Concerns About Access to Student Loans Persist, Study Finds

Some financial aid administrators have lingering concerns that students may not be able to get the student loans they need to pay for college this year despite recently passed federal legislation designed to improve students’ access to those loans, according to a recent survey.

The survey, released this week by the National Association of Student Financial Aid Administrators, showed that NASFAA members who participated in the survey felt that the Ensuring Continued Access to Student Loans Act, HR 5715, may help to alleviate a student loan shortage in the short-term but that a long-term solution is still needed.

More than half of the financial aid administrators who responded to the survey said they had been dropped by at least one lender in the Federal Family Education Loan Program, even though that same lender is still offering student loans to other institutions. Several lenders in the FFEL program announced last spring that they would stop offering student loans to colleges with high default rates, low loan volumes, or both — a practice that 60 percent of the NASFAA members who responded to the survey say is discriminatory and should be prohibited by Congress.

Survey participants were split over the issue of private student loans, which are not backed by the federal government. About half said they thought students would have a more difficult time obtaining private student loans this year but most agreed that the private student loan market has stabilized.

The survey, however, revealed that only a quarter of financial aid administrators have a backup plan in place to handle any problems should the federal and private student loan markets face further disruptions.

New program erases student loan debt

If you're facing years of student loan payments but aren't making much money because you're working in public service, the federal government has some good news for you. A law that took effect Tuesday could allow you to have some of your college debt forgiven.

The debt-forgiveness provision of the College Cost Reduction and Access Act, enacted last fall, is designed to encourage college graduates to enter - and stay in - public service careers that many people might spurn in favor of better-paying jobs.

Here's how it works:

What will the provision do?

The program will erase any student loan debt - including principal and interest - that a public service worker has after making monthly payments for 10 years.

What's the catch?

You must remain in a qualifying public service profession for the full 10 years that you're repaying the loans to be forgiven. If you work as, say, a legal aid lawyer for nine years and then quit to take a job with a private law firm, you're disqualified.

What qualifies as public service?

Generally, the program applies to anyone who works full-time for a state, federal or local government - including police officers, firefighters, the military and public school teachers. It also applies to some people outside of government, including employees of tax-exempt, non-profit organizations and those working in emergency services, public interest law or public child care, health care or social work.

Does this apply to all student loans?

No. Only Stafford, PLUS and federal consolidation loans are eligible - and only if they are made through the U.S. Education Department's Direct Loan program.

What if I have Stafford or PLUS student loans that aren't part of the Direct Loan program?

As of July 1, anyone with a federally guaranteed student loan can convert it into a Direct Loan consolidation loan and thus qualify for the debt forgiveness option. For information on how to do that, go to loanconsolidation.ed.gov.

Should I consolidate all of my loans into the Direct Loan program?

If you think you'll be eligible for the debt forgiveness option, you might want to consolidate Stafford and PLUS loans through the Direct Loan program, but probably not Perkins loans, said Mark Kantrowitz, publisher of FinAid.org., a financial aid information Web site. That's because Perkins loans already have special features that can make them more attractive than consolidation loans, including heavily subsidized interest.

In addition, if you work as a math or science teacher in a low-income area, you can qualify for a far more generous loan-forgiveness program available only to Perkins borrowers. (The Perkins forgiveness plan erases 30 percent of the teacher's debt in the first two years and all of it within five years.)

Some loans, such as private student loans, can't be refinanced under the Direct Loan program, so they can't be made eligible for debt forgiveness.

Won't my loans be paid off in 10 years anyway?

If you choose standard repayment, you'll pay off your loan in 10 years. But if you have significant student loan debt and aren't earning a lot of money, a better option may be "income contingent" repayment. Under it, you pay significantly less each month - and sometimes pay nothing - depending on your income and how much you owe. That has the effect of stretching out your payments well beyond 10 years.

Every month you're in the income-contingent repayment plan, even when it requires no monthly payments, counts toward the 120 months required to qualify for debt forgiveness, according to the Education Department.

The less you pay each month under this repayment option, the more debt you'll have eligible for forgiveness after 10 years.

Do the payments that I've already made count?

If you already have a federal Direct Loan, any payments you made after Oct. 1, 2007, will count toward the 120-month requirement. Payments made before that date - or made to any lender other than the federal government - won't count.

Lender Jeered as It Departs Federal Student-Loan Program

Washington — In this era of economic anxiety, college financial-aid administrators can often be heard worrying each time a student-loan company withdraws from the system of federally subsidized lending.

But there’s an exception.

MyRichUncle, which specializes in direct-to-consumer loans, stopped offering government-backed loans last Friday, and the response from college aid administrators appears to be barely restrained glee.

“Best news I’ve seen in weeks!” one aid administrator wrote to his colleagues on an electronic bulletin board.

Many aid administrators are angry with MyRichUncle over its business-building tactics, which include an ad on its Web site that promotes private student loans by depicting a lobotomized college student saying: “I didn’t use my brain. I went straight to the financial-aid office.”

MyRichUncle also gained a reputation for encouraging the investigation last year by New York’s attorney general, Andrew M. Cuomo, into the close ties between some loan companies and some college financial-aid officials.

A spokeswoman for MyRichUncle said the company was “pausing” its participation in the federal loan system until the Education Department begins buying up packages of loans from lenders, as promised by the industry-rescue legislation approved by Congress in May. In the meantime, MyRichUncle will continue offering its private student loans, which are issued without any government subsidy and are therefore often more costly to students than federal loans are.

“As always,” said the spokeswoman, Karin Pellmann, “we urge parents and students to thoroughly research their options when making education-finance decisions.”

Brandon Pierce, director of financial aid at Friends University, in Kansas, had one of the more measured responses to MyRichUncle’s announcement, saying he would “wish them the best in the private-student-loan arena.” Mr. Pierce also expressed his hope that MyRichUncle, if it returns to the federal program, “will decide to work with financial-aid administrators in providing students the best products, services, and benefits instead of against them by undermining their knowledge of the industry.” —Paul Basken

Findings to Help Reform Education

According to a Nov. 28, 2006 article titled “State Legislators: American Higher Education in Need of Reform” that appeared in the National Council of Higher Education Loan Programs Inc.’s Daily Briefing, the commission’s recommendations include:

Define clear state goals: States need long-term priorities and a public agenda for higher education that links higher education to overall state economic goals.

Rethink funding: Over the years, states have reduced their share of overall higher education costs, and as a result, the share of costs for students, families, and institutions has gone up. Some states may decide to spend more money. All states need to spend money more wisely.

Rethink student aid: States should examine their merit- and need-based financial aid programs to ensure that they are well balanced, reward students who are efficient, and help adults and part-time students.

Help reduce borrowing and debt: Two out of three students graduate with debt, and the average debt is $17,250. Ten years ago, it was $8,000, adjusted for inflation. Legislators must find a way to reduce this drain on the state economy.

Talk to the education financial advisers at NextStudent. They have all the information and advice you need on student loans.

Be sure to tune in next Tuesday for my next blog about this week in student loans.

Polytechnic Students Bemoan Reduced Funding

students who are receiving Government loans face a bleak academic future because of insufficient funding and loans from the Namibian Students Financial Assistance Fund (NSFAF) of the Ministry of Education.
The students claim that the funding that they receive from the NSFAF is barely enough to cater for half of their academic yearly fees.
There is a difference in sums of money allocated to students from the Polytechnic of Namibia and the University of Namibia, student at the PoN, reading for a qualification in either Accounting, Finance and Administration in the first year is entitled to a loan of N$9 500, in the second year it goes down to N$7 100, subsequent year it becomes N$7 300 and in the final year a mere N$7 000. At Unam, the situation differs completely, with students in the same field of study enjoying a steady rise of funding, according to the loan rates implemented by the NSFAF in 2006.
A first year student at Unam receives N$10 500, second year gets up to N$11 600 and year three N$12 500 and fourth and final year N$12 700.

UBS to back NH student loans

A nonprofit that makes loans to thousands of New Hampshire college students is pressing its banking partner to step up so it can make loans for the school year just around the corner.
Swiss banking giant UBS AG, "turned their back on us just when we needed their support," the New Hampshire Higher Education Loan Corp.'s president said in a statement asking UBS to give it a line of credit.
Securities regulators in New Hampshire and other states are pressing and in some cases suing UBS and other big banks over the collapse in February of the market for auction-rate securities, a key source of credit for student loans.
Citigroup Inc. said it will buy back more than $7 billion in auction-rate securities and pay $100 million in fines as part of settlements with federal and state regulators.

New Hampshire has been investigating whether UBS violated securities laws in its dealings with the New Hampshire Higher Education Loan Corp., according to Mark Connolly, director of the state Bureau of Securities Regulation.

Student loan firm sued over end to 'repayment bonus' program

A class-action lawsuit has been filed against St. Paul-based student lender Northstar Higher Education for allegedly breaking its contract with student borrowers.

The suit, filed Monday in U.S. District Court in Los Angeles, says the lender broke its contract by eliminating its "T.H.E. Repayment Bonus" -- a 0.75 percentage point interest-rate reduction -- to cope with the credit crunch.

Northstar suspended the benefit on Feb. 18, citing the failure of auction-rate securities it used to finance loans.

"While Northstar might be facing financial difficulties comparable to other banking institutions, this does not provide it with carte blanche to breach its contractual obligations," said the suit, which is seeking monetary damages and contractual interest-rate reductions for anyone who had a loan with Northstar on Feb. 18. The suit was filed on behalf of plaintiff Jennifer So of California by the law firm of Kabateck Brown Kellner.

Northstar has yet to receive a copy of the complaint. But in a statement, General Counsel Mark Lindgren said: "Northstar takes its obligations to its customers seriously and believes it has fully complied with the terms of its agreements. In particular, Northstar has always sought to provide its customers with the benefits from the T.H.E. Bonus but has never guaranteed that the bonus would be available under any and all market conditions."

Jon Austin, a spokesman for Northstar, said that the company is "confident that we communicated clearly and properly with our borrowers about all of their loan terms and that we will prevail against these baseless and reckless charges being thrown around by a contingency-fee law firm and its Beverly Hills PR firm."

Turmoil in credit markets has forced 120 lenders, including Northstar, to quit some loan programs, according to Finaid.org. Northstar temporarily ceased taking applications for federally backed loans in April but began accepting them again in recent weeks.