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By Christina Satkowski and Stephen Burd
You can't always believe what you read in the papers. That old saying has gained new currency this year with all of the misleading and panicked news coverage of the student loan credit crunch. Unfortunately, the same can be said of recent reports about Congressional efforts to simplify the process of applying for financial aid.
At issue are news stories reporting on a provision in the recently-passed Higher Education Act reauthorization legislation that requires the U.S. Department of Education to create a new "EZ FAFSA," a shorter version of the Free Application for Federal Student Aid (FAFSA) that tens of millions of students fill out each year to determine their aid eligibility. Recent articles in Congressional Quarterly, Education Week, The New York Times, and other publications leave the impression that the new bill streamlines the FAFSA -- from seven pages to two -- for all students.
But that's not the case. While the legislation introduces an EZ FAFSA, it makes it available to only those students whose family income is low enough that they already qualify for an expedited review of their finances when applying for federal financial aid. As a result, most aid applicants will still be stuck with the longer form.
Under the new law, students who will be eligible to use the EZ FAFSA include those whose families earn earn less than $50,000 a year and either are not required to file the long version of the 1040 federal income tax return or receive certain federal means-tested benefits such as welfare payments or food stamps. The federal government doesn't take into consideration the assets of families of students who meet these criteria.
By Rupert Wilkinson
The Bush administration has repeatedly called for simplifying the federal student aid system by eliminating two of the main "campus-based" aid programs, which provide colleges with federal funds for needy students that they allocate themselves. Under the administration's plan, funds from the Supplemental Educational Opportunity Grant and Perkins Loan programs would be transferred into expanded Pell grants, the government's main source of grant aid for low-income students.
A better solution would be to restructure the campus-based aid programs so that they do a better job of leveraging college support for students who are promising but disadvantaged.
In America's decentralized higher education system, the ultimate responsibility for meeting (or not meeting) student financial need lies with the college itself. Outside an elite band of well-endowed institutions, most four-year colleges do not meet all need -- because they are either unable or unwilling to use their own grant aid to fill the gap between the cost of attendance and the family resources and financial aid (including federal loans and a reasonable amount of College Work-Study employment) that students are able to cobble together. Estimating that gap is tricky, but it is the widest for poor students -- probably well over 20% of what they need.
Now that Congress has completed work on legislation to reauthorize the Higher Education Act, momentum is growing among student-aid experts and some policymakers for a fundamental redesign of the federal student aid system. A key question they are asking is whether the federal campus-based student-aid programs are still needed.
The campus-based programs -- College Work-Study, Perkins Loans, and Supplemental Educational Opportunity Grants -- are intended to supplement Pell Grants for low-income students and to provide aid for students who just miss the cutoff for the grants. Unlike Pell Grants, which are awarded directly to students, campus-based aid is distributed to colleges, which add their own dollars to the programs and then give the money to students.
By requiring colleges to provide matching funds, these programs have long played an important role in enticing colleges to spend their own money to help support low- and moderate-income students. The programs, however, are no longer serving the neediest students well. The formula the government uses to distribute the aid overwhelmingly benefits elite private colleges and public flagship universities, even though low-income students predominantly attend community colleges, state colleges, and trade schools.
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Recent developments in the financial markets have brought to light a major problem with the Federal Family Education Loan (FFEL) program, the main delivery system for federal student loans. Though the program relies on private lenders to make loans to students on the government's behalf, it does not include any commitment from lenders that they will follow through and make all (or any) of the loans to which students are entitled.
Congress, schools, and students are naturally concerned when private and non-profit lenders say they won't make loans anymore, due to credit market disruptions, and, to some extent, reductions in lender subsidies enacted over the last several years by both Republican and Democratic Congresses. Similarly, there is unease over lenders cherry picking colleges with profitable loan volume and bypassing others, leaving students to find another FFEL lender.
Oh Please Make Loans
In April, Congress passed the Ensuring Continued Access to Student Loans Act to prevent any disruptions in the availability of FFEL loans for the 2008-2009 school year. The measure does policy somersaults to provide more subsidies to lenders so they can make loans using funds from federal coffers (never mind the fact that lenders vehemently oppose the Treasury-financed Direct Loan program). Despite its efforts, Congress now can only hope these new subsidies will be sufficient to get lenders to lend, but it has no assurances.
By Jon Oberg
Congress deserves ample credit for approving a significant expansion in the GI Bill education benefits that veterans can use to pay for college. But as a veteran myself, I fear that the benefits are being oversold. Take a recent statement about the GI Bill made by a representative of the Iraq and Afghanistan Veterans of America: "It made going to school your full-time job. You worry about getting into school and you worry about getting as many degrees as you can but the government will worry about paying for it."
Fellow veterans: don't count on it. Although billions more will be spent annually in your name, you may not get as much help as you think. A lot of the money will disappear before you see it.
I used data from the most recent student aid databases (the 2004 National Postsecondary Student Aid Study) to see how veterans fared at four-year public and private colleges, as compared to other undergraduates. The results confirmed my suspicions that despite the government's help, most veterans have been stuck with large amounts of student loan debt and received little in the way of institutional financial aid (the country's largest source of grants) from the colleges themselves.
In short, many colleges have treated veterans as an afterthought. Some institutions have clearly used veterans' GI benefits to replace institutional aid dollar-for-dollar, and shifted the money they saved into merit aid for the kind of high-achieving students that improve their rankings. In such situations there has been no remedy for veterans, as the federal government has largely looked the other way. Many veterans have gotten the message and lowered their educational ambitions.
Last week, we identified our favorite and least favorite provisions in the mammoth Higher Education Act reauthorization legislation that Congress overwhelmingly approved on Thursday. Neither list, however, included sections of the bill that target the types of "pay for play" conflicts of interest in the student loan programs that Higher Ed Watch helped expose last year. That's because, frankly, we had mixed feelings about the provisions.
The legislation certainly takes some positive steps to safeguard students. It, for example, bars colleges from entering into revenue-sharing arrangements, in which colleges get a cut of each loan their students take out. Colleges are also forbidden from entering into "opportunity loan" deals with lenders -- arrangements in which loan companies waive or loosen credit requirements on private student loans in exchange for becoming the exclusive provider of Federal Family Education Loans (FFEL) on a campus.
The legislation also prohibits colleges from allowing lenders to staff their financial aid offices or to run the call centers that students depend upon to answer their questions about student aid. And it forbids schools from assigning first-time borrowers' federal loans to a particular lender through award packaging or other methods. This should put a stop to some colleges' particularly deceptive practice of providing pre-filled out master promissory notes to incoming students in order to shepherd them toward favored lenders.
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