Student Loans, Financial Aid Both Rise in 2009-10

According to a new report by the College Board, both loans and other types of college financial aid rose in the 2009-10 academic year, although this increase in student aid was largely offset by rising college costs, which increased by about 6 percent.The College Board, in its annual “Trends in Student Aid” report, estimates that a total of $154.5 billion in student financial aid was distributed in 2009-10. Grants now comprise about 50 percent of student financial aid from all sources, both federal and private sector.In 2009-10, the average undergraduate student financial aid package was worth nearly $11,500. This figure includes more than $6,000 in grants and more than $4,800 in government-backed federal loans. Graduate students received slightly more financial assistance, on average, in the form of grants — nearly $6,400 — but also borrowed more heavily. The average graduate student took out more than $15,700 in graduate loans.GrantsCompared to student financial aid figures for 2008-09, grant aid to undergraduate students increased by 22 percent, while federal loans increased by 9 percent. The 2009-10 academic year also saw a 16-percent increase in the average federal Pell Grant award to $3,656, the largest one-year rise in the program’s history. Only about one-fourth of all Pell Grant recipients, however, qualified for the maximum grant amount of $5,350.Student LoansPrivate student loans — college loans issued by private lenders rather than by the federal government — represented about 8 percent of all loans in 2009-10, a decrease from 25 percent in 2006-07.Federal subsidized Stafford student loans made up about 35 percent of all loans in 2009-10, an increase from 31 percent in 2006-07. Unsubsidized federal Stafford student loans accounted for 42 percent of the combined federal and private student loans taken out in 2009-10, an increase of about 12 percent from 2006-07.Subsidized Stafford loans, which are available only to students who demonstrate financial need, are government-backed college loans on which the government will pay the interest while the student is in school or in a period of approved deferred payments. Unsubsidized Stafford loans are available to students regardless of financial need. Although students, as on a subsidized loan, may defer payments on a federal unsubsidized college loan while they’re in school or in certain other authorized circumstances, the student, not the government, will be responsible for paying all the interest that accrues on an unsubsidized loan during those periods of deferment.According to the College Board, about 65 percent of all undergraduate students in 2009-10 did not accept Stafford loans of any type. The majority of students who did accept Stafford college loans ended up taking out both subsidized and unsubsidized loans. The average Stafford student loan debt load in 2009-10 was $6,550.In 2008, Congress authorized increases in the maximum annual and lifetime federal lending limits for Stafford student loans. The expanded loan amounts were approved in part to discourage students from taking on the burden of private student loans, which tend to carry higher interest rates and fewer borrower protections than federal loans.Currently, dependent undergraduate students can borrow up to a maximum of $31,000 in Stafford college loans throughout their undergraduate college career. Independent undergraduates, as well as dependent undergraduates whose parents do not qualify for a federal parent loan, can borrow up to a maximum of $57,500 in Stafford college loans.Graduate students may also be awarded both subsidized and unsubsidized Stafford student loans, up to $20,500 a year and up to a total lifetime maximum of $138,500, including both their undergraduate and graduate Stafford loans.

Credit Unions Challenge Big Banks for Private Student Loans

Big banks that offer private-label college loans are facing new competition from credit unions that are looking to issue their own private student loans.Credit unions, in increasing numbers, are developing partnerships with private loan companies like Sallie Mae and Credit Union Student Choice to deliver private loan products to credit union members. In one such agreement, Southeast Corporate Federal Credit Union, which itself has more than 400 member credit unions, will offer private student loans through Sallie Mae.Private loans, non-federal education loans issued by banks and private lenders, are designed to assist students who have exhausted their federal loan options. Private loans can be used to cover up to 100 percent of a student’s approved educational expenses.Credit Unions Offering Flexibility in Student Loan ProgramsSome credit union private loan programs are being structured to appeal to families with more than one student in college by enabling parents to make multiple withdrawals on a single line of credit worth as much as $75,000. In addition, credit union-backed student loans are eliminating loan origination fees and offer both in-school loan repayment and deferred, post-graduation repayment plans.In-school repayment options enable students to reduce the overall amount of interest their private loan accrues before they graduate. According to Sallie Mae, students who begin college loan repayments while still in school can reduce their student loan debt by 30 to 50 percent over traditional college loan payment plans, which defer repayment until after a student has graduated or left school.Investors Looking to Private Student Loans’ Long-Term GrowthThe prospects for private loan companies and college loan securitization are improving marginally. The National Credit Union Administration (NCUA) recently sold a bond worth nearly $1.2 billion that was backed by student loans, after previously relying on commercial and residential mortgages to secure its bond sales.Credit rating agencies are less sure that private student loan companies represent a good risk; however, many analysts remain optimistic about the long-term investment potential of private loans.Fueling investor confidence in the longer-term prospect of the private student loan market is the growing demand for student financial aid as record numbers of students are entering college each year.Federal Budget Cuts May Pave the Way for More Private Student LoansIndeed, private loans may gain market share in a more immediate future than analysts had been predicting.On Capitol Hill, the U.S. Senate is currently struggling to pass a continuation of its earlier spending authorization to fund the Department of Education’s federal Pell Grant program, which awards government-issued college grants to financially needy and lower-income students. The current authorization expires December 18.If the Senate fails to reauthorize the funding proposal at its current level, students who are eligible for a Pell Grant may find their Pell Grant award reduced or eliminated. With less Pell Grant aid available to them, many of these students would then need to take out more money in student loans in order to pay for college and complete their degree.Congress is already considering elimination of the Pell Grant program altogether, as recommended by President Obama’s National Commission on Fiscal Responsibility and Reform.The bipartisan panel, which recently forwarded its final report to Congress, recommended that the federal government reduce federal education grants based on a student’s pre-college family income in favor of more government-issued college loans, which would need to be paid back, replenishing the government’s coffers, and that would be more attuned to a borrower’s post-graduation earning potential.However, spending appropriations for an expanded federal loan program may face stiff opposition in the Republican-led House of Representatives.As Congress wrestles with the funding needs and long-term future of both federal grant and federal student loan programs, private loan companies are positioning themselves to fill in any emerging federal financial aid funding gaps.private college loans: http://www.nextstudent.com/private-loans/private-loans.asp

Iowa Student Loan Grant Program Will Assist First-Year Teachers

A new grant program from Iowa Student Loan will provide $2,000 cash grants to first-year teachers in Iowa who accept assignments in certain “shortage areas,” as designated by the state Department of Education.The $2,000 one-time awards are not college loans and do not have to be repaid. The grant program, which is expected to continue annually, will be funded from Iowa Student Loan’s operating revenue and is expected to help more than 60 teachers each year. Grants will be awarded on a first-come, first-served basis.Applying for an Iowa Student Loan Teacher Career Establishment GrantFirst-year teachers in qualifying subjects like mathematics, science, English as a second language, foreign languages, music, agriculture, industrial arts, and special education can apply for the grants online.The program, named the Teacher Career Establishment Grant Program, is designed to help new teachers with living expenses. The grants can be used to help repay loans and reduce college loan debt but can also be used for any other expenses. Iowa Student Loan doesn’t place restrictions on how the money can be spent.The Iowa Student Loan grants are intended to help recruit and retain new teachers in Iowa. The program is open to all recent graduates, regardless of your current state of residence or where you went to college.In order to be eligible for the grant program, you must be contracted to begin your first teaching job after Jan. 1, 2011, and you must teach in an Iowa classroom. You may not have taught in any other state prior to teaching in Iowa.State Hopes Financial Aid Will Attract More TeachersThe Iowa grant program has been established in response to a growing need among Iowa school districts for qualified teachers.A 2009 survey conducted by the Iowa Department of Education reported that the state had nearly twice as many math teachers who were ready to retire as it had incoming math teachers. The same survey also showed that the ratio of retiring teachers to new teachers in other academic shortage areas, like physics, was similarly lopsided.One goal of the grant program is to convince Iowa education students to remain in the state and pursue teaching opportunities locally. By helping with newly minted teachers’ first-year expenses, Iowa Student Loan hopes to bolster the number of highly qualified teachers that remain in the state after graduation.For its part, the state has also recently moved to increase starting salaries in Iowa schools to make the decision to teach in Iowa easier on students who may be carrying a large debt burden from college loans.Historically, Iowa had offered starting salaries for teachers that were among the lowest in the country. Recently, however, starting salaries for teachers in Iowa have risen from the bottom one-quarter of all state starting teacher salaries nationwide to about the national median starting salary.Iowa Grants Begin as Student Loan Forgiveness Program EndsThese new Teacher Career Establishment Grants replace a student loan forgiveness program that was instituted in 2006 and is winding down this year.The Teacher Education Loan Forgiveness Program, also sponsored by Iowa Student Loan, provided loan debt reduction for more than 300 teachers who enrolled in the program. The student loan forgiveness program provided millions of dollars in college loan debt relief for teachers who accepted assignments in areas where teacher shortages were apparent.The student loan debt forgiveness program has paid out approximately 20 percent of its committed funds and will pay the remaining 80 percent as program participants fulfill their teaching commitments. The Teacher Education Loan Forgiveness Program stopped accepting applications at the end of the 2009-10 academic year.About Iowa Student LoanIowa Student Loan, based in Des Moines, is a private, nonprofit financial aid organization established in 1981 to help Iowa students and families obtain the money they need to pay for college. The organization also provides benefits in the form of discounted college loan products and college loan forgiveness programs, and it supports free college planning services for students and their families.Student loans: http://www.nextstudent.com/student-loans/student-loans.asp

Health Workers to Get Help With Student Loan Debt

Through the NHSC student loan repayment program, you can receive up to $60,000 toward the balance on your college loans if you successfully complete the program’s two-year service requirement. Two-year half-time commitments are also being sought, in exchange for $30,000 in college loan debt reduction.Clinicians willing to make a five-year commitment to the program can receive up to $170,000 in college loan debt relief. Eligible applicants who are willing to commit to six or more years of service are eligible to have the entire balance of all their federal student loans forgiven.The college loan debt relief offered by the NHSC repayment program applies to federal, state, local, and private student loans.Qualifying for the NHSC Student Loan Repayment Program In order to qualify for repayment through the NHSC program, your loans must have been taken out prior to your enrollment in the program. The program will not repay student loans that were not clearly used to pay for education or loans that were not issued by a government or commercial lender (i.e., personal loans).College loans that have already been repaid; parent loans, such as those issued under the federal PLUS parent loan program; personal lines of credit; residency relocation loans; and credit card balances are not eligible for repayment under the NHSC student loan debt relief program.In addition to offering loan forgiveness to qualified applicants, the program also offers incentives for providers willing to work half-time in underserved areas, including more flexible loan repayment terms and credits for teaching.Service is needed in extremely rural areas where primary medical care is otherwise unavailable and in more densely populated but underserved urban areas. Qualifying primary care positions are also available at state and federal correctional institutions, community mental health facilities, Indian Health Service provider sites, hospital-affiliated primary care practices, public health programs, and community care facilities.The NHSC is actively seeking medical doctors, psychiatrists, licensed mental health counselors, dentists, physicians’ assistants, and nurses. All licensed primary care providers, nurses, and mental health providers are eligible to participate in the college loan repayment program; however, if you opt to make a full-time commitment to the NHSC, you must not already be participating in another federal or state program, or have active or pending military duties that would prevent you from fulfilling your NHSC work commitments.Applying for the NHSC Student Loan Repayment ProgramTo get more information or apply for the NHSC student loan debt relief program, visit the NHSC website.From the NHSC website, you can find out more about the agency, browse a database of program FAQs, and find open job positions in all 50 states that are eligible for the student loan repayment program.About the National Health Service Corps Part of the U.S. Department of Health & Human Services, the NHSC currently employs about 7,500 primary care providers at 10,000 sites around the United States. The NHSC expects to employ 11,000 health care professionals by the end of 2011 and 15,000 by the end of 2015.The loan repayment program is funded by a nearly $300 million appropriation from the Affordable Care Act.student loans

Graduate’s $200,000 Student Loan Debt Spurs New Website

The Northeastern University graduate figures that without help, she’ll never be able to repay the nearly $190,000 in private student loans she owes to non-governmental private student loan companies and the additional $12,000 in federal loans she owes to the U.S. Department of Education.Space says she’s already been turned down for college loan consolidation, and her current employment doesn’t pay enough to allow her to repay her loans.The Cost of College in Bad Choices and Student Loans Space readily admits that she made some bad decisions when it came to her college loans. She was the first in her family to attend college and didn’t pay much attention to the spiraling cost of her student loans while she was incurring them.She was attending a private, out-of-state school whose annual cost is estimated to be nearly $50,000 for undergraduate studies, and tacked on costs for studying abroad for a year and summer classes. Space also admits that she realized her mistakes while she was still in school but didn’t transfer to a less expensive institution. Her parents had initially planned to help with her college expenses, but Space’s father was injured and has been unable to work for several years.The end result was more than $200,000 in student loan debt, which Space says she’s determined to repay one way or another. She’s been making the monthly $891 payment on her private student loans but notes that the payment will rise to $1,600 a month beginning next year.Sallie Mae, her primary lender, won’t consolidate her private student loans or allow her to move to an income-based repayment plan, so she’s done what she can do: Set up a website soliciting donations to help repay her college loans.The site, TwoHundredThou.com, chronicles Space’s troubles with student loans and is tracking progress on her debt reduction. To date, Space has received nearly $7,000 in donations, which she’ll use to pay down her college loans. She doesn’t think she’ll receive enough in donations to pay off her college loan debt altogether, but she says that she hopes to draw attention to the problems that she and many other new graduates face when it comes to repaying private student loans.Private student loans, unlike government-issued federal loans, don’t typically offer the same flexibility in repayment options or in setting up affordable repayment plans that take a borrower’s income into account.College Financing Advice for Students From One Who’s Been There Space advises high school and college students to get more financially savvy about the real cost of college loans and the interest those loans will accrue following graduation. Space also hopes that high schools, colleges, and universities will develop more intelligent ways of discussing student loan debt with students who have no “family history” when it comes to attending college.Space believes that if she had developed a more realistic understanding of the process of paying for college while in high school, she may not have made the same mistakes. Unfortunately, she says, there are few opportunities for high school teachers or guidance counselors to explain to college-bound students the impact that overwhelming student loan debt can have on their financial future.She says that if she could do it all over again, knowing what she knows now, she would have attended a community college for the first year or two, to save money on tuition costs, and then transferred to a four-year institution once she had determined a major. Then she would have used her major and the employment prospects for graduates in that field to help determine the amount of debt that she could reasonably take on in college loans.In the meantime, Space is sharing her parents’ New Jersey home with no plans to move out and is working full-time for an Internet company in New York City. She says that she has little chance of declaring bankruptcy, but she doesn’t want other students to make the same mistakes she did, and she hopes her website serves as a cautionary tale to students who are considering their options for college and for how to pay for college.student loans

Paying for College: 4 Tips for Parents

Going to college during a recession is getting more difficult for U.S. students. The national unemployment rate is hovering around 10 percent, college costs are rising much faster than the rate of inflation, and college savings and federal financial aid programs simply haven’t kept pace.Most students hope to avoid college loans, but the reality is that today’s graduates leave school with more than $20,000 in student loan debt.Many parents don’t realize that the federal financial aid formula, which determines how much money in federal grants and college loans a student qualifies for, anticipates a significant family contribution to the student’s cost of college. As a result, families often underestimate the amount of money you’ll be required to provide when your children enroll at a college or university.With college savings plans and investments having taken a hit over the past two years, a number of parents may not have the cash to meet their expected contribution. While most 529 college savings plans are invested somewhat conservatively, recent investment losses mean that the college savings account you set up for your child may have lost as much as one-third of its pre-recession value.Helping Your Children Pay for College1) Parent Loans
While government-backed parent loans, known as PLUS loans, are available through the Department of Education, financial advisors haven’t entirely warmed to the idea of parents taking on new debt at a time in your lives when your financial focus should be on saving for retirement.Conventional wisdom holds that a worker shouldn’t retire during a recession, and to that end, many currently employed older workers have delayed their retirement plans in favor of working longer. The fact that you may be keeping your job as a protective move during the financial uncertainty of a recession, however, doesn’t necessarily mean that you should take on additional debt to help your children pay for college.2) 401(k) Loans
An even bigger mistake parents may sometimes be tempted to make is borrowing from a 401(k) retirement account. Retirement account loans are available for certain expenditures, including college tuition and other education expenses for your children, but borrowing from retirement funds can be extremely risky, particularly during times like these of layoffs, employer cutbacks, and shuttered businesses.Although 401(k) loans typically carry a repayment term of five years, if you lose your job for any reason while you’re still repaying the loan, you’ll have to replace any outstanding loan amount within typically 30-90 days of separation from your employer or face a steep tax bill and penalty charge.If you’re unable to replace the 401(k) funds you borrowed, or if your employer goes out of business before you’ve repaid the loan, the IRS will treat the 401(k) loan as an early withdrawal and will tax it as income. State income taxes could also apply. The IRS will also assess a 10-percent early-withdrawal penalty.3) Cutting College Costs
The key to reducing your children’s overall burden of debt from student loans is to reduce the cost of college upfront. For your college-bound children, cutting school expenses may involve considering a public university rather than a private one, attending an in-state school to take advantage of lower resident tuition rates, living at home to avoid room and board costs, working part-time while enrolled in college, or even working for a year or two to build up savings before enrolling.4) Financial Aid
As a first step, you and your children should complete the Free Application for Federal Student Aid (FAFSA), which determines how much federal financial aid money will be awarded to you in the form of federal grants and federal student loans.Because of relatively low annual borrowing limits on federal student loans, your children may use up all their available federal student loan dollars and still have school expenses left to meet. Once students have exhausted all their federal financial aid options, non-federal, private student loans may be used to cover their remaining college costs.Since private student loans generally carry higher interest rates and fewer borrower protections than federal student loans, financial aid officials will generally advise students to take advantage of all their federal financial aid options — including federal parent loans — before turning to private student loans. In these cases, be prepared to discuss with your children’s financial aid office the extent of your willingness to take out any parent loans.In addition to applying for federal financial aid, your children should seek out college scholarships and other grants, which provide money for school that doesn’t need to be repaid.

The Hunt for Student Loans, Grants and Scholarships Begins

If you plan to attend college for the first time in 2011 or have a family member who will, you’re about to embark on student financial aid season.If you’re looking for money for college and want to apply for financial assistance, your first stop should be the Free Application for Federal Student Aid, also known as the FAFSA. All federal student loans, federal grants, and other forms of federal student aid are tied to this form.Federal Student AidThe FAFSA can be filled out and submitted online.. The FAFSA is available free of charge, and submission is also free. The federal deadline for submitting your FAFSA is June 30.You don’t need to know which college or university you plan to attend in order to fill out or submit the form, but you will need to refer to your 2010 tax return. If you’re a dependent of your parents, you’ll need to have the 2010 tax return of your custodial parent(s) or the parent who claims you as a deduction, even if this parent doesn’t plan to help you pay for college.Once you submit your FAFSA, the Department of Education will generate a Student Aid Report (SAR) that summarizes your and your parents’ financial information. You can choose which schools receive your SAR, and you can add schools to this list at any time.The schools that receive your SAR will analyze your financial information and generate a financial aid package based largely on the school’s cost of attendance and the determination of your ability to pay. (Some schools also offer non-need-based financial aid, which is awarded on the basis of merit rather than on your financial need.)Federal grant assistance is reserved for low-income and financial needy students. Most students, however, will qualify for federal college loans.Federal Stafford student loans are available in both need-based and non-need-based versions. Need-based subsidized Stafford loans are reserved for students who demonstrate financial need. Non-need-based unsubsidized Stafford loans are available regardless of financial need. There’s no credit check or co-signer required for Stafford student loans; you take out these loans in your own name.State Financial AidSome states also use the FAFSA to determine your eligibility for state student loan and grant assistance programs. Although the federal deadline for submitting the FAFSA is June 30, many states have earlier filing deadlines, with some falling as early as Feb. 15, 2011.Other states have no specific application deadlines but award state-funded student aid on a first-come, first-served basis, processing college aid applications only as long as there are still state funds available to distribute.Parent LoansThe federal government also offers parent loans, known as PLUS loans, for parents who want to help their undergraduate student pay for college.Although the Education Department doesn’t require you to have filled out a FAFSA in order for your parents to apply for a PLUS loan, many schools will require it. Such a school will not approve or certify an application for a PLUS parent loan until a completed FAFSA form is on file for the student.As with federal student loans, repayment on federal PLUS loans can be deferred until you, the student, graduate or leave school.The 1-2-3 of Getting Financial Aid for College1) Complete Your FAFSA — CarefullyFilling out the FAFSA can be time-consuming, and it requires you to have a good deal of documentation on hand.Since you’ll be submitting your FAFSA to the federal government, just like a tax return, it’s highly inadvisable to misstate or misrepresent your financial information on the FAFSA in any way. Irregularities in a FAFSA form are flagged and must be corrected before the form can be processed, delaying your financial aid application.If you’re awarded grants, student loans, or other financial aid based on false or incorrect information that you submitted on the FAFSA, you may be required to repay any over-allocation of financial aid immediately. If the misstatements are determined to be deliberate or egregious, you may be subject to fines and other sanctions.2) Search for ScholarshipsWhile your FAFSA is being processed, begin hunting for scholarships. Scholarships are available for virtually all types of students in almost every field of study. Some scholarships are need-based, others are merit-based, and some are a combination of both.Since scholarships provide you with award money that doesn’t need to be repaid, like a student loan, you can think of scholarships as “free money” for college.Use an online scholarship search engine that keeps an updated database of scholarships and lets you search that database for free. The best online scholarship search sites routinely list millions of scholarship listings with billions of dollars of award money available.3) Only Use Private Student Loans as a Last ResortOnce you receive your school financial aid package, make sure to take advantage of all your federal and state student aid options before you turn to higher-cost financial options.Specifically, you should maximize your federal student loans before turning to the non-federal private student loans offered by banks and other for-profit private lenders.Federal college loans offer fixed interest rates that are generally lower than the variable interest rates offered by private student loans. Federal loans also offer more flexible repayment options than the typical private student loan program. You should only turn to a private college loan when all your other federal and state student loan options have been exhausted.Free Application for Federal Student Aid (FAFSA): http://www.fafsa.ed.gov/, private student loans: http://www.nextstudent.com/private-loans/private-loans.asp

Private Student Loans Set to Stage a Major Comeback

Recent governmental analysis has shown that about one-fourth of all federal financial aid is directed toward students who attend private, for-profit colleges, even though these students represent just 12 percent of the national college population.Private student loans are non-federal loans – student loans issued by banks and private lenders, rather than by the federal government.Private student loans are credit-based loans carrying variable interest rates that can be as much as three to five times as high as the fixed interest rates on federal college loans. Additionally, private student loans don’t generally offer the flexible repayment options and borrower hardship protections offered by federal education loans.The recent substantial drop in the amount of private student loans being issued can be partly attributed to greater publicity of the drawbacks of these loans in comparison to federal student loans.Consumer advocates, student groups, and the U.S. Department of Education have campaigned heavily over the past three years for the benefits of low-cost federal college loans over private loans, which the groups maintain are more expensive and higher risk for vulnerable student borrowers, many of whom are financially inexperienced and who may not be aware of exactly what kind of long-term debt burden they’re signing up for.Private Student Loans Poised to Surge at For-Profit Colleges The student loan default rate among students from for-profit colleges is exceptionally high because these students – a large proportion of whom are low-income, minorities, or returning students – tend to have a harder time translating their for-profit degree into gainful employment, and they’re carrying much more student loan debt than their post-graduation income will allow them to repay.New proposed federal financial aid regulations seek to rein in what critics of for-profit colleges see as runaway student debt levels by instituting a loan default threshold that would render a for-profit institution ineligible to offer federal financial aid to its students if its students have a sustained high student loan default rate.A proposed federal “gainful employment” rule would also yank federal financial aid funds from for-profit schools whose students graduate with excessive debt-to-income levels and are unable, in general, to find work – “gainful employment” – that will allow them to earn enough to pay off their student loans.But in the absence of federal financial aid, private loans remain the financing of choice among students – particularly in the current economy, with home equity, credit card lines, investments, and college savings largely decimated – and some private lenders are readying to fill in the gaps left by the suspension of federal financial aid at ineligible institutions.According to analysts, large private student loan lenders like Wells Fargo and Sallie Mae will reap the benefits of the proposed federal financial aid sanctions, which are set to go into effect in 2012.Lingering Recession Forces Students Toward Pricier Private Student Loans The re-emergence of private student loans won’t be limited to just for-profit colleges, however. The rise, fall, and rise-again of private student loans as a part of U.S. students’ long-term financial aid future is tied directly to increases in the costs of college and the failure of federal financial aid to keep pace with the increases.”Increases in college costs are the primary drivers of increases in student borrowing, especially when need-based grants don’t keep pace with higher college costs,” Mark Kantrowitz, publisher of FinAid.org, told Reuters.And as the sour economy drags on, students’ need for funding sources to help pay for college will only become greater.Publicly funded colleges and universities are reeling from a string of spending reductions for higher education and are passing along those losses to students in the form of tuition and fee increases.”Private student loan volume could grow in the double digits next year because of tuition hikes driven by state budget constraints,” said Michael Taiano, a financial analyst at Sandler O’Neill.At the same time, a record number of students are seeking a higher education, enrolling or re-enrolling in colleges and universities, stretching the federal financial aid budget thin.”Federal budgets are constrained by how much in aid they can deliver,” said FBR Capital Markets analyst Matt Snowling. “So the funding gap is going to be filled by private loans.”As the lender-in-chief for federal college loans, the federal government is also beginning to experience first-hand the impact of a growing number of loan defaults, as a national populace in the midst of a recession and 10-percent unemployment struggles to keep up with its monthly bills.Recent graduates are leaving school with record-high debt from loans and diminished prospects for employment. Parents who in other years might have helped their children pay for college are finding themselves being turned down for federal parent loans because they have joined the ranks of the unemployed and don’t qualify for the loans based on their own creditworthiness.All of these factors are re-opening the door to private loans, despite the federal government’s best efforts to steer families from private student loans to federal financial aid options.FinAid.org’s Kantrowitz predicts that the volume of private student loans will exceed federal loan volume by 2025. And, as they have in the past, lenders of private loans are perched, ready to fill in the widening gap between the cost of a college education and the value of a federal financial aid package.private loans, The Project on Student Debt, gainful employment rule

Obama Commission Recommends End to Subsidized Student Loans

The National Commission on Fiscal Responsibility and Reform has issued a report that recommends the elimination of subsidized federal student loans in order to reduce federal spending. The recommendation is one of 50 that the bipartisan panel, which was created by President Obama and charged with finding ways to reduce the federal deficit, brought forward.Federal subsidized student loans are government-issued college loans on which the government pays -subsidizes – the interest while a student is in school or in an approved deferment period. During deferment periods, which are granted on a case-by-case basis when a student loan borrower is experiencing financial hardship or other extenuating circumstances, the borrower isn’t required to make principal or interest payments on his or her federal college loans.Subsidized student loans, awarded on the basis of financial need, are available to low-income students and students from low-income families. The President’s fiscal commission estimates that eliminating the federal interest payments on these subsidized college loans would save about $5 billion annually.The proposal to eliminate subsidized federal college loans isn’t a recommendation to shutter the federal student loan program altogether. Federally funded loans are also available in an unsubsidized form, and these unsubsidized student loans are awarded to eligible students, regardless of income bracket, who qualify for federal college financial aid to help them pay for college.Do Student Loan Subsidies Benefit Students?A growing number of policy groups support dispensing with federally subsidized college loans. The College Board recommended the same move in 2008, and some Democratic lawmakers also included the elimination of subsidized student loans in the initial draft of the college loan reforms that were enacted in 2009. The provision was dropped after student advocates and higher education lobbyists successfully persuaded House Democrats to retain the student loan subsidies.Supporters of dropping the subsidized interest benefit say that subsidized loans don’t do anything to make college more accessible to the low-income students to whom the loans are awarded, since borrowers don’t reap the benefit of the subsidy until after they’ve graduated.Others who support the move to do away with subsidized loans argue that student borrowers shouldn’t receive a benefit designed to reduce student loan debt that’s based on what the borrower’s family income was 10 or 20 years earlier.Instead, proponents contend, already-available flexible loan repayment plans like income-dependent payments, graduated payments, and repayment term extensions are more effective and fairer.A new income-based repayment plan, instituted last year, is based on the student loan borrower’s post-graduation income, a better measure of a borrower’s long-term financial outlook.Graduated repayment, in which a student loan borrower’s monthly payments start out low and gradually increase every two years – designed for borrowers who expect their income to increase steadily over time – is available to all borrowers of federal college loans, regardless of their family income at the time they attended college.More Proposed Changes to Federal College Financial AidEliminating federal student loan interest subsidies isn’t the only change the fiscal commission recommends. The commission’s deficit-reduction proposal would also put an end to payments to colleges and universities for the administration of campus-based federal financial aid programs.Colleges and universities administer certain federal financial aid awards locally -Supplemental Educational Opportunity Grants, Perkins loans, and federally funded work-study programs. A school may retain as much as 5 percent of the federal financial aid funds provided for these programs to cover the cost of administration. Institutions that distribute federal Pell Grants also receive a small fixed payment to cover administrative costs.Under the proposed deficit-reduction plan, the 5-percent administrative fee would be eliminated, and all federal funds would be delivered in the form of student financial aid, with no portion of those funds being siphoned away any longer in the form of administrative costs.The commission’s rationale for eliminating these administrative fees is that colleges and universities benefit from federal grant programs because, unlike college loans, the federal grant dollars effectively increase enrollment by making college more affordable for students.From Policy Proposal to National LawThe fiscal commission doesn’t have the final say on which recommended reforms are enacted. Currently, the commission’s report is in draft form. The commission must prepare a final recommendation no later than Dec. 1, 2010, and the final draft must have the approval of at least 14 of the commission’s 18 members.Once the report is finalized and presented to the White House, legislators are expected to take up the recommendations and convert them into legislative mandates.The commission’s recommendations are designed to balance the federal budget by 2015. If adopted, the recommendations would involve a broad set of austerity measures, including both spending cuts and tax reforms.student loans, income-based student loan repayment

Obama Commission Recommends End to Subsidized Student Loans

The National Commission on Fiscal Responsibility and Reform has issued a report that recommends the elimination of subsidized federal student loans in order to reduce federal spending. The recommendation is one of 50 that the bipartisan panel, which was created by President Obama and charged with finding ways to reduce the federal deficit, brought forward.Federal subsidized student loans are government-issued college loans on which the government pays -subsidizes – the interest while a student is in school or in an approved deferment period. During deferment periods, which are granted on a case-by-case basis when a student loan borrower is experiencing financial hardship or other extenuating circumstances, the borrower isn’t required to make principal or interest payments on his or her federal college loans.Subsidized student loans, awarded on the basis of financial need, are available to low-income students and students from low-income families. The President’s fiscal commission estimates that eliminating the federal interest payments on these subsidized college loans would save about $5 billion annually.The proposal to eliminate subsidized federal college loans isn’t a recommendation to shutter the federal student loan program altogether. Federally funded loans are also available in an unsubsidized form, and these unsubsidized student loans are awarded to eligible students, regardless of income bracket, who qualify for federal college financial aid to help them pay for college.Do Student Loan Subsidies Benefit Students?A growing number of policy groups support dispensing with federally subsidized college loans. The College Board recommended the same move in 2008, and some Democratic lawmakers also included the elimination of subsidized student loans in the initial draft of the college loan reforms that were enacted in 2009. The provision was dropped after student advocates and higher education lobbyists successfully persuaded House Democrats to retain the student loan subsidies.Supporters of dropping the subsidized interest benefit say that subsidized loans don’t do anything to make college more accessible to the low-income students to whom the loans are awarded, since borrowers don’t reap the benefit of the subsidy until after they’ve graduated.Others who support the move to do away with subsidized loans argue that student borrowers shouldn’t receive a benefit designed to reduce student loan debt that’s based on what the borrower’s family income was 10 or 20 years earlier.Instead, proponents contend, already-available flexible loan repayment plans like income-dependent payments, graduated payments, and repayment term extensions are more effective and fairer.A new income-based repayment plan, instituted last year, is based on the student loan borrower’s post-graduation income, a better measure of a borrower’s long-term financial outlook.Graduated repayment, in which a student loan borrower’s monthly payments start out low and gradually increase every two years – designed for borrowers who expect their income to increase steadily over time – is available to all borrowers of federal college loans, regardless of their family income at the time they attended college.More Proposed Changes to Federal College Financial AidEliminating federal student loan interest subsidies isn’t the only change the fiscal commission recommends. The commission’s deficit-reduction proposal would also put an end to payments to colleges and universities for the administration of campus-based federal financial aid programs.Colleges and universities administer certain federal financial aid awards locally -Supplemental Educational Opportunity Grants, Perkins loans, and federally funded work-study programs. A school may retain as much as 5 percent of the federal financial aid funds provided for these programs to cover the cost of administration. Institutions that distribute federal Pell Grants also receive a small fixed payment to cover administrative costs.Under the proposed deficit-reduction plan, the 5-percent administrative fee would be eliminated, and all federal funds would be delivered in the form of student financial aid, with no portion of those funds being siphoned away any longer in the form of administrative costs.The commission’s rationale for eliminating these administrative fees is that colleges and universities benefit from federal grant programs because, unlike college loans, the federal grant dollars effectively increase enrollment by making college more affordable for students.From Policy Proposal to National LawThe fiscal commission doesn’t have the final say on which recommended reforms are enacted. Currently, the commission’s report is in draft form. The commission must prepare a final recommendation no later than Dec. 1, 2010, and the final draft must have the approval of at least 14 of the commission’s 18 members.Once the report is finalized and presented to the White House, legislators are expected to take up the recommendations and convert them into legislative mandates.The commission’s recommendations are designed to balance the federal budget by 2015. If adopted, the recommendations would involve a broad set of austerity measures, including both spending cuts and tax reforms.student loans, income-based student loan repayment