University heads want fees paid from student loans

President of Universty will lobby for the introduction of an Australian-style student loan system when they meet Minister for Education Batt O'Keeffe tomorrow.

The seven college heads have decided to oppose the return of the old fees regime, abolished in 1995, as problematic and inequitable.

Instead, they favour a system where Exchequer support for colleges would be "topped up" by student fees. But the cost of these fees would be lent to students and repaid once they start working.

They say this would help shift the burden of college fees from the parent to the student who actually benefits from higher education.

In an article in today's Irish Times, Ned Costello, chief executive of the Irish Universities Association (IUA), representing the seven presidents, writes: "University heads have carefully weighed up the pros and cons of the various approaches and believe that a replication of the previous fees regime would be wrong."

A senior university figure said: "We don't want a new fees regime which is messy and poorly thought out. This is a once-off opportunity to get things right through a developed system of top-up fees and income contingent loans."

Last week, the Minister said the 33,000 millionaires in the State should be asked to pay university fees. He stressed that any new fees regime would only apply to the wealthy and those with a family income well in excess of €120,000.

University presidents say the issue of who is "wealthy" is open to debate. Punitive fee levels for a small number could see a brain drain of Irish students overseas, they warn, but a low income threshold would be unfair and unjust.

A combination of fees and loans would "build a system which delivers both quality and equity", they say.

The Australian model has been praised as an effective and fair means of generating income for higher education. Key features of the model favoured by Irish university presidents include:

• Colleges charge "top-up" fees to supplement support from the State;

• All students have the option of taking out a loan to cover the cost;

• Repayment is made once the graduate is in employment;

The amount paid is linked to income. Only those above a specific income threshold are liable to fees.

College heads say significant public consultation will be needed before the system can be implemented. This, they say, could be done as part of the new national strategy for higher education.

It is understood UCD president and IUA chairman, Dr Hugh Brady, will tell the Minister that the funding crisis has reached a "tipping point".

The Minister has ordered a 3 per cent cut in payroll costs and a 50 per cent cut in promotional activity. Dr Brady is expected to warn that cuts in student services and less popular courses will be inevitable.

VIEWPOINT: Better ways to ease student debt-2

The credit’s value should be set high enough to have an impact. I’d suggest $500 a year for individuals age 25 and under who have earned an associates’ degree within the previous 10 years; $1,500 a year for individuals 30 and younger who have earned a bachelors’ degree within the previous 10 years; and $2,500 a year for individuals age 35 and under who have earned a new graduate or professional degree within the previous 10 years.
The tax credit would be a rollover credit, meaning that unused credits could be used in future years. A rollover program would increase the affordability of the program without decreasing the overall long-term economic benefit offered to individuals.
The rollover credits would not expire but would be forfeited if the individual moved away. If the person returns, he/she could start accrue credits once again per the criteria.
Gawrylow is the state policy director at Americans for Prosperity of North Dakota.

VIEWPOINT: Better ways to ease student debt

We’ve seen dramatic increases in college tuition and student fees here in North Dakota. These, however, are symptoms of greater problems caused by a lack of accountability.

It’s no surprise that about the same time the Legislature abdicated its power to the Roundtable and the State Board of Higher Education, these costs started to spiral out of control.

As of 2006, college graduates in North Dakota had the third-highest debt upon graduation, according to the Project on Student Debt. We need to look for ways to reduce the cost of college education for students, the amount of debt those students carry after graduation and the overall cost of government to those graduates.

The cost of higher education for students has more than doubled at all state-run universities and colleges during the past decade, while taxpayer funding has increased by 50 percent in the same time. By increasing the cost to taxpayers and students alike, we continue to price North Dakota out of the market.

There are a few ways we can address the student debt-load issue without increasing spending.

n Increase the grace period for student loans.

Currently, each graduate has six months from the time of graduation before the first payment is due. The Legislature should extend this grace period to one year to allow more time to find a reasonable job in North Dakota and get on their feet.

n Reform the Bank of North Dakota’s student loan practices.

One-third of all Bank of North Dakota profits ($51 million total profits in 2007) are derived from the Student Loan Department. This department should be converted into a not-for-profit operation.

The bank must be allowed to charge an interest rate equal to operating and administering the student loan programs. However, there is no need for a state-run bank to be adding to the debt load and prolonging the payoff of student loans.

n Create a higher education tax credit.

In an age when education costs were paid in the year incurred, treating those costs as a tax deduction effectively encouraged people to go to college. But with the cost of higher education soaring, the costs are much higher than most can afford in a given year. These days, the costs often take the form of student loans, which North Dakota’s college graduates incur at or near the nation’s highest levels.

At the same time, the economic impact of higher education continues to grow. A college graduate may be expected to pay more than $100,000 more in state and local taxes than a peer without a college degree over a lifetime.

We must encourage individuals who have earned a bachelor’s degree to live in the state with a higher education tax credit. The credit would be claimed by those individuals who have earned their bachelor’s degree at a North Dakota college or university within the past 10 years and have established residency in North Dakota during those years.

The credit would be accessed through individual tax filings. In that way, it would not require any new department or agency.

Danger Lurks When Shopping for Student Loans-2

Borrowers took out $17.1 billion in private sector loans in the 2006-7 school year, according to preliminary College Board figures. Part of what makes private loans different from other student loans is that rates can range wildly, by several percentage points, even with one lender.

To quote a rate, lenders check an applicant’s credit history. And every time a shopper asks a lender for a rate quote, it can show up as another inquiry on a credit report.

Lots of inquiries send the wrong signals to the formulas that create the popular FICO credit score that Fair Isaac administers, namely that borrowers may be applying for multiple loans because they’re financially troubled and potentially going bankrupt.

While Fair Isaac has mined years of data to determine that people making a bunch of mortgage and auto loan applications over a short period are almost always innocently shopping for a loan, it hasn’t declared student loan shoppers similarly safe.

One reason is that the company doesn’t have a big pile of private student loan data to mine. These loans are relatively new, and not many people shopped around for the best rate before the student loan scandals erupted.

So, in theory, how much could credit scores fall when people shop for loans? Fair Isaac says that each inquiry will generally not cause more than a five-point drop, though it may be more for a student with a short credit history.

Lenders generally check credit reports with only one of the three main credit bureaus. If a lender examines only one such report, an applicant avoids damage on the other two bureaus’ records. Then again, if all the lenders check with the same credit bureau, the damage may be especially high there.

Here’s Fair Isaac’s problem with this whole discussion: It doesn’t believe that any damage occurs most of the time. It believes that the three big credit bureaus don’t classify most student lenders specifically enough for the credit scoring system to recognize them. As a result, those inquiries end up in a general category that gets the same treatment as auto and mortgage inquiries.

Danger Lurks When Shopping for Student Loans

When college financial aid officers got into trouble last year for accepting gifts from lenders, the moral of the story was clear: You could easily overpay for your student loan by simply borrowing from a college’s recommended lender without first shopping around.

There is just one problem with comparison shopping for a private student loan. Doing so may damage your credit score. Since lenders quote higher interest rates to applicants with lower scores, some students could end up paying thousands of dollars more in interest over the life of their loans.

In few other areas of consumer life are you at risk of being penalized for seeking out the best deal. Indeed, mortgage and auto loan seekers who comparison shop within a relatively short period of time do not see their credit scores suffer. But Fair Isaac, the company that helps credit bureaus calculate credit scores, does not extend the same break to private student loan applicants or their parents, who often co-sign for loans.

The basic inequity here — the fact that people borrowing money for higher education are not given the same benefit of the doubt as people shopping for mansions and BMWs — is unfortunate enough. But the real head-scratcher is how little anyone in the industry seems to know about how often students and their parents suffer damage. Fair Isaac thinks it’s rare, if it happens at all. Lenders and student loan brokers think it’s common.

The disagreement wouldn’t matter if Fair Isaac bowed to the will of the New York State attorney general’s office. The office has been investigating the student loan industry for more than a year and has asked Fair Isaac to treat student loan borrowers like car and home shoppers. So far, Fair Isaac has refused to change its policy.

This issue matters because even a small credit score decline can lead to a more costly interest rate. Every point counts at a time of tightening credit standards, when many lenders have been requiring higher minimum credit scores. In addition, banks have been getting stingier with another source that parents tap for tuition money, home equity loans.

How did it come to pass that 18-year-olds were vulnerable to paying more because they shopped around? To answer that question, and develop strategies for credit score damage control, you need to know a bit more about the worlds of student debt and credit score algorithms.