We have long been concerned about the close ties between the student loan industry and the National Association of Student Financial Aid Administrators (NASFAA), an organization that lobbies on behalf of college aid officials. These ties have been so strong in recent years that the group's policy positions on student loans have more often than not mirrored those of the Consumer Bankers Association and Sallie Mae.
NASFAA's leaders deny that lenders have influence over the organization's policy positions. In arguing this point, they often note -- as the group's former president Dallas Martin did in an interview with The Wall Street Journal last year -- that the association prohibits loan industry officials from serving on its national board or voting "on policy and membership issues."
What they fail to mention, however, is that these rules do not apply to the organization's state affiliates and regional associations. In fact, by most accounts, these groups depend heavily on student loan providers for both leadership and financing.
Attention recent college graduates: starting July 1st, you will have a once-in-a-lifetime opportunity to significantly reduce your federal student loan costs. We at Higher Ed Watch are telling you this, because if some in the student loan industry get their way, you may never hear about it.
For six months beginning July 1st, members of the Class of 2008 who have taken out variable interest rate federal student loans will have the opportunity to refinance those loans and lock in a low, fixed 3.61 percent interest rate. That's about 3 percentage points lower than the variable rate that was set last year. This is the biggest one year drop in student loan interest rates ever, and the 4th lowest interest rate in the 15 year history of the student loan consolidation program.
By Art Hauptman
The sub-prime lending crisis has brought student loans back into the policy limelight as government officials and advocates of different stripes have sought to ensure adequate loan availability for the coming academic year. But resolving the current set of concerns should not obscure the continuing need for broader reforms to ensure the long-term availability of student loans at a reasonable cost to both borrowers and taxpayers.
As recent events perfectly illustrate, policymaking on student loans has often been driven by real or perceived crises regarding banks’ continued willingness to lend. Lawmakers and Congressional staff spend countless hours trying to determine what the exact right subsidy for lenders should be, rather than ensuring that the programs are continuing to fulfill their broader federal goals of promoting students’ access and success in college. Instead of taking a patchwork approach, fundamental reform is needed.
Here are some key challenges the loan programs face:
Shortly after being named the new president of the National Association of Student Financial Aid Administrators, Philip Day said in an interview that he was not interested in becoming a student aid expert.
"One of the questions I got in my interview is, "how long do you think it will take you to get up to level of technical speed?'" Day told The Chronicle of Higher Education. "I said, 'I hope never.' Because I think that's not what this institution needs now. What they need is somebody who can advocate and focus on issues at the 10-to 15,000-foot level."
Judging from a more recent interview that Day gave Higher Education Washington Inc., a publication owned and run by a top student loan industry lobbyist, NASFAA's new chief seems to be succeeding. As we noted yesterday, the interview shows that Day is not only ill-informed, but also, in spite of last year's revelations in the student loan "pay for play" scandal, NASFAA has not changed its stripes. The views that Day expresses on federal student loans in general, and the Direct Student Loan Program in particular, are confused and misleading, and reflect a strong bias in favor of the Federal Family Education Loan (FFEL) program.
Up until now, we've been willing to give Philip Day the benefit of the doubt.
In March, Day, the former chancellor at the City College of San Francisco, became the president of the National Association of Student Financial Aid Administrators (NASFAA), a group with such strong ties to the student loan industry that in recent years its policy positions have closely mirrored those of the Consumer Bankers Association and Sallie Mae.
At Higher Ed Watch, we have been critical of NASFAA in the past. We were hopeful, however, that the organization's first presidential change in its 32 year history -- coming on the heels of reforms imposed on NASFAA by New York State Attorney General Andrew Cuomo that cut into the financial support the group receives from loan providers -- would set the association on a new track.
We were especially encouraged by statements Day made shortly after accepting the job. In January, he told The Chronicle of Higher Education that NASFAA needed to "reassess" its relationship with lenders. "It's something I don't feel 100 percent comfortable with," he stated. Amen to that.
By Art Hauptman
Since the passage of the National Defense Education Act of 1958, the federal government has had a policy of helping students from a broad range of circumstances pay for college. One of the principal lessons we should draw from this half century of experience is that when it comes to students most at-risk, the traditional approach of providing aid through grants, loans, and work-study is not nearly enough to make for a successful policy.
The evidence for this conclusion is clear from several angles. For one, while the federal investment of hundreds of billions of dollars in student aid over time has certainly helped raise participation and attainment rates to record levels across the board, the gaps in access and success between students from the lowest and the highest family income brackets are virtually the same as when the student aid programs were created.
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We've been asked our reactions to the Department of Education's announcement yesterday shoring up the student loan market. Higher Ed Watch has two main thoughts.
First, Congress' response legislation to the student loan credit scare and the Department's implementation announcement yesterday puts to bed any question of loan availability for this fall. Every student will be able to get a federal student loan. We continue to note, however, that no student has gone without a federal student loan to date, and that in addition to the thousands of lenders still making federal student loans, two fail safe systems were in place before yesterday's action to ensure that no student would go without access to a federal student loan in the future. Still there was panic for this fall and spring, and it now should be gone. That's a good thing.
On Wednesday, the U.S. Department of Education offered a full-scale plan to bail out the student loan industry. Under the plan, the Department will not only buy student loans from lenders, as Congress authorized it to do, but it will also purchase interests in pools of loans to provide lenders with additional liquidity.
Despite these aggressive actions, Rep. Paul Kanjorski (D-PA) wants more. He applauded Education Secretary Margaret Spellings for her “initial plans” but urged her to take even stronger steps “to maintain an effective student loan distribution system.”
“[W]e must remain vigilant in the coming weeks and take further administrative and legislative action, as needed to address the problems in the student lending marketplace,” he contends. In other words, he is going to continue to push proposals that the student loan giant Sallie Mae has promoted to resolve "the crisis" -- pressing Congress, for instance, to pass bills that would allow the Treasury Department's Federal Financing Bank and the Federal Home Loan Banks to inject cheap federal capital into the student loan market.
By Art Hauptman
Both Sens. Barack Obama (D-IL) and Hillary Clinton (D-NY) have made achieving greater college affordability a high profile issue in their Presidential campaigns. To reach this goal, the two Democratic candidates have proposed expanding Pell Grants and consolidating the current set of tax breaks for college into a single refundable tuition tax credit. Sen. John McCain (R-AZ) has thus far been strangely silent on the topic, despite its importance to so many millions of Americans.
The reach of the Democratic contenders' proposals does not match their rhetoric, however. To truly make college more affordable, the next President will need to push for a much fuller integration of student aid and tax provisions for higher education, as I suggested in my guest post last week.
Any effort to change the current system (or non-system) of student financial assistance should first recognize that federal higher education policy has two distinct goals. The first is to eliminate the chronic gaps in the rates at which students from low-income and high-income families (and between minority students and white students) enroll in and graduate from college. Call this the accessibility problem. The second big goal is to make college more affordable for millions of students from middle class and upper middle class families who have found the ever growing price of college to be a real strain on their budgets. Call this the affordability problem.