college affordability

House Hearing Shines Light on Student Bankruptcy Injustice

Armand Biroonak — Sat, 26 Sep 2009 07:53:42 -0700

Earlier this week the House held a hearing on private student loans and bankruptcy, shedding light for the first time on a rather unknown yet devastating aspect of student debt.

Did you know that because of legislation dating back to 1976 under the Higher Education Act private student loans are unable to be discharged through bankruptcy? In other words, feel free to run up the credit card and splurge, but take out loans to pay for education? That’s just reckless.

The number of students taking out private (or nonfederal) student loans has increased significantly over the past decade. Private student loans now make up nearly a quarter of the overall market, compared to just ten years ago when they made up a small fraction. This spike is not only due to skyrocketing tuition –the average four-year tuition has increased 30 percent from a decade ago –but also because of the complexity of the financial aid process that leaves many students vulnerable to take out the worst of loans. In fact, many students turn to private loans before even exhausting available federal aid and loan options.

Source: College Board

Meanwhile, private lenders capitalize on this confusion, even at times in cahoots with universities, preying on young adults, steering them towards more risky loans.

These loans pawned on students by private lenders are often downright predatory, offering little consumer protections. Private loan interest rates are normally variable, with average interest rates running between 9 and 13 percent, nearly double that of federal loans. On top of that, the flexibility of repayment for private loans are much less pliant, in almost all cases a missed monthly payment results in an automatic interest rate hike of 2 percent, with additional fines and fees to punish borrowers.

And you can imagine that with the toughest job market in decades, coupled with staggering student debt averaging $23,000, students are finding they can no longer keep up with repayment. But unlike federal loans, private lenders do not have to offer flexible payment plans or a forbearance option to struggling borrowers. Why should lenders? When they can maintain hefty profits.

While in truly tough times, students needing to discharge their private loans in bankruptcy are forbidden to. In other words, if you face chronic unemployment, a medical emergency or even die –tough luck, student loan debt will continue to be an albatross.

Congress though may finally be addressing this injustice. This week’s hearing was the first time the issue has been addressed since written into law in 1976! Rep. Steve Cohen (D-TN) announced he will soon file legislation to give private student loan borrowers more equitable treatment during the bankruptcy process. And in another good sign, House Chairman of Education and Labor Committee, Rep. George Miller is on board as well, stating, "There’s no justifiable reason that the lenders who provide them should be treated any differently than credit card companies, auto finance companies, utility providers, and other creditors.”

Students Over Banks...Pass SAFRA!

Armand Biroonak — Wed, 16 Sep 2009 08:35:56 -0700

The Student Aid and Fiscal Responsibility Act (SAFRA) is expected to be introduced in the House today. A historic bill, it will invest billions in student aid and higher education, while ending subsidies to banks (See Bob Brandon’s post outlining the bill here). But private lenders are determined to keep their profits by killing the bill, thus denying students the aid they need. So contact Congress to pass H.R. 3221, placing Students over Banks!

The Federal Family Education Loan program (FFEL) was established by the federal government over thirty years ago to encourage (via subsidies) private lending in the once small student loan market. Fast-forward to today, SAFRA aims to end costly subsidies in a sector that has matured, offering all loans under Federal Direct Lending.

Worried about profits, America’s Student Loan Providers have come out against the bill,

“The student loan program changes are not only misguided, but inconsistent with consumer choice and competition. By having the government take over all federal student loan originations, it would involve one of the largest expansions of a government program in recent memory. Within a decade the Federal Direct Loan Program would be a trillion dollar operation, making it one of the biggest banks in the world. It would ultimately have responsibility for tens of millions of borrowers.”

Where to begin with the lies? First, all lenders of FFEL are required to lend at interest rates determined by the government –competition therefore does not exist because banks can’t set any terms. Secondly, the government already is responsible for all loans and borrowers. Banks lend nearly risk-free under FFEL, with the government guaranteeing them a rate of return and covering borrower defaults. In fact, the federal tab picking up defaults is an estimated $9 billion this year alone. Lastly, a switch to Direct Lending does not balloon the costs to the government –it’s the opposite. Ending FFEL will save the government $87 billion over the next decade by ending subsidies, with SAFRA paying down the deficit by $10 billion.

Even the loan industry’s last-ditch proposal to service government loans under Direct Lending proves nonsensical. The latest CBO confirms the past week that private servicing will cost $17 billion MORE than a complete switch to Direct Lending.

Republicans of course are looking to maintain the status quo for their banker friends. The top House Republican on the Education and Labor Committee, Rep. John Kline (R-MN), warned in an op-ed Monday,

“It’s time to hit the brakes. Rather than frantically rushing to enact a proposal before the costs and consequences are fully understood, Democrats should join Republicans in our plan to commission a comprehensive study about the future of student lending. We can extend a program that works today — in the process, putting billions toward deficit reduction — while finding a long-term solution that will benefit students, schools and taxpayers alike.”

I’d say students have waited long enough for critical investments in student aid and higher education; that is why passing SAFRA is so important. The choice could not be any clearer, but watch as the bank lobby and their supporters in Congress move against the bill. Make your voice heard now, call your House representative and tell them to support H.R. 3221, placing Students over Banks!

HUGE Boost For Students On the Way?

Armand Biroonak — Thu, 16 Jul 2009 21:21:21 -0700

Debt saddled students may finally get the help they need to pay for college. The Student Aid and Fiscal Responsibility Act – if passed by Congress – provides the largest post-secondary reinvestment in decades. Following the commitment outlined by Obama earlier this year, Congress is now taking the lead, showing that quality, affordable college education is critical to move the country forward.

Below is the boost to student aid outlined by the legislation:

• Investing $40 billion to increase the maximum annual Pell Grant scholarship to $5,550 in 2010 and to $6,900 by 2019. Starting in 2010, the scholarship will be linked to match rising costs-of-living by indexing it to the Consumer Price Index plus 1 percent;

• Investing $3 billion to bolster college access and completion support programs for students;

• Strengthening the Perkins Loan program, a campus-based program that provides low-cost federal loans to students;

• Keeping interest rates low on need-based – or subsidized – federal student loans by making the interest rates on these loans variable beginning in 2012. These interest rates are currently set to jump from 3.4 percent to 6.8 percent in 2012;

• Making it easier for families to apply for financial aid by simplifying the FAFSA form;

Additionally, the bill invests $10 billion in community colleges, off the heels of Obama’s recently announced American Graduation Initiative that looks to add 5 million more graduates over the next decade.
This is a significant step, recognizing community colleges as an integral part to post-secondary education.

But the most transformational provision is an end to the billions in subsidies received by private lenders under the Federal Family Education Loan Program. By redirecting these loans to the government’s Direct Loan Program, the move will save nearly $90 billion over ten years, while freeing resources to reinvest in the student aid initiatives mentioned above.

Why This Bill is Needed Now

College affordability and completion rates have become absolutely abysmal in America. Just take a look at these disturbing trends:

Historically Pell Grants covered 77 percent of total college costs. Now it’s down to a third.
49 states receive a grade of F (failing) on college affordability.
1.7 million to 3.2 million students over the next decade will NOT choose college because of costs.
Nearly half of all students attending a two-year institution drop out; one-in-five students pursuing a bachelor’s degree never finish.
The U.S. once ranked first in college attainment, today we rank nearly last among OECD countries.

Let’s Get This Passed

Of course the bill has its opponents, with some members of Congress siding with banks to kill the move to Direct Lending (read: preserve bank subsidies). Sen. Lamar Alexander (R-TN) explained his opposition to the bill, “What [Obama’s] doing is taking over the student loan program and depriving individuals — 15 million students — of their choices of many different kinds of student loans.”

BUT ,we know the current system is broken and has failed us. Too many students either avoid college due to costs or graduate with mountains of debt. That is why the passage of this bill is so important. By ending bank subsidies, greatly expanding student aid, and investing in our community colleges, we can ensure that the doors to college remain open to all for years to come.

Tell Congress to put Students before Banks, and pass this legislation HERE.

America's Student Debt Now!

Armand Biroonak — Thu, 11 Jun 2009 13:42:29 -0700

Attending the “Degrees of College Debt” panel at the America’s Future Now! conference last week, it was astonishing to hear dozens of graduates describe the mountains of debt they are climbing; $10,000! $50,000! $120,000 of debt! attendees shouted, when asked by the panel how much debt they had. The experiences shared in the session are not unusual. They are faced by graduates across America. Sadly, a diploma has become a financial albatross, rather than a ticket to a better financial future.

Certainly, young people today are facing an unprecedented challenge to pay for schooling — a result of skyrocketing tuition and the boom in private lending. As Tamara Draut of Demos noted, “graduates are entering today’s battered job market with an average student loan debt of close to $20,000 — but that’s only an average.” One-fourth of all students borrow $25,000 or more.

The nation’s “student debt clock” is over $580 billion and ticks higher as I write. Those billions in debt threaten the economic mobility and security of an entire generation. Carmen Berkley of the U.S. Students Association described jarringly how one in five students dropout of college — never completing a degree and leaving with the debt accumulated while in school. Add to that, the estimated 1.7 to 3.2 million qualified students that will skip college over the next decade because of the cost.

Delinquency on repayments is on the rise too, with graduates defaulting at a rate not seen in more than a decade — only accelerated by recession. That’s no shock however, when most private student loans carry a crushing interest rate of 10 to 14 percent. As Rev. Jesse Jackson of the Rainbow Push Coalition explained, attending college today is “guaranteed debt without a guaranteed job.”

Beyond jeopardizing a graduate’s future, college affordability threatens America's future. American global competitiveness has dropped. Older generations of Americans ranked number one in the world in college achievement, today the U.S. ranks nearly last among OECD countries.

Obama Administration Providing Some Relief

Robert Shireman of the U.S. Department of Education explained the steps moving forward by the Obama administration to address college affordability:

Income-based repayment – In effect July 1, 2009, this program provides a new payment option for federal student loan borrowers with repayment based on income and family size, with debt forgiveness after 25 years of payment.
Pell grant increases – Obama’s FY 2010 budget increases the Pell grant maximum to $5500 this fall; thereafter, Pell will be indexed to the consumer price index plus 1 percent to adjust for inflation.
Eliminating bank subsides – By ending the Federal Family Education Loan program that excessively subsidizes banks, in favor of the government's Direct Loan program, the move will save $47 billion over five years. The Obama budget then redirects the savings to students.
“American Opportunity” tax credit - Partially refundable, it provides middle and working class families additional help for postsecondary education costs with a maximum credit of $2,500 a year.

Demand MORE!

Recent steps taken by the Obama administration should be applauded, however, progressives must demand and push for more: restoring the Pell grant to cover the majority of tuition and fees like it has in the past; reinvestment in higher education — including community colleges — to cap tuition rates and improve quality; lastly, lower interest rates and greater bankruptcy protections to ensure higher education is no longer a huge financial risk.

Additional Resources:

.A good guide to the Income-Based Repayment program by the Project on Student Debt.

Action alerts and info: Campaign for College Affordability

Campaign for America’s Future and U.S. Public Interest Research Group, “Obama's Budget: Supporting Students, Not Banks" report.

College Costs: High and Rising

Armand Biroonak — Wed, 18 Mar 2009 13:42:53 -0700

New data released today by the Department of Education shows that college costs increased substantially for the 2007-2008 school year. Although colleges continue to welcome large numbers of students, the price tag for higher education climbs upward. Students are struggling and America is falling behind.

The tragedy is that tuition at public colleges has risen even faster than at private colleges. The institutions that were created to provide public backing for broad public access are letting us down. The average tuition at a public four-year university has increased 29% between 2000 and 2007. Private college tuition increased by 13% over the same period. (All figures are adjusted for inflation)

The problem becomes more vivid when individual states are examined. Between 2000 and 2007, California has seen tuition increase by 37%, Illinois an increase of 44% and Massachusetts by 39%.

And we all know, of course, that these were not boom economic times. The cost of attending a public university was 25% of an annual household income in 2007. Incomes have been flat since 2000, and in the last year savings accounts have plummeted.

It comes to no surprise then that a December 2008 study by the National Center for Public Policy and Higher Education showed 49 states received a grade of F (failing) on college affordability.

Costs rise at state colleges because states are cutting spending and passing the bill to students. The Center on Budget and Policy Priorities observes that so far in 2009, 28 states have implemented cuts to higher education institutions — resulting in faculty and staff cuts and tuition hikes ranging from 5% to 15%. Looking forward, 16 additional states are proposing similar measures to cope with deficits.

Meanwhile, student aid from the federal government in the form of Pell Grants is unable to cushion rising college costs. Historically Pell Grants covered 77% of total college costs. Now it’s down to a third.

The lack of college affordability places individuals and the whole country at a disadvantage. Internationally, the United States is slipping in college enrollment. Currently, only 34% of young adults (18-24 years of age) in the United States are enrolled in college. The United States is ranked 7th by the Organization for Economic Co-Operation and Development for college enrollment—well behind countries like Korea and Greece; that enroll 53% and 50% of their young adults in college, respectively.

President Obama is aware of the gap in education and has outlined a commitment to higher education. His FY 2010 budget increases Pell Grants and pegs future increases to the rate of inflation (CPI +1%). It also replaces the bank-subsidizing Federal Family Education Loan Program with the more efficient Federal Direct Lending program.

The Campaign/Institute for America's Future will have more on his plan and what else needs to be done when we release a report next week. Stay tuned.

Pell Grants Said to Face a Shortfall of $6 Billion

Susan Ozawa — Wed, 17 Sep 2008 08:53:48 -0700

Bush administration officials to warn Congress that the most important federal aid program, Pell Grants, may need up to $6 billion in additional taxpayer funds next year. Driving the increased applications for federal aid, in part, have been nontraditional students returning to school to improve their job skills during the economic downturn. Estimates by the Department of Education suggest that the new president will face an unusually burdensome financing shortfall or the fallout that would accompany trimming the nation’s leading college aid program.

Average College Debt

Armand Biroonak — Mon, 15 Sep 2008 21:00:00 -0700

The average debt for students graduating college now exceeds $19,000.

Making Sense of the Rising Cost of College

Alex Carter — Thu, 29 May 2008 09:45:39 -0700

As college students celebrate graduation this May, their joy is combined with the harsh reality they face post-graduation--many of these students will graduate with unmanageable levels of loan debt that they can not afford basic necessities. Conservatives will tell you they are dedicated to expanding educational opportunities and in the same breath let the banking and student loan industry know, “I have all of you in my two trusted hands.”

The basics are clear:

- When Bush took office in January 2001, the cost of tuition at a public four year institution was $3,501. The cost of tuition in 2006-07 was $5,685 —an increase of 39%; even at the same time median household income has decreased 2% .
- The social safety nets are failing under Bush’s watch: over 400,000 qualified high school graduates can not attend college each year because of its burdensome cost, the Pell Grant only covers 33% of a student’s annual college costs (in 1975, the Pell Grant covered 84%) , and he stripped over $12 billion from the federal student loan program to fund his tax cuts for the wealthy.

The connections are clear as well; President Bush and conservatives did everything to fatten the pockets of the bank and loan industry while ignoring the plight of qualified high school graduates obtaining a college education. Conservatives did nothing to help promote college affordability and accessibility for years. Pell Grants remained at the same level, affordability was not addressed, and state-tuition levels continued to skyrocket. Bush’s yearly budgets contained massive cuts in higher education funding and favorable policies to the $85 billion private student loan industry.

However, Bush and conservatives made sure the bank and loan industry was taken care of. The private student loan industry’s cozy relationship with Republicans and their “Raid on Student Aid” was of no coincidence. During the tenure of former Chairman of the Committee on Education and Workforce Rep. Job Boehner (R-OH) told the Consumer Bankers Association,

“Relax. Stay calm…at the end of the day, I believe you’ll be at least satisfied, or even perhaps happy….
Know that I have all of you in my two trusted hands.”

It just so happened, the student loan industry contributed over $290,000 to Boehner’s PAC and the private student loan goliath Sallie Mae was the number one contributor to his campaign in the 2003-04 election cycle.

We must continue to connect the dots; Bush and conservatives in Congress do not care about college accessibility and affordability; however, they place the banking and loan industry in their “two trusted hands.”

For more about the college aid issue, click here (www.ourfuture.org/makingsense2008)

Textbook costs getting hard to cover

Alex Carter — Wed, 16 Apr 2008 08:42:28 -0700

A growing chunk of college costs is the price of textbooks, on which the typical undergraduate spends $900 a year. So a group of college professors is calling for low-priced and free texts online. Congress is getting involved, too.

Sallie Mae to Quit Offering Federal Loan Consolidations

Alex Carter — Mon, 14 Apr 2008 09:26:54 -0700

Sallie Mae, the nation’s largest student-loan company, is taking another step away from the government-backed student-loan business, further exacerbating the sense of crisis hanging over the industry.