix to unlawfully manipulate its federal student loan default rate, the lawsuit charged, since students who don’t finish their education are at the highest risk of defaulting on their student loans. In this case, the school effectively prevented these high-risk students from defaulting on federal student loans. If the students failed to pay their tuition charges, they would be defaulting on a debt to the school, not to the government — a default that wouldn’t affect the school’s eligibility for federal funds.

Student loan default rates were also the focus of a recent government assessment of for-profit schools. The Government Accountability Office released a report last month critical of the high student loan default rates at for-profit colleges like those run by Apollo (“Proprietary Schools: Stronger Department of Education Oversight Needed to Help Ensure Only Eligible Students Receive Federal Student Aid”).

For-profit schools, the GAO found, exhibited a tendency to admit unqualified students who are more likely than other students to drop out, as well as a pattern of allowing students to remain enrolled despite a lack of academic progress.

On the company’s Tuesday conference call, Apollo’s co-chief executive, Chas Edelstein, assured investors that the company is working to “ensure that only students who have a reasonable chance to succeed enroll in our universities,” as a means of trying to scale down the number of students who default on their student loans.

Apollo’s bad-debt expense — defaulted student loans the company has written off as uncollectable — rose to 4.2 percent in the fourth quarter, up from 3 percent.

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‘Gap Loans’ at For-Profit Colleges Escape Proposed Legislation

Student Loan Girl — Tue, 27 Oct 2009 19:47:00 GMT

While acting last Thursday to approve the creation of a Consumer Financial Protection Agency, which will expand federal oversight of private student loans, a Congressional panel at the same time voted to reject a proposal that would have included school-sponsored “gap loans” under the authority of the new CFPA.

The House Financial Services Committee, in a vote of 39 to 29, approved the Consumer Financial Protection Agency Act of 2009 (H.R. 3126), a centerpiece of the Obama administration’s pursuit to overhaul the nation’s financial regulatory system. The approved legislation would create a new federal agency, the CFPA, which would have the authority to write new consumer protection rules in the arenas of lending and credit, including private student loans (“House Panel Moves to Regulate Private Student Loans,” Oct. 26, 2009).

Gap loans, however, could potentially be exempted from the CFPA’s oversight due to language included in the bill meant to shield small businesses and local merchants that extend credit to their customers. A proposed amendment to the CFPA Act that would have clarified that gap loans are subject to CFPA regulation was narrowly defeated in the House committee by a vote of 35 to 33.

Gap Financing on the Rise at For-Profit Schools

“Gap” student loans — so-called because they’re intended to cover students’ financing gaps, any college costs that aren’t covered by a student’s financial aid (scholarships, grants, federal student loans) — are increasingly being offered by for-profit colleges and vocational schools to boost enrollment as these institutions encounter a swelling influx of unemployed and low-income students looking to return to school to obtain a higher-earning degree, learn a new trade, or acquire additional training for their résumé.

“Because the economic meltdown has made it harder for students to get bank loans, several of these schools are increasingly stepping in, financing degrees in the same way a furniture store or used-car dealer might extend credit to customers,” explains Justin Pope, an education writer for The Associated Press (“For-Profit Colleges’ Increased Lending Prompts Concerns,” Aug. 15, 2009).

For-profit schools, also known as “proprietary” colleges, that provide gap financing, which include national heavyweights ITT Technical Institutes, Corinthian Colleges, and Career Education Corp., say that their financing programs allow students to attend school who wouldn’t otherwise be able to afford a college education.

But these gap financing programs are risky and expensive for students, consumer advocates maintain. Gap loans typically carry high interest rates, sometimes in the double digits, and large monthly payments that the schools’ generally low-income students often aren’t able to handle — all while allowing the schools to reap hundreds of thousands of dollars in federal money from the federal financial aid that students use to pay the bulk of their attendance costs.

“I believe we have an obligation to ensure that these schools are not allowed to continue to prey on students,” said Rep. Maxine Waters, D-Calif., who sponsored the defeated CFPA amendment. “By subjecting these schools to CFPA’s authority, the quality of the student loans these schools provide will improve” (“House Panel Approves Expanded Oversight of Private Student Loans,” The Chronicle of Higher Education, Oct. 22, 2009).

Consumer Groups Push for Regulation of Gap Financing

Consumer and student advocate groups, concerned about the potential for student loans made by proprietary schools to be exempted from the CFPA legislation under the bill’s small-business clause, had been lobbying in support of the Waters-sponsored amendment to explicitly bring gap loans under the authority of the CFPA.

“We just want to make sure that the risky financial products that some colleges, for-profits in particular, have been making to students are still covered by this agency, and not undercut by a well-intentioned suggestion of how to make sure that the neighborhood grocer isn’t unfairly and unduly impacted” by increased regulation, said Lauren Asher, president of The Institute for College Access & Success (“Regulating Private Student Loans,” Inside Higher Ed, Oct. 19, 2009).

Asher and TICAS joined a number of other consumer and student advocacy groups in drafting a letter earlier this month to Rep. Barney Frank, the Democratic chairman of the House Financial Services Committee, urging the committee to clarify that school-sponsored loans wouldn’t be shielded from the CFPA’s reach (letter to Rep. Barney Frank regarding H.R. 3126, Oct. 7, 2009).

“To effectively protect consumers, the CFPA must have full authority to regulate private student loans regardless of the institution offering them,” the groups wrote. “For consumers, a private student loan can pose the same serious risks whether issued by a financial institution or by a school. The CFPA should apply and enforce standards based upon the product and not the issuing institution.”

Gap Loans vs. Gap ‘Financing’: The Non–Student Loan

Proprietary colleges argued against the Waters amendment, saying that gap student loans are already regulated by the federal Truth in Lending Act.

New TILA rules, mandated under last year’s Higher Education Opportunity Act (H.R. 4137) and which will go into effect in February, will require student lenders to disclose more details about their private loan programs, including interest rates and estimated monthly payments, and to inform applicants for private student loans about federal student loan options.

Consumer advocates, however, hold that TILA regulations aren’t sufficient and that the stricter oversight of the CFPA is necessary in order to protect student loan borrowers.

In pushing for the Waters amendment, consumer and student advocacy groups pointed to the move being made by some schools to offer their gap funding under the auspices of “consumer financing” rather than as a student loan program. By structuring their gap funding programs as consumer financing rather than as private student loans, schools are able to skirt the student loan–specific requirements, regulations, and borrower disclosures mandated by the Higher Education Opportunity Act.

“It’s very alarming,” said Deanne Loonin, director of student loan borrower assistance project at the National Consumer Law Center. Schools “can structure the products in all kinds of ways — things like revolving credit lines, unsecured loans, even secured loans. It’s this new thing, and we’re worried about it.”

One for-profit school, Colorado-based Westwood College, is currently defending itself against a class-action lawsuit brought by students accusing the school of fraud in its student financing. The lawsuit charges Westwood with violating state banking laws. Westwood’s student financing program carries a relatively high interest rate of 18 percent, but the school doesn’t call its financing student loans.

The For-Profit Risk

Students at proprietary colleges are particularly vulnerable to the schools’ high-interest loans and financing programs, consumer and student groups say, because of who these students are: lower-income, higher-risk borrowers.

Low-income students, who tend to drop out of college in greater numbers than higher-income students, generally end up struggling to repay their student loans. And for-profit colleges, with their student populations that skew toward lower income levels, on average have lower graduation rates and higher loan default rates than other schools.

In 2007–08, students at proprietary colleges defaulted on their student loans at a rate of 11.1 percent, according to the Department of Education, compared to a default rate of 6.0 percent for students at public nonprofit colleges and universities and a rate of 3.8 percent for students at private nonprofit institutions.

Students at for-profit schools are also taking on increasingly higher debt loads: The percentage of proprietary college students borrowing at least $40,000 nearly tripled to 30 percent between 2003–04 and 2007–08, says Mark Kantrowitz, founder of the financial aid website, FinAid.org. The proportion of proprietary college students taking out private student loans has also come near to tripling, rising to 43 percent from 15 percent in that same time period, according to an analysis of federal data by the nonprofit group Education Sector.

Nonetheless, critics charge, as long as proprietary schools can continue to bring in significant federal funds with each student, the schools have little incentive to refine their lending practices to ensure that students aren’t taking on unmanageable debt.

“Consider, for example, a school charging $10,000, hoping to enroll a student who has lined up $9,000 in aid from the government and elsewhere,” writes Pope. “Even if the school loses half of the $1,000 it lends to get the student in the door, it comes out $9,000 ahead.”

And “for many of these students, if you don’t apply these thousand dollars, they’re not coming to school,” says Jeff Silber, an industry analyst with BMO Capital Markets.

From the school’s perspective, you’re realizing “all those other revenues,” he elaborates, “even if you write off $500 [of that $1,000] right away. … Financially it still makes sense to do this.”

And with last week’s defeat of the CFPA amendment, the stage is set for schools to press on with their gap financing programs, having sidestepped, at least for now, the impending shadow of the CFPA and increased federal oversight.

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House Panel Moves to Regulate Private Student Loans

Student Loan Girl — Mon, 26 Oct 2009 20:23:00 GMT

Voting in support of the creation of a new federal Consumer Financial Protection Agency, a Congressional panel has laid the groundwork for expanded federal oversight of private student loans.

In a vote last Thursday of 39 to 29 that fell largely along party lines, the House Financial Services Committee approved the Consumer Financial Protection Agency Act of 2009 (H.R. 3126), a core component of the Obama administration’s pursuit to overhaul the nation’s financial regulatory system.

Agency Would Protect Consumers From ‘Abusive’ Lending Practices

The approved legislation would create a new federal agency, the CFPA, to replace the current patchwork of regulatory bodies and which would have centralized oversight of various forms of consumer credit, such as mortgages and credit cards, as well as nonfederal private student loans.

The agency would have the authority to write new consumer protection rules in the arenas of lending and credit, to monitor banks and other financial institutions for compliance with these rules, and to penalize institutions for any infractions. The CFPA would also have the ability to ban products, marketing tactics, and other business practices that it deems “unfair, deceptive, or abusive.”

“The Consumer Financial Protection Agency will prevent predatory lending practices and other abuses and will ensure that consumers get clear information they can understand about financial products like credit cards and mortgages,” said President Obama, commending the House committee on its vote in support of the bill (“House Panel Backs Creation of Consumer Financial Protection Agency,” Los Angeles Times, Oct. 23, 2009).

The measure passed despite strong Republican opposition and forceful lobbying from banks and business groups.

“It’s not about protecting consumers; it’s about a new government bureaucracy making decisions for us,” said Rep. Spencer Bachus of Alabama, the ranking Republican on the House Financial Services Committee.

Oversight of Private Student Loans Urged

A broad coalition of student and consumer advocacy groups had been urging the House committee to pass this bill that would bring the CFPA’s oversight to the realm of private student loans — non-federally guaranteed education loans issued by banks and private lenders rather than by the Department of Education — that, until this year, had been steadily attracting more and more borrowers as families struggled to meet rising college costs.

“Private student loans are one of the riskiest ways to pay for college, yet a growing number of students have private student loans as well as, or instead of, federal student loans,” the groups wrote in a recent letter to Rep. Barney Frank, the Democratic chairman of the House Financial Services Committee (letter to Rep. Barney Frank regarding H.R. 3126, Oct. 7, 2009).

“Private student loans are expensive, mostly variable-rate loans that cost more for those who can least afford them,” the letter reads. “They lack the fixed rates, consumer protections and flexible repayment options of federal student loans, and are not financial aid any more than a credit card is when used to pay for textbooks or tuition.”

In addition to creating the CFPA, the approved legislation would grant new powers to the states’ attorneys general to assist in enforcing the agency’s rules and to allow them to write more stringent rules for companies within their own states.

The New York attorney general, Andrew Cuomo, who led a nationwide investigation last year into collusion and deceptive practices in the student loan industry, referred to private student loans as “the Wild West of lending” — and not without reason, says Lauren Asher, president of The Institute for College Access & Success, one of the signatories of the letter to Frank (“Bill to Expand Oversight of Private Loans Advances in Congress,” Chronicle of Higher Education, Oct. 19, 2009). “We hope CFPA will bring more law and order,” Asher said.

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Anticipating a Falloff in Student Loan Defaults

Student Loan Girl — Thu, 22 Oct 2009 19:47:00 GMT

After hitting a new high of $443 million in charge-offs on its student loans this past quarter, major student lender Sallie Mae anticipates a slowdown in these student loan defaults, the company announced during its third-quarter earnings call yesterday (SLM Corp. Q3 Earnings Call Transcript, Oct. 21, 2009).

Although Sallie Mae’s student loan charge-offs — the student loans the company writes off as defaulted and not being repaid — rose to a total of $443 million over the third quarter, up from $355 million in the previous quarter, monthly charge-offs declined month by month through the third quarter itself.

Monthly student loan charge-offs during the third quarter fell from $160 million in July to $129 million in September, and the company sees this trend continuing into 2010 as more borrowers with stronger credit profiles begin to represent a larger portion of Sallie Mae’s student loan portfolio.

In the credit crunch that followed the subprime mortgage implosion, Sallie Mae and other student lenders struggled to find investors willing to buy bundled student loans and take on the risk of student borrowers. As a result, student loan lenders tightened their credit criteria for their private student loans, requiring higher credit scores from borrowers and creditworthy co-signers for student borrowers with low or unestablished credit.

“The credit of the new borrowers is extraordinarily strong,” said Albert Lord, Sallie Mae’s chief executive officer.

Remondi concurred, “The quality of the loans we disbursed in the [third] quarter was very strong,” with an average borrower FICO credit score of 746 and with 88 percent of the loans carrying a co-signer. In 2007, only 54 percent of the company’s private student loans carried a co-signer.

Already, October 2009 charge-offs are projected to be more than $40 million lower than in July, Remondi said.

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Cost of College Continues to Climb, Even in a Recession

Student Loan Girl — Wed, 21 Oct 2009 20:14:00 GMT

Even as the recession has depressed consumer prices and the cost of living has fallen over the last year, college tuition rose in 2009, with the largest percentage increases coming at community colleges and public four-year schools — the mounting expense of an education revealed in the College Board’s latest reports on financial aid and the cost of college, released yesterday (“Trends in Student Aid 2009” and “Trends in College Pricing 2009”).

Squeezed by state budget cuts, public colleges and universities have found themselves forced to raise tuition prices. Tuition and fees at public four-year institutions rose by 6.5 percent for in-state students, to an average of $7,020 in the 2009–10 school year from $6,591 in 2008–09, and by 6.2 percent for out-of-state students, to $18,548 from $17,460.

The rise in community college tuition, to $2,544 this year from $2,372, although only a little shy of $200, represented the sharpest increase percentage-wise, a jump of 7.3 percent.

Costs at private four-year universities also crept upward, although at a slower rate of 4.4 percent, to $26,273 from $25,177.

“Given the financial hardship of the country, it’s simply astonishing that colleges and universities would have this kind of increases,” said Patrick Callan, president of the National Center for Public Policy and Higher Education. “It tells you that higher education is still a seller’s market” (“College Costs Keep Rising, Report Says,” The New York Times, Oct. 20, 2009).

Noting that the high school graduating class of 2009 was the largest in history, Callan went on, “Colleges and universities are capitalizing on that more than any other institution in the economy. If you walk around a shopping mall, nobody else is raising prices at the same rate” (“College: More Expensive Than Ever,” CNN Money, Oct. 20, 2009).

The Impact of Financial Aid

Only about a third of students pay these published “sticker” prices, however, underscored Sandy Baum, a senior policy analyst for the College Board and author of the two reports. Most students’ actual out-of-pocket costs are thousands of dollars lower because they receive some type of financial aid in the form of scholarships, grants, and student loans.

“If you look at net prices students pay, considering the grant aid and tax benefits, students at public two-year institutions are actually paying less, in inflation-adjusted dollars,” Baum pointed out. “Even though the sticker price, adjusting for inflation, is up 20 percent in the past five years, the net price is actually lower than it was five years ago.”

Net prices are also down at both public and private four-year universities.

Student Loans Still on the Rise

This drop in out-of-pocket costs notwithstanding, the gap between families’ available resources and the overall cost of attending college remains on a steady incline. Grant funding hasn’t kept up with the hikes in college costs, leaving students in a position of having to take out ever-larger amounts of money in student loans, particularly in the current economic climate, as more families struggle with unemployment, stagnant wages, and curtailed sources of credit.

“There’s a certain cruelty to a rise in education costs amid an economic slump,” observes Randy James, in a piece for TIME. “It makes the single most effective tool to help the underemployed and jobless out of their rut become all the more unreachable” (“The Incredible Climbing Cost of College,” Oct. 21, 2009).

Total education borrower increased by 5 percent from 2007–08 to 2008–09, the latest year for which student aid data are available. The volume of federal student loans — Stafford loans, Grad PLUS loans, and parent PLUS loans — grew by $14.7 billion last year.

“The level of debt we’re asking people to undertake is unsustainable,” said Callan.

In one bright note for student debt watchdog groups, this surge in federal college loans was accompanied by a sharp decline in nonfederal education loans. Nonfederal private student loans tend to have less flexible repayment terms, typically carry higher interest rates, and are generally more costly than federal student loans.

The volume of private student loans shrunk by half last year, to $11.9 billion.

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The Three-Year College Option

Student Loan Girl — Wed, 19 Aug 2009 20:17:00 GMT

For some students, four years of a college education is simply too much to afford. But by accelerating their college career to reduce the amount of time they spend in the classroom, these student are able to reduce their overall cost of college.

How do they do it?

For many students, the three-year college plan starts in high school. High school students can accumulate college credits by taking and scoring well on Advanced Placement examinations. Generally, the cost of an AP exam is much less than the cost of a college course, and for public school students whose high schools offer AP courses, the cost of instruction is generally free.

Both high school and college students may be able to accumulate college credits by taking classes online. Many colleges and universities are now offering online courses that may be used to fulfill both general education and college major requirements. The added advantage of online courses is that students can take the courses year-round, logging on at their convenience to complete their work or take exams, without having to be on campus.

Summer breaks present students an opportunity to grab a few extra classes at typically lower tuition rates. Summer classes usually take two to three months (half a semester) to complete and can offer the same number of credits toward graduation as a semester-long class.

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Students Could Wave Goodbye to Merit–Based Federal Aid

Student Loan Girl — Thu, 25 Jun 2009 16:41:00 GMT

In another move to restructure the federal financial aid system, President Obama has proposed ending the government’s five-year foray into merit-based student aid and redirecting those financial aid funds to the need-based Pell Grant program, reports The Chronicle of Higher Education (“An Experiment in Merit-Based Student Aid Is Likely to End,” June 26, 2009).

The Academic Competitiveness Grant and the National Science and Mathematics Access to Retain Talent Grant programs were created by Congress in 2006 to encourage students to take academically “rigorous” coursework in high school and then choose college majors in fields with labor shortages.

Only students who are eligible for need-based Pell Grants can qualify for the Academic Competitiveness Grants, which provide $750 and $1,300 to college freshmen and sophomores respectively, and for the SMART grants, which provide $4,000 to college juniors and seniors who major in science, math, and certain foreign languages.

But so far both grant programs have fallen short of their participation projections, due in large part to the Department of Education’s failure to promote the programs, as reported by the department’s own inspector general in 2008.

The other major problem has been the programs’ vague qualification criteria, which has made it difficult for financial aid officers’ to determine award recipients. The American Council on Education, in a 2006 letter to the Department of Education, called the grant program’s guidelines “unworkable” and defined them as placing a “breathtaking administrative burden” on colleges’ financial aid officers.

Obama’s Proposal Receives Support From Education Officials

Education Department officials support the president’s proposal to make the Pell program an entitlement with annual increases tied to inflation and to raise the maximum Pell awards by $200 to $5,500 by the 2010–11 academic year because, they say, the Pell Grant program better serves low-income students than the competitiveness grant programs.

This proposal “would benefit the vast majority of the nearly six million Pell Grant recipients worldwide,” even though the annual increases amount to significantly less funding for the one in 10 students who qualify for the Academic Competitiveness and SMART grants.

Even former Secretary of Education Margaret Spellings, who crafted the merit-based programs under the Bush administration, backs the proposal.

“Do higher education officials and K-12 officials prefer free money with no strings attached? Absolutely,” Spellings said. “But if we’re trying to move the needle, putting resources behind our policy goals is a more powerful and prudent way to go."

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Overhaul of Student Loan System in the Works

Student Loan Girl — Mon, 22 Jun 2009 15:30:00 GMT

A bill to overhaul the student loan industry may reach Congress as early as next week; education-committee chairs are working behind the scenes on a piece of legislation that would eliminate the third-party student loan system called the Federal Family Education Loan Program, The Chronicle of Higher Education reports (“Behind the Scenes, a Student-Loan Overhaul Takes Shape,” June 16, 2009).

Although few details have been released about the proposed legislation, lenders and a large number of Congressmen are hoping the FFEL program won’t end up on the chopping block like President Obama has proposed. Already as many as 13 counterproposals to the elimination of FFELP have begun circulating Congress, including a detailed plan from lending giant Sallie Mae.

It’s not likely, however, that the FFEL program will survive this legislative session, some Congressmen say, considering taxpayers could see as much as $94 billion in savings over the next 10 years if FFELP were eliminated, according to estimates from the Congressional Budget Office.

Obama had originally suggested that these savings, which have been readjusted down to $87 billion, could be used to increase Pell Grants award amounts each year at a rate equal to the Consumer Price Index. It now looks like Congress will, instead, propose that the money be infused into the Pell Grant program to allow appropriators to “continue to set the maximum [Pell Grant] award” so as not to end up capping the maximum award amount.

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FAFSA Discourages Students From Applying for Federal Loans

Student Loan Girl — Wed, 10 Jun 2009 21:10:00 GMT

A large proportion of students who only take out non-federal private student loans to finance their education aren’t applying for federal financial aid at all, and it’s the application itself that may be culprit, a new study suggests (“Nightmare Application May Be Driving Students to Costly Loans,” Forbes, June 9, 2009).

In his study of 250,000 students, Mark Kantrowitz, publisher of FinAid.org, a website that offers information on financial aid and student loans, found that since 1999, among those students who relied exclusively on private student loans, 60 percent of undergraduates and nearly 90 percent of graduate students didn’t complete the FAFSA, the Free Application for Federal Student Aid.

The number of students who only take out private student loans has increased 27 percent over the last 10 years. Between 2007 and 2008, the private loans taken out by students who forwent their federal financial aid options amounted to $6.2 billion — nearly 30 percent of the $22.5 billion in new private student loans originated that year.

Proposed Changes Would Eliminate FAFSA

The study’s findings come at a pivotal time in the FAFSA’s history, as the U.S. Department of Education weighs two proposals to overhaul the federal financial aid application process, one of which would carry out President Obama’s campaign promise to eliminate the FAFSA completely.

The FAFSA — currently the only way for families to apply for federal financial aid for college and graduate school — advertises itself as requiring only one hour to complete. But the six-page application calls for families to provide information about their adjusted gross income, marital status, value of their personal property, and taxable income — hurdles, Kantrowitz says, that “may deter students from applying for federal aid.”

A revamp of the FAFSA or of the application process itself could encourage more students to apply for federal student loans, which are typically less costly than private student loans, generally offering lower, fixed interest rates and more flexible repayment terms.

One proposal being considered would simplify the financial aid application form to require only adjusted gross income figures and tax exemption numbers. The other plan that’s been suggested would eliminate an application form altogether and allow the Internal Revenue Service to pass on information from financial aid applicants’ tax returns directly to the Department of Education.

Kantrowitz says a change in the financial aid application process may, in particular, help students from low-income families. His study found that low-income students have been more likely to end up turning to private student loans, which will generally cost them more than federal college loans would: Students from families who earn less than $50,000 a year accounted for two-thirds of those borrowers who financed their education solely with private loans.

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Students Left Holding the Bag as Loan Forgiveness Programs Vanish

Student Loan Girl — Wed, 03 Jun 2009 22:30:00 GMT

College graduates who were lured into high-need fields, including teaching, nursing, and public service, by programs that would forgive a portion or all of their student loans are receiving this sobering news: The cavalry isn’t coming after all.

These graduates, who in some cases were enticed by the loan forgiveness programs to take out student loans that exceeded their earning potential, are now discovering they’re on the hook for their large debts — and are struggling to pay them — because the state agencies originally offering the loan forgiveness can no longer afford to do so.

“We’d gotten married in June and bought a house, pretty much planned our whole life,” said Travis Gay, a special education teacher in Kentucky (“Recession Imperils Loan Forgiveness Programs ,” The New York Times, May 27, 2009).

Gay and his wife, Stephanie, also a teacher, thought they had a handle on repaying the $100,000 they owed in combined student loans. They were under the impression that a portion of their college loans would be forgiven each year over the next five years under a state program offering loan forgiveness for schoolteachers.

Then the Gays received a letter from the Kentucky Higher Education Student Loan Corporation, the lending agency that offered the program, “saying that our forgiveness this year was next to nothing.”

The student loan agency contends that it never promised the thousands of indebted public school teachers and nurses who have been affected by cuts to the program that their loans would definitely be forgiven. Financing for the loan forgiveness program was never actually guaranteed, says Ted Franzeim, vice president of customer relations for the student loan agency.

And it’s not just Kentucky borrowers who are being hurt by program cuts. Student loan forgiveness programs are on the chopping block throughout the country as the state agencies and nonprofit student loan organizations that sponsor these programs reel from dwindling government aid and strained market conditions.

The New Hampshire Higher Education Loan Corporation, for example, suspended its loan forgiveness program for teachers, and the Pennsylvania Higher Education Assistance Authority has put the brakes on its loan forgiveness program for nurses and people called to active duty in the military.

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NextStudent Tool Helps Students Find Online Education Degree Programs

Student Loan Girl — Sat, 30 May 2009 00:14:00 GMT

Students looking to finish their college degree, start a new career, or increase their earning potential now have a quick and easy way to find the best online education degree program that meets their needs, with NextStudent’s new eLearners college search program.

This free interactive tool allows students to search for online colleges and universities and to browse through thousands of online courses in hundreds of fields including:

Game Design
Criminal Justice
Forensics
Counseling
Education
Web Development
Fashion and Design
Business Management
Public Health
Nursing
Computer Science

NextStudent’s eLearners college search program delivers results at the click of a button and helps students research thousands of higher education options:

Over 6,500 courses
Over 1,700 degree programs
More than 450 certificate and diploma programs
More than 140 accredited online schools

Once students have used the eLearners program to narrow down their list of accredited online colleges and the fields of study they would like to explore, students are put in touch with education advisors at the nation’s top accredited online schools that meet their search criteria.

Online Degree Programs Fit Student Lifestyles

With online degree programs, students are able to decide the “when, where, and how” of getting their degree. Enrolling in an online college is a convenient way for student to get a college degree on their own time and terms.

Students can study and attend classes on their own schedule, participate in class discussions without leaving home, eliminate commutes and scheduling conflicts, and work at their own pace to master subjects that are more difficult.

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Report: High Scorers May Benefit Most From Standardized Test Preparation

Student Loan Girl — Wed, 27 May 2009 20:35:00 GMT

Students who receive above-average scores on standardized college admissions tests, such as the SAT, may benefit the most from commercial test preparation services, according to new report from the National Association for College Admission Counseling, although the benefits of such test preparation may not outweigh the costs for many families (“Test Preparation May Help High Scorers Most, Report Says,” The Chronicle of Higher Education, May 20, 2009).

Research indicates that commercial test preparation services may raise students’ SAT scores by up to 30 points, however the score gains may not be directly attributable to the coaching alone, says author of the NACAC report Derek Briggs, associate professor of education at the University of Colorado at Boulder.

In his report, “Preparation for College Admission Exams,” Briggs suggests that students who don’t use test prep services may still be able to achieve the same range of score increases seen by those students who do use the services just by purchasing a test preparation handbook and taking a series of practice tests.

“If there are effects to be gained through preparation,” Briggs said, “can you get the same effect without spending the money? That’s a pertinent question in this economy.”

Does Test Prep Coaching Improve Admissions Chances?

Of all the colleges Briggs surveyed in his study, only one third said that in some cases an increase of 20 points on the math portion of the SAT or an increase of 10 points on the critical-reading section could “significantly improve” an applicant’s chance of being admitted. This was especially true, the report indicated, at highly selective colleges where applicant scores tend to fall within a narrow range.

“If you come from a wealthy family and have high scores to begin with and can spend $1,000, then test prep might be worth it for those 30 points,” Briggs said. “What’s unfortunate is if middle- class or poorer families think test prep is going to raise their scores by 300 points. If you’re a kid with scores between 400 to 500, I’m not sure it’s going to make any difference.”

Seppy Basili, a vice president at Kaplan Test Prep and Admissions, is concerned what effect Brigg’s findings might have on test takers, especially black and Hispanic students who typically don’t score as high as white students on the SAT.

Basili said, “I wouldn’t want the message to minority students to be that you can’t benefit by preparing.”

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Ohio Schools Prep for No-Cost College Education Program for Vets

Student Loan Girl — Tue, 19 May 2009 22:53:00 GMT

Last summer Ohio Gov. Ted Strickland offered American military veterans worldwide a no-cost education at any of Ohio’s public colleges. The state has just now finished tallying its number of veteran students in preparation for the program’s Aug. 1, 2009 start date, the same day the new GI Bill goes into effect, reports The Columbus Dispatch (“Colleges Put Out Welcome Mat for Vets,” May 13, 2009).

Currently about 10,600 veterans and their family members take classes at Ohio institutions, including about 850 veterans at Ohio State University.

But about 57,000 veterans residing in Ohio who have served in the ongoing Gulf wars will be able to receive benefits under the expanded GI Bill, which covers the cost of in-state tuition at the most expensive public college, a small housing stipend, and $1,000 annually for books.

Veterans may also take advantage of the Ohio GI Promise initiated by Gov. Strickland, which extends in-state benefits, including tuition costs, to out-of-state veterans and their families as part of the state’s effort to eliminate brain drain.

Creators of the Ohio GI Promise program are hoping that the combination of their program with the new GI Bill benefits will attract 230,000 students to the state by 2017.

Programs Expand to Accommodate Anticipated Veteran Enrollment

When the new GI Bill goes into effect this August, Ohio State alone estimates an additional 300 to 400 students will enroll. To accommodate the projected hike in veteran enrollments under the new GI Bill, the school is analyzing what services it currently offers and how its programs can be expanded to meet the needs of these students.

Veterans will be able to participate in counseling, healthcare, and mentoring opportunities as well as attend monthly meetings with other veterans for encouragement and support through Ohio State. The school will offer veterans-only general education classes that facilitate the return of former military members back to civilian life.

Columbus State Community College has also instated a service that puts veterans in touch with counseling, housing, and financial services.

If a large number of veterans choose to remain in Ohio following graduation, Ohio leaders believe that a higher number of skilled workers will repopulate sections of the state that have been depopulated because of military campaigns in the Gulf.

“We see it as a magnet,” said Ohio Board of Regents Chancellor Eric Fingerhut, “to lure veterans to come and build a life in Ohio.”

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$17,000 Obama Scholarship to Be Awarded to 1,600 Arizona Students

Student Loan Girl — Fri, 15 May 2009 21:01:00 GMT

Arizona State University officials have decided to rename the school’s largest financial aid program after President Barack Obama in honor of his commencement address to ASU’s 2009 graduating class, reports The Arizona Republic (“1,600 ASU Freshmen Will Qualify for Obama Scholarship,” May 7, 2009).

Approximately 1,600 incoming ASU freshmen could now qualify for an award under the President Barack Obama Scholars Program, after the school increased the qualifying family income from $25,000 to $60,000. Worth up to $17,000, the need-based scholarship will cover tuition, fees, books, and room and board and will require recipients to take on a work-study job on campus.

The decision to rename the scholarship program came shortly after ASU began receiving negative publicity for not choosing to award President Obama with an honorary degree. ASU President Michael Crow apologized for the stir created by the university’s controversial decision but stood by his adherence to the school’s policy, which doesn’t allow for honorary degrees to be awarded to sitting politicians.

Crow says that the scholars program meets Obama’s goal of allowing more students to attend college. He said, “This is an important commitment on our part to make certain (that) students still have access to the universities.”

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