Student Loans: Analysis

College can be extremely expensive, especially when it is paid for through private loans. This is why the federal government offers a variety of student aid packages in the form of both loans and grants. Students can apply for federal aid through FAFSA (federal application for student aid) and even though it is a long, complicated process, the benefits it provides to low income and middle class students are worth it. Examples of the grants available through the federal government include Teacher Education Assistance for College and Higher Education Grant's(TEACH grant), Federal Pell Grant's,Federal Supplemental Educational Opportunity Grant's (FSEOG), Academic Competitiveness Grant's(ACG), and National Science and Mathematics Access to Retain Talent Grant's (National SMART Grant). There is some controversy concerning the TEACH grant because students don't always realize that if they fail to uphold certain standards required by the grant, such as performing service as a highly-qualified teacher, then they are must repay the government in the form of a direct unsubsidized loan. Grants differ from loans in that loans must be repaid while grants do not need to be paid off. A major federal loan awarded to students is the Stafford loan which is divided into the Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan (Direct Loan) Program. Under the Direct Loan Program, the loan funds come directly from the federal government whereas funds for FFEL will come from a bank, credit union, or other lender that participates in the program. In addition to being direct or indirect(FFEL), loans can also be also be either subsidized or unsubsidized. Subsidized loans are loans based on financial need and allow the government to pay (subsidize) the interest on the loan while students are in school and for the first six months after they leave school. Students with lesser financial need are eligible for unsubsidized loans. Students with unsubsidized loans are responsible for the interest from the time the unsubsidized loan is disbursed until it's paid in full. They can choose to pay the interest or allow it to accrue (accumulate) and be capitalized (that is, added to the principal amount of your loan). Capitalizing the interest will increases the amount to be repaid. Another loan similar to the Stafford loan that can be taken out by parents is the PLUS loan. PLUS loans are available to parents good credit history with dependent undergraduate students enrolled at least half time in an eligible program at an eligible school. Graduate and professional degree students are also eligible to borrow under the PLUS Loan Program. The terms and conditions applicable to Parent PLUS Loans also apply to Graduate/Professional PLUS loans. These requirements include a determination that the applicant does not have an adverse credit history, repayment beginning on the date of the last disbursement of the loan, and a fixed interest rate of 8.5 percent in the FFEL program and 7.9 percent in the Direct Loan program. Other forms of federal financial aid (called campus-based programs because they are administered directly by the financial aid office at each participating school) include The Federal Supplemental Educational Opportunity Grant (FSEOG), Federal Work-Study (FWS), and Federal Perkins Loan programs. Not all schools participate in all three programs.Both FFEL and Direct federal loan interest rates provide far greater savings over more expensive private loans, whose interest rates can run as high as 19%. Another reason to choose federal loans over private loans is that private loans often have variable rates that can result in an unexpectedly high monthly payments. In contrast, federal loans will stay fixed at the same low rate over the life of the loan. Due to the College Cost Reduction Act of 2007, rates on subsidized federal Stafford Loans will continue to drop over the next few years: to 5.6% for loans disbursed between July 1, 2009 and June 30, 2010; to 4.5% for loans disbursed between July 1, 2010 and June 30, 2011; and to 3.4% for loans disbursed on or after July 1, 2011.
In April 2008, Congress enacted the Ensuring Continued Access to Student Loans Act of 2008 , to protect families’ access to federal students loans from turmoil in the nation’s credit markets. The law provides new protections, in addition to those in current law, to ensure that students and families could continue to have access to all the federal loans they were eligible for – and at no cost to taxpayers. While no student or college has reported any problems accessing federal student aid to date, it is only prudent for the federal government to make sure that contingency plans are in place that would provide students and families with continued, uninterrupted access to federal loans, regardless of what’s happening in the credit markets. Goals involved with the act include reduceing borrowers’ reliance on costlier private college loans, encouraging responsible borrowing, giving parent borrowers more time to begin paying off their federal PLUS college loans, helping struggling families pay for college and providing the U.S. Secretary of Education additional tools to safeguard access to student loans. Thanks to the Ensuring Continued Access to Student Loans Act of 2008, the recent mortgage crisis has not affected federal student loans.
On another note due to the state of the economy and the energy crisis, education does not seem to be nearly as important in this years presidential election as it has been in the past, and when it is discussed, it normally focuses on lower level K-12 education such as reforming the No Child Left Behind Act put in place by the Bush administration, rather than higher level education. Even so demcratic candidate Barrak Obama stresses federal spending on higher education much more than Republican John McCain. Obama has proposed creating new Teacher Service Scholarships that will cover four years of undergraduate or two years of graduate teacher education, including high-quality alternative programs for mid-career recruits in exchange for teaching for at least four years in a high-need field or location. This in turn will hopefully strengthen our school systems and promote equality for all schools K-12. Obama also plans to make college affordable for all Americans by creating a new American Opportunity Tax Credit. This universal and fully refundable credit will cover two-thirds the cost of tuition at the average public college or university and make community college tuition completely free for most students. Obama also plans to ensure a tax credit to pay up to $4,000 of college expenses for students who perform 100 hours of community service a year to and simplify the Application Process for Financial Aid by eliminating the current federal financial aid application and enabling families to apply simply by checking a box on their tax form, authorizing their tax information to be used, and eliminating the need for a separate application. John McCain is proposing a student loan continuity plan. Students face the possibility that the credit crunch will disrupt loans for the fall semester. John McCain also plans on simplifying the financial aid process and tax benefits as well as calls on the federal government and the 50 governors to anticipate loan problems and expand the lender-of-last resort capabilities for each state's guarantee agency.
According to a blog by Sara Hebel, in a debate Tuesday night Senator Obama spoke about making college affordability a priority even as he would rein in government spending in other areas while Senator McCain focused on eliminating spending he considers wasteful, including federal earmarks that often benefit college projects, and advocated an across-the-board freeze in federal spending. I believe that even though both candidates share similar views such as simplifying the federal aid application process, Obama tends to lean more towards helping make college more affordable while McCain doesn't express much concern on the matter.

College Cost Reduction Act

As of July 1st, 2008, college students really had something to cheer about. The interest rate of federal student loans was dropped from 6.8 % to 6%, the first of four cuts within the next four years in an effort to half interest rates, dropping them down to 3.4% by 2012. This reduction of interest rates is a result of the College Cost and Reduction Act designed by House of Reps Chairman George Miller's legislation, and signed into law on September 27, 2007. The act was proposed as a result of the unfair interest rates, kickbacks, and preferential treatment being imposed on student by lenders. As the cost for college tuition continues to rise , student are borrowing record amounts, more than 2o billion dollars a year on some accounts, and before the college cost and reduction act student loans were one of the largest profits for lenders, second only to credit card interest.
The College Cost and Reduction Act provides the single largest increase in college aid since the GI bill and does so at no cost to taxpayers by cutting excess subsidies paid by the federal government to lenders in the student loan industry. The interest rate cut will save the typical student borrower beginning college in 2008 about $2,570 over the life of his or her loan. Need-based federal student loans are primarily awarded to low- and middle-income students; according to the Congressional Research Service, 75 percent of need-based federal student loan borrowers have family incomes below $67,000. About 5.5 million students borrow these loans each year to help pay for college. Altogether, the College Cost Reduction and Access Act will boost college financial aid by $20 billion over the next five years. Other benefits of this law include increases in the Pell Grant scholarship by 490 dollars, the first of five annual steps towards boosting the Pell Grant scholarship by a total of 1,090 dollars by 2012, providing up-front tuition assistance to college students who commit to teaching high need subject area in high-need public schools after graduation, and providing loan forgiveness to college graduates who enter public service professions after 10 years of public service and loan repayments.
Political interest in student loans has slowed since the passing of this bill and neither presidential candidate has much to say as far as higher level education is concerned.
Although this bill helps many students pay for college and greatly reduces the corruption of student loans(at least federal student loans), there are still many problems that arise from the continuing increase in college costs. It is difficult for both middle-class and low-income families, especially those with more than one child in college, to pay for tuition and while lately the number of federal student loans has increased, they should an option for anyone with the brains to go to college but not the money. One of the main problems with student loans is that they are not always widely advertised and are complicated to understand. One thing that the government can do to help is to increase awareness of loans and grants offered and decrease the amount of work involved in applying. Time is money and many people simply don't have the time to search for and apply to lengthy government aid applications and programs.

The Financial Crisis and Student Loans

With the growing mortgage crisis in the United States, many student are worried about receiving and paying off college loans. Large numbers of private investors including Wachovia have fled the student loan business due to the collapse of their mortgage systems. Although this mishap in the American economy is unfortunate, it has also been a wake-up call to many American families financing college through private investors. Without the help of private institutions, people are looking more to the federal government for help, but isn't this what they should have been doing all along? The fixed rates on a government loan run from around 6.8% to 8%, compared with an adjustable 8% to 20% for a private one. The average credit-card rate tops 13%. So if government loans are so much better than private and credit loans, why have Americans waited so long to really take advantage of them? The answer is convenience. It is much easier for students and parents to charge tuition to a credit card or find the nearest private investor than it is to spend hours applying for student loans. Research done by the American Council on Education indicates there are more than 1 million students across the country who may very well be eligible to receive aid but are not getting it. A major reason students don't apply for federal loans is that they don't understand how to. FAFSA( Free Application for Student Aid) is a huge advantage for college students who meet certain requirements, especially those with low incomes, but with 145 questions, it is longer and more eye-crossing than the standard tax form and takes about 10 hours to gather all the documents required and actually fill it out. Even after students have applied to FAFSA, they have to distinguish the fine print within the aid programs surrounding it. Some college financial aid officers, for example, are balking at helping student apply for the new federal $4,000-a-year "TEACH Grants," which are supposed to help aspiring teachers pay for college.This is because the name "grants" misleads students. The program actually consists of loans that will be forgiven only if the student gets certified as "highly qualified" and works full time teaching a "high-need" subject at a federally designated, low-income school for at least four years within eight years of graduation. Those who don't jump through all those hoops could see $16,000 worth of "grants" turn into a $24,000 bill after interest charges. Many students that have been relying on private loans need not worry too much about the ability to finance; however, they will not acquire the needed financial assistance without a hefty amount of research and time.