Student Financial Aid News

More on the Perkins loan, from NASFAA:

“Speaking at the National Association for Student Financial Aid Administrators conference Monday, Education Department officials tried to persuade colleges that President Obama’s proposed new Perkins Loan program would resemble the existing one,” Chronicle of Higher Education reports. “But the student-aid administrators in the room weren’t buying it. Under the president’s proposal, colleges would no longer administer or collect on Perkins Loans. That responsibility would shift to the Education Department, which would also reclaim its share of the money now in colleges’ revolving funds. Most importantly, the loans would no longer be subsidized while students are enrolled. Students would pay interest while in college, or it would be capitalized when they graduated. That change would effectively convert Perkins Loans into low-cost private loans, making it harder for colleges to persuade low-income students to borrow, said Susan Fischer, director of student financial aid at the University of Wisconsin at Madison.”

Commentary

Bad news for the Perkins Loan program and students who borrow it – the removal of federal subsidies makes it only slightly better than an unsubsidized Stafford loan and a poorer choice than a subsidized Stafford loan, assuming you qualify for it. The move is probably to make the Perkins loan taxpayer cost-neutral, as interest earned while in school and the removal of subsidies would make it either break-even or even a moneymaker for the government.

Some commentary from Inside Higher Ed:

You could play a game of touch football in the exhibit hall at the annual meeting of the National Association of Student Financial Aid Administrators here without hitting a lender, given the relative dearth of banking and other companies pitching their wares to the college officials in attendance. And the muted atmosphere in the massive conference center hall had the feel of a wake, an apt metaphor for an industry that, while not yet dead, is fighting for its life. And while there is some bipartisan opposition to the Obama proposal, and lenders express confidence that there is support for alternatives they are pushing, they would have been hard-pressed to walk out of the NASFAA meeting feeling particularly upbeat — and not just because of the funereal atmosphere in the exhibit hall. While a strong majority of colleges still participate in the bank-based system, Obama administration officials have been saying for months that the FFEL, or guaranteed loan, program, as it is known, is on “life support,” and putting forward an air of inevitability about the transformation that seems to be becoming a self-fulfilling prophecy.

Commentary

Given strong support in Congress and multiple lapses of good judgement from some large FFEL providers in the past, I’d agree about the inevitability of the FFEL program’s eventual termination, at least for the next few years. If, down the road, the Department of Education’s savings do not materialize or the Department is unable to provide the same level of support and service that FFEL currently provides, you may see alternatives appear. More likely, those student loan companies that remain engaged in lending will do so in private student loans, the non-government student loans that require no Congressional oversight (nor do they require the FAFSA or other government paperwork).

What will the long term impact be on students? Difficult to say, but conflicting agendae between lenders and Congress will almost certainly mean that the consumer gets the bill in the end.

Scholarship Update

A routine reminder about our $10,000 scholarship drawing taking place at the end of the month.

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