Higher Ed Roundup: Week of September 15 – September 19

Congress Approves One-Year Extension of Student Loan Bail Out Bill

Ed Department Projects Pell Grant Shortfall of $6 Billion

Panel Presents Plan for Overhauling Federal Student Aid Programs

Student Loan Defaults are on the Rise

Congress Approves One-Year Extension of Student Loan Bail Out Bill

Acting with uncharacteristic speed, Congress this week sent a bill to the President that would extend for one year a previous effort to bail out student loan providers. The legislation would extend the expiration date of two parts of the Ensuring Continued Access to Student Loans Act (ECASLA) to July 1, 2010, a year longer than they were originally written to last. First, the measure would continue a program that allows the Secretary of Education to either buy outright or purchase participation interests in newly disbursed student loans. Second, the bill would also continue allowing entire schools to be eligible for assistance through the “lender of last resort” program if 80 percent or more of their students cannot find loans. Eager to move the bill quickly, Democratic Congressional leaders rejected calls from Higher Ed Watch and other advocates for students to use the measure to come to the aid of financially distressed borrowers struggling with private loan debt. President Bush is expected to sign the legislation into law soon.

Ed Department Projects Pell Grant Shortfall of $6 Billion

With record numbers of students applying for federal financial aid, the federal Pell Grant is facing a massive budget shortfall that could force Congress to slash the maximum award, The New York Times reported on Thursday. According to the newspaper, Thomas Skelly, the U.S. Department of Education’s budget chief, recently sent a memo to Congressional leaders revealing that 800,000 more students have applied for Pell Grants this year than last. He attributed the increase in aid applicants primarily to the downturn in the economy, which has prompted more people to return to school. As a result, he wrote, Congress will need to come up with as much as an additional $6-billion, over the Pell Grant program’s $14-billion budget, to fully finance the program next year. In response to the memo, a spokeswoman for the House Committee on Education and Labor said that the panel’s chairman, Rep. George Miller (D-CA), is “committed to ensuring that the scholarship doesn’t decrease in the future.”

Panel Presents Plan for Overhauling Federal Student Aid Programs

A group of higher education researchers, student-aid experts, and economists laid out an ambitious plan on Thursday to overhaul the federal financial aid programs. The proposal, which the College Board’s Rethinking Student Aid Study Group has been developing for nearly two years, aims to drastically simplify the federal student aid system and the process of applying for aid; make it easier for students to repay their loans; develop a federal college savings program for low-income families; and provide incentives to colleges to retain and graduate low- and moderate-income students. Some of the proposals, such as one to create a tax-free college savings account for low-income children, echo ones previously offered by The New America Foundation. While the panel received widespread acclaim for its work, college lobbyists and some Congressional aides said that some of the group’s ideas were politically unfeasible. They particularly questioned proposals that would eliminate the in-school interest subsidy on student loans and phase out the federal campus-based student aid programs. In a conference call with college lobbyists, the group’s leaders said that they knew that some of their proposals would be unpopular but urged higher education officials to look at the plan as a whole rather than try to pick it apart.

Student Loan Defaults are on the Rise

The rate at which students default on their federal student loans has risen to 5.2 percent, the Education Department announced on Tuesday. The new rate, for the 2006 fiscal year, applies to borrowers who began repaying their loans between Oct. 1, 2005 and Sept. 30, 2006, and who defaulted by the end of Sept. 2007. The rate is more than half a percentage point higher than it was in the 2005 fiscal year, but nearly 17 percentage points less than it was when it peaked at 22 percent in 1992. Education Secretary Margaret Spellings attributed the increase to the financial struggles many borrowers faced in the wake of Hurricanes Katrina and Rita. Some analysts, however, questioned this reasoning, noting that the hurricanes hit before affected students entered repayment and that increased defaults in the Gulf states were less significant relative to defaults across the country. The default rate varies widely based upon the type of school. Students at for-profit colleges were almost five times more likely to default on their loans than those attending private, nonprofit four year colleges.