Roundup: Week of August 20 - August 24

9.5% Program Cost Taxpayers $3.5 Billion Since 2001

From 2001 to 2006 the Department of Education paid out $3.5 billion under a subsidy program designed to guarantee nonprofit student loan providers a 9.5 percent rate of return, the Chronicle of Higher Education reported Thursday. Though the 9.5 subsidy was eliminated for loans issued after 1993, lenders found a loophole in the system, recycled old loans into new ones, and continued to receive inflated payments. Beginning in 2001, however, a handful of student loan providers moved beyond recycling and aggressively began illegally growing their 9.5 loan volume. According to the Education Department Secretary Margaret Spellings, the Nelnet corporation claimed nearly $278 million in illegal 9.5 percent loan payments funds she allowed Nelnet to keep, when the company agreed simply to stop the impermissible billing. Members of Congress in both political parties and consumer advocates like Higher Ed Watch expressed outrage at the time of Spellings' decision. The $3.5 billion accounting of payments since 2001 was spurred by a Congressional request.

Maker of the SAT Exits Loan Industry

The College Board announced Wednesday that it will no longer participate in the student loan market, citing concerns that some events it holds would constitute a conflict of interest under proposed state and federal restrictions governing interactions between college officials and student loan providers. The College Board, a company that administers the SAT and provides other resources to students and colleges, partnered with Sallie Mae and Citibank to serve as what the New York Times referred to as a "gateway for borrowers." The College Board decided to end the partnership because it regularly holds meetings with college officials that it said could be construed as violating the code of conduct because the College Board covers travel costs. "Our membership meetings are critical to our mission, and it is essential that all our membersregardless of their financial resources or locationfeel comfortable attending without concern that they are violating new laws or code provisions," a College Board spokesman said in a statement.

ACE Report Looks at Trends in Private Loan Borrowing, Echoes Findings in Similar Studies

One out of every five private loan borrowers who were eligible for federal financial aid either did not take out federal loans or exhaust their eligibility, according to an issue brief released Tuesday by the American Council on Education (ACE). The report, "Who Borrows Private Loans?" echoes earlier findings in an unpublished Department of Education document uncovered by Higher Ed Watch and a December 2006 report by the Institute for Higher Education Policy. ACE's report also found that at $17.3 billion, private loans represented 20 percent of all student loans in the 2005-06 school year, and that the percentage of students taking out a private loan increased from less than 1 percent in the mid-90s to 5 percent in the 2003-04 school year. "Since financial aid experts agree that private loans should be used as a supplement to federal loans, it is alarming to find that so many student borrowers aren't taking advantage of the less expensive federal option," said Jacqueline King, the reports author, in a statement.

Harvard Endowment Grow 23%; Now Near $35 Billion

Harvard's endowment grew by 23 percent to a staggering $34.9 billion in the 2007 fiscal year, the university announced Tuesday. By contrast, an index of 151 institutional endowments registered a median return of 17.7 percent for the fiscal year, while the top five percent had an average return of 20.9 percent. The strong return was calculated before recent downturns in the stock market, during which the endowment lost around $350 million it had invested in a hedge fund. The endowment's manager said that the hedge fund loss would account for a one percent decline in the fund, but that other strong investments in the past month produced gains of 0.4 percent. Harvard's endowment is by far the largest in the country: at the end of the 2006 fiscal year, Harvards endowment was $10 billion more than the next largest endowment.