The Higher Ed Watch blog warns today that Federal measures to deal with the “student loan crisis” (I put the term in quotes because their article reports that there is no crisis) might ultimately make things worse for borrowers:
We are particularly concerned that some policymakers, in giving in to the scare tactics employed by the student loan industry, may in fact be positioning student lenders, as well as high-priced colleges, to game the system to their advantage.
The writers take issue with several recent actions and rumors of action. Among them, they note that the government’s recent announcement that it will buy up more private student loans may be premature and point out that “there is no guarantee that lenders will use the help they get to make new loans.” They are also concerned with the proposal to increase loan limits:
To create more paths for students to go into further debt from which they have no way to get out from under is irresponsible and in most cases, unnecessary.
I couldn’t agree more.
Higher Ed Watch has a great blog post today clearly outlining their hopes for college funding and student loan reform in an Obama administration.
Here’s the short version of their list:
1. Better oversite at the Dept. of Education and better (or heck, any) enforcement when lenders break laws protecting students.
2. Reassess the need for two competing federal student loan programs and clean up the way they are run.
3. Reform the bankruptcy law to provide protection for private student loan borrowers.
4. Crack down on unscrupulous, for-profit trade schools.
5. Simplify and stream-line the federal aid system.
By the end of the night (hopefully), we’ll know whether our next president is going to be Barack Obama or John McCain. No matter who wins, the next President is going to face several challenges in making sure that college is affordable for everyone. The Higher Ed Watch blog lists the federal budget deficit, the continuing credit crunch, a budget shortfall in the Pell Grant program, and expiring student aid programs and benefits as major obstacles to each candidate’s plans for making college more affordable. One important program set to expire is the interest rate reduction for subsidized federal student loans.
The interest rate reduction that Congress approved for subsidized federal student loans is due to expire at the end of the 2011-12 academic year. In other words, under current law, loans issued that year will have a fixed interest rate of 3.4 percent for the life of the loan, but loans issued the following year will carry a fixed rate of 6.8 percent. The new president will have to decide whether he supports extending the 3.4 percent interest rate. Doing so could cost as much as $3 billion a year. Of course, allowing student loan interest rates to double could be politically risky, no matter the costs or public policy implications. [At Higher Ed Watch, we believe that policymakers should consider expanding the existing student loan interest rate reduction instead. That proposal would be less costly and better targeted on recent college graduates with burdensome levels of debt.]
The Higher Ed Watch blog has a short discussion/analysis of the newly released Department of Education Final Regulations, which address the new Public Service Loan Forgiveness Program. I’m still learning about this program myself, but from what I gather, the program does not make it clear up front who will be eligible for the loan forgiveness. Borrowers could be working in low-paying jobs for up to TEN YEARS only to find out that they don’t qualify:
In its final rules, the Department did not commit to providing periodic confirmation notices to borrowers about their eligibility. Instead, the agency said that the onus will be on borrowers “to document” their eligibility over time. Department officials said that they do not want to provide borrowers “with a contractual right to the benefit,” as Congress may decide to eliminate the program in the future. Higher Ed Watch hopes that Congress will revisit this issue next year to insure that the program lives up to its promise.