February 20, 2008

• Latest Student Financial Aid Positions of Presidential Candidates

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Latest Student Financial Aid Positions of Presidential Candidates

What follows is taken primarily from the 3 major presidential candidates' websites and recent public pronouncements.

Over time, the rhetoric related to the student loan programs, FFELP, FDLP, private student loans, etc., has, in one case, changed from advocating abolishment of the FFELP to a more nuanced position of advocating increased borrower protections under, and improvements to, the FFELP and private student loans. One candidate proposes to abolish the FFELP to fund other new initiatives. One has no position at all.

Some of the proposals have been, or are on their way to being, enacted by the current Congress, in no small part, as a result of these candidates' work.

Senator John McCain

The likely Republican nominee, Arizona Senator John McCain, has no stated position on the federal role in providing, or even promoting, access to postsecondary education. Aside from (but also including to a significant degree)the high profile issues of health insurance, Medicare, and Social Security, the traditional and historical position of the Republican Party is that the federal role in providing support for domestic education, health and human service, and job programs should be as limited as possible. And entitlement programs should be as limiting as politically possible. It is likely that the cost of the two major student loan programs would be a major consideration, with performance another factor. This is borne out by the results of the annual program evaluations of the current Office of Management and Budget Program Assessment and Rating Tool (PART) of the FFELP and FDLP.

This assessment would also apply to Mike Huckabee.

Senator Barack Obama

Simplify the Application Process for Financial Aid
The application process for financial aid is cumbersome and evidence shows it may be a reason why students never apply for college. Research has shown that the low take-up rate of the Pell Grant and HOPE and Lifetime Learning tax credit programs is likely due to the complexity of the application process. The current Free Application for Federal Student Aid (FAFSA) is 5 pages and 127 questions-making it longer and more involved than many federal tax returns.

Over 1.5 million high school students failed to apply for aid in 2004, despite being eligible for a Pell Grant. A recent study by Susan Dynarski and Judith Scott-Clayton found that the costs of complexity in our financial aid processes fall most heavily on low-income, nonwhite, and non-English speaking youth. Senator Obama proposes to simplify the financial aid process by eliminating the FAFSA altogether. Instead, aid would be based on a simpler formula, so that students can predict their eligibility well in advance. The aid process will be streamlined by enabling families to apply simply by checking a box on their tax form, authorizing their tax information to be used and eliminating the need for a separate application.

American Opportunity Tax Credit
Make college more affordable by creating a new American Opportunity Tax Credit. This universal and fully refundable credit will ensure that the first $4,000 of a college education is completely free for most Americans, and will cover two-thirds the cost of tuition at the average public college or university. And by making the tax credit fully refundable, the credit will help low-income families that need it the most. The tax credit would be available to families at the time of enrollment by using prior year's tax data to deliver the credit at the time that tuition is due, rather than a year or more later when tax returns are filed.

Help Students Become Aware of College Readiness
Some states have developed Early Assessment Programs that enables 11th graders and their families to ascertain if they are on track to be college ready by the time they graduate. The voluntary test and the presentation of results are specifically designed to inform students what they need to do to prepare for college while they still have time to do it. This program will increase college readiness and is voluntary. This proposal would provide $25 million annually in matching funds for states to develop Early Assessment Programs. These funds will also promote state efforts to raise awareness about the availability of federal and state financial aid programs.

Expand Pell Grants for Low-Income Students
Two decades ago, the maximum Pell Grant covered 55 percent of costs at a public four-year college, compared with only 32 percent today. This proposal is a commitment to continue to work to ensure that the maximum Pell Grant award is increased for low-income students by ensuring that the award keeps pace with the rising cost of college inflation.

Community College Partnership Program
Community colleges are a vital component of our higher education system, serving 12 million people each year, almost half the undergraduate students in the United States. Without community colleges, millions of people would not be able to access the education and skills they need to further education or succeed in the workplace. This proposal would create a Community College Partnership Program to strengthen community colleges by providing grants to:

• conduct more thorough analysis of the types of skills and technical education that are in high demand from students and local industry;
• implement new associate of arts degree programs that cater to emerging industry and technical career demands; and
• reward those institutions that graduate more students and also increase their numbers of transfer students to four-year institutions. These efforts will ensure that community college students are able to directly use their skills in the workforce following graduation, and be prepared to continue their higher education. And the grants will support programs that facilitate transfers from two-year institutions to four-year institutions.

Eliminate Costly Bank Subsidies
Currently, there are two basic college loan programs: the Direct Loan system, funded publicly, and the Federal Family Education Loan Program, funded privately by banks and lenders who receive subsidies and guarantees from the government. Privately funded loans cost more per loan than the Direct Loan program and provide no greater benefits. This proposal would save taxpayer money billions by eliminating the more expensive private loan program (FFELP), and directing that money into aid for students.

Senator Hillary Clinton

Protecting Student Borrowers Against Predatory Student Lenders and Increasing Financial Literacy
Senator Clinton's recent rhetoric has begun to stress the need for increased federal oversight over the FFELP and emerging private alternative student loan market and downplay repeal of the FFELP.

Almost 90 percent of college graduates who received a Pell Grant have student loans, compared with about half of non-Pell recipients. As a result, these students are more vulnerable to exploitation by private lenders, and more likely to struggle to meet their loan obligations. Private student loans do not have the same protections of federal student loans:

• the interest rate is not locked in;
• borrowers aren't assured the right of a deferment or forbearance without accruing interest in times of economic hardship;
• borrowers aren't guaranteed the ability to consolidate their loans; and
• there is no loan forgiveness for public service or income-based repayment options.

While student loans serve an important function-helping students afford college-some private lenders use deceptive practices in order to grow their profit, such as:

• aggressively marketing their products to college students without regard to their financial circumstances or ability to afford the payment;
• advertising the lowest possible interest rate as opposed to the range;
• using college brand names to deceive borrowers into believing they are signing up for a safer, federal loan;
• describing the loan terms and conditions in a way that makes it virtually impossible to compare them to other options; and
• not disclosing the basic terms, rates, and conditions.

Private loans have grown by 27 percent annually over the past five years, and expanded their market share from five to twenty percent ($17.3 billion) of the total student loan volume over the past decade. These increases occurred in part as a result of the increase in college costs, which hasn't been met with an increase in student financial aid, but also because of the predatory practices of some private student lenders. It is partly because of their higher reliance on private student loans that black students had an overall default rate that was over five times higher than white students.

This plan proposes to enact a Student Borrower's Bill of Rights that makes the student loan system work for students by providing the following.

A Right to Timely, Accurate, and Transparent Information
Schools will be required to clearly state whether a loan is private or federal when providing students with financial aid packages.

Schools and lenders will be required to clearly state in easy-to-understand language:

• the annual interest rate and what that means over the life of the loan;
• monthly payment;
• length of the loan; and fees and interest rate increases that will occur if a student fails to make on-time payments.

Private lenders will be required to report the loans they make to students to the schools the students are attending so that financial aid counselors can give sound advice to student borrowers and steer students towards federal loans first.

Schools and lenders will be prohibited from co-branding their loans.

A Right to Affordable Loan Payments
Private student lenders will be required to offer an affordable repayment option with payments calculated as a percentage of income and to explain in clear, easy-to-understand language the impact this payment plan will have on the student borrower's monthly payment, interest rate, and the length of the loan. Income-based repayment options make it possible for students who want to go into public service-teach or become a social worker-to pursue their dreams while repaying their student loans.

A Right Not to Be Exploited
Colleges and financial aid administrators will be prohibited from receiving gifts, trips and other items of value from lenders. In recent years, there have been reports of college financial aid officers receiving trips and gifts, such as valuable stock options, in exchange for steering students towards these lenders. Students have a right to receive impartial, unbiased advice from an informed intermediary who is looking out for their best interest.

Private student loans will be treated the same as all other consumer debt in bankruptcy.

College Opportunity and Diversity Fund
This proposal is a new initiative to reward colleges and universities that serve large proportions of low-income students and enable these schools to invest more heavily in recruitment and retention efforts for these students. This initiative would provide colleges and universities with an additional $500 for each Pell-eligible student above 25 percent or 1,000 students. Half of the money will be distributed up front-in the first year of the student's enrollment-in order to provide an incentive to recruit more low-income students. The other half will be distributed when the student graduates, in order to provide an incentive for schools to invest in retention efforts. Under the initiative, schools will need to reinvest the funds in efforts to increase enrollment and graduation rates for students from low-income families.

Historically Black Colleges and Universities, minority-serving institutions, Predominantly Black Institutions, and Hispanic-Serving Institutions will receive much of the funding from this initiative, as those schools have higher proportions of low-income students than others. This initiative is aimed at expanding access by providing resources to help students who might not otherwise go to college. In recent years, state spending on non-need-based aid (aid that is not targeted at low-income students) has grown by 300 percent compared with 70 percent for need-based aid. Much of the growth in institutional financial aid during the same time period has gone to upper-income students, not students in need. This initiative is aimed at counteracting that trend. In order to benefit from this initiative, colleges and universities will be required to share data on performance of their students, including six-year graduation rates by Pell Grant recipient status.

An additional $100 million is proposed for Minority-Serving Institutions to invest in:

• providing assistance to students to purchase their own computers;
• upgrading their information technology infrastructure, networks, and connectivity;
• providing support and training for faculty members; and other activities that will expand the student's technological capacity.

Fund a National Demonstration of "Opening Doors"
For many low-income students, higher education begins at a community college. But graduation rates are a particularly acute problem among these institutions. Barely half of students who enroll in community colleges get a degree or transfer to a four-year institution within six years. In Louisiana, the "Opening Doors" initiative paid up to $2,000 in scholarships to students who enrolled in community colleges at least half time and maintained at least a C average. Random assignment evaluation showed that these students were significantly more likely to stay in school, and take and pass more classes. This proposal would provide federal funding to replicate this initiative in ten sites around the country.

This plan builds on Senator Clinton's earlier announced proposal to Make College Affordable for America which proposes to:

• create a new $3,500 College Tax Credit;
• increase the Maximum Pell Grant, with annual adjustments;
• simplify the application for and delivery of student aid and the FAFSA;
• create a Truth in Tuition Disclosure — Students and their families should be able to make educated decisions about where to spend their money. As a condition of federal financial aid eligibility, state and local institutions of high education will be required to set multi-year tuition and fee levels for each cohort of students at the beginning of each student's freshman year so that students and their families will have a sense of how much their costs will be in the following years;
• create a Graduation Fund — The United States used to rank first in the world in our percentage of young people with a postsecondary degree; now, we have fallen to seventh. Today, 25 percent of students drop out of college after their first year, and every year half a million students who start at a four-year institution fail to earn a bachelor's degree within six years. Senator Clinton will create a $250 million Graduation Fund that will provide incentive grants to four-year colleges to launch performance-based efforts to improve their graduation rates, especially among low-income and minority students;
• strengthen Community Colleges — forty-three percent of undergraduates start their postsecondary education at community colleges. They give students the core tools they need to pursue further education or enter well-paying occupations. This proposal would provide $500 million in incentive grants for investments by community colleges to ensure that students complete their degrees and, in partnership with four-year colleges, to increase graduation rates and promote smooth transfers to a four-year college or university;
• provide Public Service Scholarships-This proposal would increase the Segal Education Award to $10,000 to get it back on pace to covering a meaningful portion of the cost of going to college for people who devote a year or two of full-time public service through AmeriCorps.

As stated above, the nuances in these positions may continue into the fall. Of course, it is the legislative branch that makes laws, not the executive branch.

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