Federal Grants

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 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.

To celebrate Independence Day, Higher Ed Watch will be going on hiatus next week. But before we go dark, we thought we'd remind you of some important changes coming to federal student aid that will save students money and hopefully eliminate some of the worst abuses that have occurred in the Federal Family Education Loan (FFEL) program in recent years.

Most of these changes are the result of two pieces of legislation enacted in the past year: the College Cost Reduction and Access Act (CCRA) and the Ensuring Continued Access to Student Loans Act of 2008 (which we will refer to as the "bailout bill"). Both contain provisions that go into effect on July 1.

The most substantial changes are to the federal student loan programs and the interest rates charged on these loans.

Under CCRA, the interest rate on subsidized Stafford Loans -- which generally go to students from families making less than $80,000 and accrue no interest for the borrower while in school -- will halve over the next four academic years. As a result, borrowers taking out a subsidized Stafford Loan after July 1 will have a fixed interest rate of 6.0 percent, 0.8 percentage points lower than available today. [Borrowers with unsubsidized federal loans will continue to pay a 6.8 percent fixed rate] In subsequent years, interest rates will drop to 5.6 percent, 4.5 percent, and then 3.4 percent by the 2011-2012 academic year. After that, absent any further Congressional action, rates will return to the previous level of 6.8 percent.

By Art Hauptman

There is widespread agreement among financial aid analysts and practitioners that our country's student aid system is not working as effectively as it could be. Many believe that the solution to this problem is to have the federal government substantially increase the amount of money it spends on the existing student aid programs.

Higher Ed Watch has some questions for the Bush administration about its Fiscal Year 2009 higher education budget: [slideshow]