Higher Ed Roundup: Week of March 31 – April 4

Democrats Introduce Bills Aimed At Easing Student Loan Credit Crunch

Students at Canadian Career Colleges Have More Loans, More Defaults

Dept. of Ed Issues Guidelines on Lender-of-Last Resort

Democrats Introduce Bills Aimed At Student Loan Credit Crunch

Leaders of the Senate and House education committees offered legislation on Thursday aimed at easing the effects of the student loan credit crunch on lenders that participate in the Federal Family Education Loan (FFEL) program and at helping students in general wherever they attend school. Both bills include two provisions that Higher Ed Watch has recommended as potential answers to the credit crunch: a proposal to provide a modest increase in the federal loan limits to reduce students’ need for high-cost private loans and one that would allow the Department of Education to serve as a “secondary market of last resort” to help provide liquidity to lenders that need new capital to stay in business. Under the plan, the department would purchase outstanding FFEL loans from struggling lenders and service them through its Direct Loan program. The bills would also make the federal PLUS loan program more attractive by allowing parents to defer payments on the loans while their children are in school.

The two bills are not identical. The Senate bill, introduced by Sen. Edward Kennedy (D-MA), would increase the maximum Pell Grant, which is currently $4,731, by up to $750 for the lowest income students. The House measure, offered by Reps. George Miller (D-CA) and Ruben Hinojosa (D-TX), doesn’t include the Pell Grant provision, but raises annual borrowing limits slightly higher. [Disclosure: The editor of Higher Ed Watch used to work for Senator Kennedy.]

Higher Ed Watch applauds the lawmakers for taking measured action. We are particularly pleased that they didn’t embrace poorly thought out proposals to make PLUS loans available to undergraduate dependent students up to the cost of attendance (i.e. a new Undergrad PLUS program). Such a proposal would only encourage schools to inflate prices.

Students at Canadian Career Colleges Have More Loans, More Defaults

Students at for-profit trade schools in Canada are almost twice as likely to take out a government loan than their peers at public universities, according to a new survey from the Canada Millenium Scholarship Foundation. The foundation reports that 53 percent of students at for-profit colleges rely on government loans compared to 29 percent of public university students in Canada. The Millenium Foundation’s survey also found that 81percent of proprietary-school students know little or nothing about government loan and grant programs. Similarly, a recent report on the Canada Student Loan Program expects that 45 percent of students at for-profit colleges will default on their loans, compared to 25 percent of students at public colleges.

The results in Canada are similar to those in the United States. As we reported recently, a recent study by the U.S. Department of Education’s National Center for Education Statistics found that students attending for-profit trade schools in this country are by far the most likely to borrow to attend college. According to that report, nearly three quarters of proprietary school students took out a federal loan in 2003-04, compared to 53 percent of students attending private nonprofit colleges and universities. Meanwhile, 42 percent of students at four-year public colleges and 11 percent at community colleges in the U.S. obtained a federal loan that academic year.

Dept. of Ed Issues Guidelines on Lender-of-Last Resort

Amid pressure to ensure that the government is prepared if students start having problems obtaining federal loans as a result of the credit crunch, the Department last week sent a letter to 35 guarantee agencies telling them to review and update the policies of their little-used lender-of-last-resort (LLR) programs. The guarantee agencies have been given 30 days to submit detailed policies regarding their selection of LLR lenders, terms of lending, and operating procedures, which could be used in the case of a government-declared loan emergency. Critics claim that the guidelines do not go far enough to ensure that LLR lenders (possibly including the guarantee agencies themselves) would have enough liquidity to back up the loans. Representative Miller and Senator Kennedy have asked Education Secretary Margaret Spellings to direct federal funds to guarantee agencies in the unlikely event of a crisis.