College Cost Reduction Act “Soft” on Low-Income Students

The College Cost Reduction Act of 2007 passed the House and Senate, but is likely to be hung up with negotiations before it hits President Bush’s desk. Bush has threatened to veto the new measure due to the flimsiness of the bill in regards to low-income students. Many politicians have talked up the bill’s success, but much of this is marketing rhetoric.

As it currently stands, the College Cost Reduction Act is more oriented to post-college individuals, less focused on current students and those most challenged to get a college degree.

The biggest winners are the Pell Grant recipients—they will likely receive a significant boost in funds, although still far short of the funds once available only a few decades ago.

The bill cuts major subsidies to student loan lenders that offer the FFEL program. This action seems almost a reprimand for the past months’ worth of controversy brought on by unscrupulous and greedy lenders.

Components of the CCR Act:

• Pell Grants will be increased from $4,050 to $4,900 and a maximum $5,200 by 2011.
• Students pursuing a teaching profession stand to earn full tuition compensation in exchange for service in underrepresented schools. This takes calculated aim at the problem of inadequate teachers in poor schools.
• Forgiveness of student loans owned by public service professionals, including law enforcement, firemen, nurses, and even librarians after 10 years.
• $500 million in new investments to minority and underrepresented institutions.
• Student loan interest cuts for need-based loans.
• Federal student loan maximum borrowing limits to be increased.

“Drug Provisions” Remain Uncertain

Part of the proposed amendment to the Higher Education Act still faces an uncertain future. Currently any student convicted of a drug offense is summarily denied government aid regardless of how trivial the offense. Some sources suggest that the number of students affected by this controversial contingency is well over 100,000.

The FAFSA form requires applicants to answer the “drug conviction” question.

This “drug offense” measure was zipped onto the Higher Education Act of 1965 as the Aid Elimination Provision of 1998, also called the Souder Amendment.

With the unfolding of the current fiasco between student loan providers and college financial aid offices, one student loan company has seen the fallout as a marketing opportunity. MRU holdings is using aggressive marketing reminding students of the recent fraud. The WSJ reports:

One of the MRU ads called the relationships between schools and lenders a “racket.” Another said more pointedly, “Before you choose, ask your financial aid office about the lenders on their preferred lender list. Ask if any of these lenders offered kickbacks or incentives to get on the list.”

MyRichUncle is offering a discount on their federally backed Stafford loans and PLUS loans with the hopes of later upselling students on more expensive private student loans.

A Government and Private Sector Conflict

Over the last few months, Big Student Loan has been under fire. Almost simultaneously two big guns aimed their sights on the industry: first, New York Attorney General Andrew Cuomo in February, launched further inquiry into the alleged improper goings-on between some college financial aid administrators and student loan lenders. Innuendo had continued to swirl for some time alleging paybacks, stock options, and pay for inclusion deals for the infamous preferred lender lists published by schools.

Also in February, Senator Ted Kennedy had amassed reports of similar near scandals thick enough to make a novel. His solution? Write a bill—the Student Loan Sunshine Act—that could federally regulate the lender-school relationship, now clearly spun out of control.

Senate Cuts Deep Into Big Student Loan

Late Thursday, the Senate voted 78-18 to a slew of new cutbacks aimed at Big Student Loan, almost as punishment for the last few months of bad press and just plain bad business. Senators voted to make repayment of federal student loans forgivable for “public service employees,” like law enforcement and public school teachers, and to raise the amount for Pell Grant recipients up to “$5100 by next year, and $5400 by 2011,” read a New York Times article (“Senate Approves Major Overhaul of the Federal Student Aid Program,” Schemo). The major change most consumers will see is a reduction in their student loan interest rates over the next few years, and the FFELP lenders will likely feel the sting of sweeping profit cuts, the subsidies they earn from the feds. Seems that most Senators (and their constituents) think that enough is enough.

The few critics in the crowd argued that these newest reforms were a cleverly disguised ploy to undo the Federal Family Education Loan Program (FFELP). Senator Kennedy applauded the moves, arguing that students and parents have been increasingly burdened with the high cost of continually inflated tuition and costly student loan repayments, including the FFELs.

Colleges That Choose Affordability Over Money-Making

Well outside the political sphere other developments of a student loan variety also took shape. New England’s prestigious, Amherst College, officially did away with institutional student loans and replaced them, 100%, with scholarships. The move is a measured step by AC to make their education more affordable for all students. Only two other schools, reported the Boston Herald, have taken such bold steps–Princeton University and Davidson College.