Both the President and Congress are in agreement about one thing: the Pell Grant maximum should be raised, although they don’t agree on how much to raise it to.
Most career colleges would applaud the raising of the maximum as a good thing. It means that more students will be able to cover a greater part of the cost of their education through the use of a grant, rather than a loan.
Congress has already decided to reduce interest rates on the guaranteed student loans, which will mean the cost of borrowing money with federal loans to pay the cost of education will be less. That’s a good thing. Right? Maybe not. Congress and the President plan to pay for the reduction by also reducing the subsidy paid to lenders. Therein lies the problem.
When subsidies are cut, lenders reconsider the attractiveness of the student loan program and do one of several things. Either they pull out entirely, reduce the availability of loans to less credit-worthy students (read career college prospects), or decrease the amount they allocate to the servicing of loans; any one of which could have a great impact on students attending private career colleges.
In all of this, however, career colleges have an ally in the more traditional colleges, who have already voiced concerns about what these decisions will do to students attending their institutions.
Perhaps the greatest danger for career colleges is the potential impact on the 90-10 rule. When more students receive more federal grants and/or federally insured student loans, private career colleges face greater challenges to record the necessary 10 percent to remain eligible to participate in the federal student financial aid programs.
When lenders act to reduce their default prevention programs, which include counseling on a timely basis and rate reductions for timely repayments, colleges can expect to see their default rates increase. Again, placing career colleges in jeopardy of eligibility.
The good news of the increased Pell maximum must be taken with a giant grain of salt. Career colleges stand the real risk of being wounded by the long overdue increase.
Sorry to rub the salt of reality into the real-world wound of funding-strapped prospective students. May the seller beware. Default management just became more critical, as did non-federally funded financial assistance.