University senior Breanne Langley is one of thousands of University students driving themselves into debt to pay for their degrees — lots of debt.
“I fully anticipate being $100,000 debt when I graduate, and just hoping to come back from that,” Langley said. “I’m kind of banking on really good financial aid, and I’ve been working and saving so hopefully it will all work out.”
But lawmakers are trying to make things easier for students like Langley by passing a law that seeks to essentially eliminate private lenders from the student loan equation by eliminating their federal subsidies.
The U.S. House passed on Sept. 17 the Student Aid and Fiscal Responsibility Act of 2009, which they hoped will allow more students to attend college two years from now because of an increase in Pell Grants. The saved funds would also go toward other K-12 programs. The bill is still awaiting Senate approval.
Langley currently receives funding from a Pell Grant and agrees with the idea behind
“I think it’s great,” she said. “I think the Pell Grant is a great program, and I think a lot more people would be eligible for it if there were more funds.”
Exploring all of her options before deciding on financial aid through the school, Langley considered the option of a bank loan but chose not to for several reasons.
“It just didn’t seem like a viable option for me,” she said. “A lot of the ones that I was eligible for were really bad deals for me in the long run. If it takes the banks out, I think that’s a great idea.”
The new bill would go into effect at the beginning of the 2011-2012 award year. The bill eliminates the Federal Family Education Loan Program , currently in place, and moves funds for it to the Federal Direct Perkins Loan program — a move that increases funds for Pell Grants.
Under the FFELP program, an eligible student can fill out a student loan application from a private bank, and the federal government covers some of the costs of that private bank. With the Direct Loan program, the student applies for the loan directly from the federal government, cutting out the middle man.
University Financial Aid Director Elizabeth Bickford said if there is money to save and redirect to students through the Pell Grant, the bill might fulfill great need.
“We, as our students, need the money, and it would help more families to have the confidence in being able to go to school,” she said. “The funds would be there.”
The bill also looks to revise the FAFSA application in order to make it a simpler process. That’s one of the main reasons for its approval by Bickford, among others.
“They’re really trying to work for simplification of the process,” Bickford said. “We believe that that is the way to go for everyone involved.”
Associate Professor Glen Waddell has done research in the economics of education, and agrees that the simplification the bill offers makes it appealing.
“As a general rule, I am very much a supporter of FAFSA simplification,” he said. “Several options for simplification have been floated in recent years … and while the current proposal is not adopting any of them directly, moving toward a simpler application process should be encouraged.”
Langley agrees that financial aid needs simplifying.
“The whole financial aid is frustrating in that at every turn it leads to either some sort of embarrassment over money or lack of money,” Langley said. “I just think it could be handled better.”
The consequences of private lending, for Bickford, are not all negative, however.
“To be absolutely fair here, is that when direct lending came to be, the banking community very much improved their service to students,” Bickford said. “They just really stepped up, they made it easier, the process.”
Even with the added pressure of competition, the banks make money, currently having only a 3 percent risk if the loan defaults under FFELP. This means that if the student does not pay back the money loaned, the federal government ends up paying for 97 percent of the money lost, and the banks 3 percent. The money from this backing is the potential funding for the Pell Grant, and increasing the Perkins Loan to $6 billion.
One of the negatives of the bill that Bickford notes is its effect on the Perkins Loan, which would change the loan to an unsubsidized loan, meaning it would begin accruing interest as soon as it was made, rather than waiting until the recipient graduates, and that it would accumulate interest on top of interest, instead of its current fixed interest of 5 percent.
“It will be a more costly loan,” she said. “I have mixed feelings on it, because really we don’t want to lose a 5 percent subsidized loan. It’s a loan that we can help our neediest students with.”
Bickford added that this loan is a very small loan program, which funds about 1,500 University students this year, and having two loan program increases the complication of the loan process.
“Six billion, that’s huge,” she said. “That could really help a lot of our students that are being not served. The trade-off is so small, but it’s not small to those 1,500.”
Robert Greene, the ASUO Legislative Affairs Coordinator, supports the bill.
“It is a momentous step forward for helping students who have some financial burdens with attending college,” Greene said.
As a part of his job, Greene works to help highlight campaigns and awareness of causes for increased access and affordability on campus.
“In general, the greatest thing about this act is it will not cost the taxpayers a cent,” Greene said. “It is not raising taxes. It’s not trying to give tax breaks or incentives, it is just simply a re-management of money.”
ASUO Sen. Demic Tipitino, a College Republican member, disagrees with Greene’s assessment.
“Restructuring the loan program so everyone is under the DL program is a good idea for students,” Tipitino wrote in an e-mail. “However not so much for the tax payer. The DL program has continually lost money because its interest rates are below inflation and many of its members go into default. In 1993 when it was passed it was expected to create large savings but this has not been the case.”
And although Langley is still looking at a large amount of debt from her college education, the hope is that this bill will lessen the burden and increase the opportunity for higher education to thousands more.
Student Loan Information