Roundup: Week of July 16 - July 20

Senate Passes Bill to Cut Lender Subsidies

By a vote of 78 to 18, the Senate approved a budget reconciliation bill in the wee hours of Friday morning that would slash $18.3 billion from the subsidies that the government provides private lenders for making federally-backed student loans. Twenty-eight Republicans joined 50 Democrats in voting in favor of the legislation, a similar version of which passed in the House last week. The bill "takes the fat from the banks and lenders and gives it back to students," according to its chief sponsor, Sen. Edward M. Kennedy (D-MA). [Disclosure: The editor of Higher Ed Watch used to work for Kennedy.] Money saved from cutting lender subsidies would largely go to finance an increase in the maximum Pell Grant award to $5,100 next year, from $4,310, and to $5,400 by 2011. Before passing the bill, the Senate handily defeated an amendment sponsored by Sens. Ben Nelson (D-NE) and Richard Burr (R-NC) that would have reduced the proposed subsidy cut that for-profit lenders, like Sallie Mae and Nelnet, will face by billions of dollars. The amendment failed by a vote of 61 to 36. Eleven Republicans joined 50 Democrats in shooting down the measure.

Barnard Talks it Out

Are financially-needy undergraduate students unnecessarily taking out high-cost private loans because they don't understand that there are other preferable options available to them? Student-aid officials at Barnard College believe so. Alarmed by the growth in private-loan borrowing by its students, Barnard's financial aid office this past year implemented a new policy: before certifying a student's enrollment status with a private-loan provider, it began requiring that student and/or his or her parents meet with its loan counselors. These administrators would discuss the implications of taking out the loans and suggest alternatives, such as taking out federal student or parent loans or paying tuition on a monthly basis, rather than in one lump sum each year. As first reported on Inside Higher Ed, the results of the new policy were stunning Barnards private loan volume decreased from $1,559,385 in the 2005-06 school year to $414,889 in 2006-07. The number of students borrowing private loans plummeted from 98 to 39. We applaud Barnard College's efforts and hope that other colleges follow its example.

UNC Regulations Upset Direct Lending Advocates

The leaders of the University of North Carolina system have introduced controversial new regulations on financial aid practices that require all colleges in their system to recommend at least three lenders to their students, even if the schools are in the government's direct loan program. As a result of the new policy, state colleges in North Carolina that have participated exclusively in direct lending will now have to offer loans through at least two private lenders in the competing Federal Family Education Loan (FFEL) program as well. According to an article on the new policy in Inside Higher Ed, UNC officials say that it's only fair that all schools offer students their choice of lenders. But advocates for direct lending say this is a back-door effort by the loan industry and its allies in the UNC system to push colleges out of the direct loan program, which has not been allowed by the Bush Administration to offer the same kind of borrower benefits that FFEL lenders advertise.