Roundup: Week of April 23 – April 27

Debt-Free in N.C.

North Carolina Governor Mike Easley proposed a plan this week that would allow low-income students in North Carolina to graduate from college debt-free. The plan, called Educational Access Rewards North Carolina Scholars Program, would require students to remain in high school for an additional year and enter college with two years worth of credit. Students would then attend a public college or university for two years, receiving annual grants of $4,000 to replace any need for Stafford loans. To qualify, a student must have a family income of up to twice the poverty rate ($41,300 for a family of 4), maintain their GPA, and work while enrolled in college. Currently, students in the UNC system graduate with approximately $14,370 in debt. Easleys plan would alleviate this burden for an estimated 25,000 students. Costing $100 million, lawmakers have requested greater detail before they make the program part of their state budget proposal.

Collapse of Negotiated Rulemaking on Student Loans; Spellings Creates New Task Force Instead

Last week, the negotiated rulemaking process on student loans broke down, as the panel failed to agree on a final set of regulations that would have placed new restrictions on preferred lender lists. The panel could not agree on four of the 16 items on its agenda, which means that Secretary Spellings does not have to follow any of the panels recommendations when she issues her final regulations on the federal student loan program. The panel was divided on a proposal to require a minimum of three lenders on preferred lender lists and a plan to clarify and tighten the definition of illegal lender inducements. In response to the breakdown, Spellings formed an internal “Task Force on Student Loans” made up of Department officials. The task force will make recommendations to Spellings on preferred lender lists, prohibited inducements and the National Student Loan Data System.

Nelnets Quick Fix

Last Friday, the National Education Loan Network (Nelnet) struck a deal with Nebraska Attorney General Jon Bruning that pre-empted any investigation by the Nebraska AG. Under the agreement, Nelnet will give $1 million to a national financial aid awareness program and abide by a code of conduct that was largely written by the company itself, with minimal input from Bruning. Although the code of conduct has some similarities to the code created by New York State Attorney General Andrew Cuomo, Nelnet will continue to staff calling centers for college financial aid offices. Mr. Bruning expressed his confidence in Nelnet, saying that he knows of only two minor, “self-reported” cases of questionable behavior. Cuomo, however, is not discontinuing his own states inquiry into Nelnets practices.

Republicans Introduce Their Own Student Loan Legislation

Representative Howard “Buck” McKeon (R-CA), ranking member of Committee on Education and Labor, introduced legislation Monday that would expand federal regulation of the student loan industry, along the same lines as Senator Edward Kennedys (D-MA) and Representative George Millers (D-CA) Student Loan Sunshine Act. McKeon calls for a code of conduct similar New York State Attorney General Andrew Cuomos that would limit the gifts and other benefits that college financial aid administrators could receive. In addition, McKeons bill, unlike the Democrats version, would ban revenue-sharing agreements and would require colleges to list at least three lenders on preferred lender lists. Schools that participate in the Direct Loan Program would also be required to disclose to students why they chose Direct Lending.

Colleges Employ Lenders to Conduct Exit Counseling Sessions

An investigation by the New York Times found that some universities have used private student loan companies to conduct exit counseling sessions for their students, which are mandatory under federal law if a student holds federal loans. During these sessions, lenders often do not disclose their affiliations to students and ask students for personal information. Some lenders run online counseling programs, such as OpenNet, an online service run by Sallie Mae, which requires students to sign a disclaimer allowing Sallie Mae to use their personal data for other purposes. Several financial aid officials expressed concern that lenders could be improperly marketing consolidation loans which may not be in the best interest of many graduating students. The exit counseling sessions, according to the Department of Education, are intended to explain “the borrowers rights and responsibilities, loan repayment and the consequences of default.”

MOHELA Plan Passes Missouri Senate, Moves On to House

On Wednesday, the Missouri Senate gave final approval to Governor Matt Blunts plan to sell $350 million of the assets of the Missouri Higher Education Loan Authority (MOHELA) to fund construction projects. The billed was passed almost along party lines by a vote of 23-11, with all Republicans but one voting for the plan. Last week, Republican Senators used a rare procedural maneuver known as “calling the previous question”which has only been used seven times since 1970to halt debate on the bill and bring it to a vote. Senate Democrats had successfully blocked the bill last month with a 17 hour filibuster. Then, the Senate penalized the two Democrats who headed the filibuster by excluding more than $46 million in funding for two projects in their home districts from the appropriations bill for the MOHELA sale. The bill is expected to pass the Republican-controlled House.