Higher Ed Roundup: Week of April 28 – May 2

Student Loan Credit Crunch Bill Sent to President

One in Five Colleges Considering Switch to Direct Lending

Tuition On the Rise, but Spending for Instruction is Not

Report Calls for Revised Pell Grant Formula

Student Loan Credit Crunch Bill Sent to President

The U.S. House of Representatives moved quickly on Thursday to give final approval to H.R. 5715, which would increase the annual and aggregate federal unsubsidized Stafford loan limits, allow parents to defer payments on PLUS loans while their children are in school, and establish the Department of Education as a “secondary lender of last resort” (one of our ideas) with the power to purchase outstanding FFEL loans and service them through the Direct Loan program. Congress put the legislation on the fast track after President Bush used his weekly radio address to highlight the need for quick action to address tight liquidity for student loan providers. The final measure includes amendments that the Senate added to the bill before approving it on Wednesday. Among other things, the bill will now sunset the Education Secretary’s authority to designate entire colleges for the “lender of last resort program” at the end of the 2008-09 academic year and direct all savings derived from the legislation to increase funding for the Academic Competitiveness and SMART grant programs. The President is expected to sign the bill shortly.

One in Five Colleges Considering Switch to Direct Lending

Citing instability in the student loan market, 19 percent of colleges surveyed last week by Student Lending Analytics say that they are considering switching from the Federal Family Education Loan program to the Direct Loan program, in which the Department of Education provides loans directly to students through their college. Nearly six percent of institutions surveyed have already made the switch. So far, the largest institutions to make the move have been Indiana University at Bloomington, Michigan State, Northeastern, and Pennsylvania State Universities. Those expressing the most interest in switching programs, however, are community colleges (about 7 percent are planning to make the switch, and another 29 percent are considering doing so) and for-profit trade schools (14 percent are planning to make the switch, and another 43 percent are considering doing so.) These results are hardly surprising as several banks in recent weeks have said they plan to be more selective in making federal loans to financially-needy students attending these types of institutions.

Tuition On the Rise, but Spending for Instruction is Not

Annual tuition hikes are becoming a fact of life at pubic and private colleges around the country, but little of that additional money is going towards student instruction. A new report from The Delta Cost Project, “A Growing Imbalance: Recent Trends in U.S. Postsecondary Education Finance,” finds that the percentage of institution revenue dedicated to faculty salaries and other instructional costs at private colleges increased by just 1 percent between 1998 and 2005, down from a 2.2 percent increase between 1987 and 1996. In particular, tuition revenue at public colleges, though on the rise, often did not translate into increased spending because it was used to offset decreases in state appropriations. Since 1998, student tuition has covered a larger percentage of the costs of a student education, up from 37 percent to 47 percent at public schools and up to 31 percent from 24 percent at private institutions.

Report Calls for Revised Pell Grant Formula

Planned increases to the maximum Pell Grant award are important for helping low-income students, but a new report argues that additional modifications should be made to the program to ensure that funds are better targeted to the poorest individuals. “Window of Opportunity: Targeting Federal Grant Aid to Students with the Lowest Incomes,” released Monday by the Institute for Higher Education Policy, argues for changes in the Pell Grant award formula, which is determined by taking the difference between the maximum award and the student’s expected family contribution (EFC). The report recommends that students be allowed to have a negative EFC of up to $750 (the current minimum is zero), in turn allowing the poorest students to receive a Pell Grant award of up to $750 beyond the maximum limit. The report also recommends increasing both the minimum and maximum Pell Grant awards.