Higher Ed Roundup: Week of January 5 – January 9

State Spending on Higher Ed Slows

Audit: Fifth Third Bank Provided Illegal Inducements for Loans

Moody’s Issues Negative Outlook for Colleges

Some Colleges Helping Students Cope with Economic Crisis

State Spending on Higher Ed Slows

Fourteen states across the country will decrease their taxpayer dollars devoted to higher education in 2009, while another 11 will have increases of less than 2 percent, according to a report released today by the Center for the Study of Education Policy. The report, which is known as the Grapevine, found that national state tax appropriations are up 0.9 percent for 2009, though that number is expected to drop as more states are forced to enact budget cuts. The report found that states in the South and Northeast are likely to be the hardest hit, while South Carolina has the largest state decrease so far, lowering spending by 17.7 percent compared to fiscal year 2008. This is 7 percentage points more than Alabama, which had the second largest drop of 10.5 percent. But not all states are enacting funding cuts. Wyoming has the largest percentage increase, with a gain of 10.9 percent, followed by Hawaii at 10.6 percent and Missouri at 9.8 percent. This slowdown in state higher education spending follows several years of large spending increases, including a nationwide average increase of 7.5 percent in fiscal year 2008 and a 7.1 percent increase in fiscal year 2007.

Audit: Fifth Third Bank Provided Illegal Inducements for Loans

For the first time, the Department of Education is publicly recommending penalties for a loan company’s actions in the student loan “pay for play” scandals. An audit released Wednesday by the Department’s Inspector General recommends that Fifth Third Bank — a lender based in Cincinnati, Ohio — pay a fine and face other sanctions for providing illegal inducements to companies in return for higher loan volumes. The audit found that Fifth Third (in partnership with the now defunct Student Loan Xpress) had offered loan premiums based on principal volume to three companies that helped it market and secure consolidation loans. This is a direct violation of anti-inducement provisions in the Higher Education Act. The audit recommends either fining Fifth Third or withholding the federal reinsurance on the $3 million worth of loans originated under the illegal agreements. In addition to penalties, the audit also found that Fifth Third needs to improve its procedures for monitoring other third-party loan relationships, and recommended that the Department cease issuing similar guarantees with Fifth Third until improved procedures are in place. Fifth Third disputed the audit’s findings and questioned the IG’s interpretation of prohibitions in the law.

Moody’s Issues Negative Outlook for Colleges

Postsecondary institutions — especially private colleges — will face several short-term financial challenges, including lower endowment funds and tighter liquidity, according to a report on higher education released earlier this week by Moody’s, an investor services firm. This is the first time the Moody’s annual higher education outlook has been universally negative, according to an interview with the report’s author in the Chronicle of Higher Education. Among the challenges leading to gloomy institutional expectations are: endowment losses of up to 35 percent, volatility in variable-rate credit markets, and growing student demand for financial aid. Private 4-year colleges will be especially hurt, as students are now more likely to consider attending lower-cost public universities and community colleges. The report did, however, note that higher education overall is unlikely to be hurt by a drop in discretionary consumer spending because few parents will defer sending their child to college.

Some Colleges Helping Students Cope with Economic Crisis

Some colleges and universities are taking action so that the financial crisis won’t prevent their students from paying tuition or staying enrolled, according to the Chronicle of Higher Education. In an article this week, the Chronicle noted that institutions such as Northern Illinois University and Georgia’s Agnes Scott College have started new programs that provide additional grant aid for low-income students, especially freshmen that have smaller federal student loan limits. Other schools, such as St. Mary’s University in Minnesota are appealing to private donors and alumni to raise donations for financial aid. The Chronicle also identified other initiatives undertaken by schools including: extending grace periods for paying tuition, expanding mid-career certificate programs, and expanding aid counseling services.