Higher Ed Roundup: Week of October 6 – October 10

Bailout Measure Provides Government with Authority to Buy Up Bad Private Loans

Congress Extends and Expands Tuition Tax Relief

Many Community College Students Fail to Apply for Aid, Report Finds

Bailout Measure Provides Government with Authority to Buy Up Bad Private Loans

The $700-billion bailout bill that Congress recently approved and the President signed into law will potentially allow struggling lenders to dump defaulted private student loans on the government. While the new law is primarily aimed at restoring the health of the financial markets by empowering the federal government to purchase failed mortgages from banks, it also gives the Treasury Department the authority to buy up other “troubled assets,” including private student loans. It’s unclear yet whether the Treasury Secretary will exercise this authority. At Higher Ed Watch, we are disappointed that Congress did not include any help for financially distressed private student loan borrowers who have been victimized by predatory practices. We will continue to urge lawmakers to reverse a 2005 law that made it extremely difficult for borrowers with unmanageable levels of private loan debt to discharge these loans in bankruptcy.

Congress Extends and Expands Tuition Tax Relief

Students in Midwestern states affected by recent flooding and tornadoes will get extra tuition tax relief under provisions in the $700 billion bailout plan, which was signed into law last week. The bailout measure expands the definition of qualified educational expenses for the HOPE and Lifetime Learning tax credits for students in the Midwestern disaster area to include books, supplies, room and board in addition to tuition and fees. Additionally, the bill extends the HOPE credit to cover 100 percent of the first $2,400 and 50 percent of the next $2,400 and increases the limit for the Lifetime Learning credit from 20 percent to 40 percent of qualified expenses through 2009 for these students. For all students, the bill extends the $4,000 per year tuition tax deduction for another year. The deduction was previously slated to expire in 2008.

Many Community College Students Fail to Apply for Aid, Report Finds

Community college students apply for federal financial aid at substantially lower rates than those who attend public and private 4-year colleges, according to a new report from the Advisory Committee on Student Financial Assistance. Based on data from other studies and interviews with aid administrators at 45 community colleges, the report finds that nearly 40 percent of students attending two-year colleges do not fill out the Free Application for Federal Student Aid (FAFSA). This holds true for even the poorest students. For example, nearly one-third of community college students who come from families making less than $10,000 fail to apply for financial aid. The most common reasons community college students give for not filling out the FAFSA are that they don’t believe they will qualify for aid (39 percent); that they already have sufficient funds to cover their costs (35 percent), and that they find the federal aid application form to be too complex (6 percent).

The authors of the report also believe that many community college students are victims of the work penalty — meaning that they reduce their eligibility for need-based financial aid by working their way through college. The advisory committee recommends that the government and colleges do a better job of advertising the availability of federal financial aid to community college students and encourage these students to reduce their work hours so that they will both be able to continue to qualify for need-based aid and concentrate more on their studies. In addition, the report calls on policymakers to streamline federal rules so that all students who automatically qualify for the maximum Pell Grant receive the benefit.