Department of Education

At Higher Ed Watch, we have written much about the U.S. Department of Education's lax oversight over the lenders and guarantee agencies that participate in the Federal Family Education Loan (FFEL) program. But until we read a recent investigative report in the St. Petersburg Times, we didn't fully grasp just how lax that oversight has been.

As that report revealed, the Education Department does not conduct criminal background checks on individuals who are seeking to become eligible FFEL lenders. The agency leaves it to student-loan guarantee agencies to verify eligibility for participation. But apparently most guarantors often don't even bother to ask about past criminal records of those who apply to become federal student loan providers.

As a result, the St. Pete Times reports, some convicted felons and others with criminal records have gained entry into the guaranteed-loan program and taken advantage of the rich rewards the government bestows on lenders that participate in the FFEL program.

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.

Risky Lending a ‘Mistake', says Sallie Mae's Al Lord

Education Department Report Reveals Differences in Borrowing, Graduation Rates

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.

Credit Crunch Easing for Student Loan Providers?

Dept. of Ed Relaxes Preferred Lender Rules

Sallie Mae Computer Glitch Sends Credit Scores Falling

Report Illustrates Disparities Between States in Community College Use

The Department of Education recently announced modifications to its lender of last resort program as part of its effort to prepare for the possibility of federal student loan shortages as a result of the credit crunch. The net result is a contraption Rube Goldberg would be proud of -- what in effect are direct student loans that are more difficult to administer and more costly for taxpayers than the regular Direct Loan program.

The lender of last resort (LLR) program is designed to ensure all students have access to Federal Family Education Loans (FFEL) by requiring that guaranty agencies provide loans to students that have been turned down by conventional lenders. Though we support guaranteeing access to student loans, the similarities (and costly differences) to the regular Direct Loan program make LLR a significantly inferior option. In fact, Washington appears to be trying to avoid the more obvious and efficient solution -- boosting the regular Direct Loan program.

Many low-income parents with children in low-performing schools are not taking advantage of free tutoring available to them under No Child Left Behind. Under NCLB's "Supplemental Educational Services" (SES) provision, school districts that fail to meet academic benchmarks for three years must set aside part of their federal Title I grant to provide outside tutoring—but only a fraction of eligible students are using the program.

The Department of Education is trying to figure out how to increase take-up rates for the SES program. As part of a package of new NCLB regulations, the Department proposed this week that districts should be able to use part of their SES funding set-aside to conduct outreach activites to educate parents about the program (this currently isn't allowed). This is a logical, beneficial addition to the SES provision that hopefully will encourage districts to implement more intensive, effective ways to inform parents about SES.

Low Levels of SES Participation...

On Tuesday, the Department of Education unveiled a new set of proposed regulations on No Child Left Behind. The major announcement was details about the new, uniform graduation rate formula that all states will have to use for NCLB accountability purposes going forward. In addition, the Department outlined new requirements for district implementation of the Supplemental Educational Services (SES) provision.

In general, the proposed regulations focus on greater transparency for what's already happening in each state. At a briefing in Washington D.C., U.S. Deputy Secretary of Education Ray Simon said that the Department wants to make sure states and districts can justify what they are doing on assessment and accountability. He also raised concerns that districts are not adequately implementing NCLB's restructuring and SES requirements, and said that the Department wants to detail and reinforce what is already required by the law.

Here's a quick summary of the new proposed regulations, which were published today in the Federal Register and will be open for comment for 90 days: