Student Financial Aid News

From the Chronicle:

Rushing to meet a Memorial Day deadline set by President Obama, the U.S. House of Representatives gave final approval today to credit-card legislation that would create new protections for borrowers, but could make it harder for students to obtain charge cards. Once enacted, the bill would shield students and other consumers from sudden spikes in interest rates and fees, and would place restrictions on the issuing of credit cards to students under the age of 21. It also would cap the amount students under the age of 21 could borrow at $500 or 20 percent of their annual income, whichever was greater. A spokeswoman for Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, said the provision would not be retroactive. People under 21 who already have cards would be allowed to keep them, she said.

Commentary

I wholly expect this bill to go through, and the market for student credit cards to dry up as soon as the bill becomes effective, which is in 9 months.

The last part was interesting – the bill’s not retroactive. Expect between now and February 2010 to be completely inundated with student credit card offers. You’ll get more junk mail, more spam, more of everything than ever before as credit card issuers race to secure your business before the law takes effect. Chances are you’ll be able to heat your home, wallpaper your dorm, and sell unique origami from the sheer volume of student credit card ads that are about to head to your doorstep.

If you don’t already have a student credit card, take a look at your options, but consider that in desperation, credit card issuers may sweeten deals more and more over the summer and some amazing rates and cards might be available this fall during the final back to school season before the law changes. Read the fine print as well – there may be some additional gotchas and time bombs that card issuers will try to sneak in before the new laws take effect.

From Inside Higher Ed and Bill Spiers, director of Financial Aid at Tallahassee Community College:

President Obama’s proposal to end the Federal Family Education Loan Program and make all federal student loans through the Direct Loan Program has gotten a lot of media attention. But for all the talk about budget numbers and politics, the views of college financial aid administrators have been largely lost in the shuffle.

It comes down to this: FFELP provides outstanding service to students and our college and helps our students avoid defaulting on their loans, and competition — between FFEL lenders and between FFEL and direct lending — has provided for choice and, ultimately, excellence.

Default prevention and aversion are critical issues in the community college sector. At the institution I serve, our selection of lenders, guarantors and servicers is based on their company default rates and their default rate at our school. The basic due diligence requirements of the Federal Government in default prevention and aversion simply are not good enough to prevent defaults with the community college sector. Our lending partners must offer exceptional customer service and go well beyond the basic federal requirements for our students. We conduct a thorough review to ensure that our students are well served. We are confident that the people serving our borrowers understand the issues that young, inexperienced student borrowers face. Competition between lenders, guarantors and servicers has pushed them well beyond the basic measures to reach and assist these young borrowers

With the loss of competition that would come from the Obama proposal, we must ask ourselves if this level of commitment to default prevention and aversion will continue. If we are forced to move to direct lending and find ourselves dissatisfied with the default prevention and aversion efforts, what are our choices? Who will help us reach our borrowers? Will our schools have to pay for an outside company to do what our guarantors, lenders and servicers have done free all these many years?

Commentary

Mr. Spiers’ entire op-ed is worth a read, but I think the point he makes about default prevention and aversion is critical. Right now, FFEL lenders like the Student Loan Network have a strongly vested interest in preventing students from defaulting on their loans. The more students who default, the less money lenders make. Obvious, yes? If and when the government takes over federal student loans, the Department of Education (funded by the Treasury) has no profit motive, no commercial interest in ensuring default rates are as low as possible. There are still ethical reasons (serving your citizens to the best of your ability) but in a capitalist economy, there’s no stronger motivator than profit – a motivator that will be missing in an all-Direct Loan system.

We’ll see how this plays out. For student loan companies, there might be a new business model in selling default aversion programs to colleges and universities if the government takes over all lending.

Scholarship Update

The MyCollegeScholarship Scholarship Program is a program that awards (2) $1,500 scholarships per year to students who are planning on attending a previously unattended college or university. This includes new, transfer, and graduate students. Scholarships are awarded through random drawings to give each student an equal chance of winning. Applicants must be at least 16 years of age and use the award within 3 years of winning. Deadlines are June 30 and December 31 of each year.

Details at our free college scholarship search site.

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