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Year in Review: Ups and Downs for Student Financial Aid in 2011

Mark Kantrowitz

January 05, 2012

What’s Next for 2012?

Several new developments are expected for 2012:

Total federal and private student loan debt outstanding will reach the $1 trillion milestone.

Unofficial debt measures for for-profit colleges (possibly including loan repayment rates for all colleges) will be released in Q1 or Q2 of 2012.

Official 3-year cohort default rates will be released in mid-September 2012. The switch from 2-year cohort default rates to 3-year cohort default rates will cause the default rates to increase by 50% to 100% on average, depending on the type of college.

The US Department of Education will begin a transition to a targeted verification system for FAFSA application data for 2012-13. Rather than require verification for a standard set of five data elements for 30% of applicants, the number of FAFSAs verified may increase, but the number of data elements verified per application may decrease. The data elements to be verified will be based on statistical models that predict which data elements are most likely to have inaccurate values. The expanded set of data elements subject to verification will potentially include household size, number in college, food stamps, child support paid, adjusted gross income, US income tax paid, certain types of untaxed income (e.g., IRA distributions and deductions, pensions, education credits and tax exempt interest) and income earned from work.

Applicants who use the IRS Data Retrieval process to prefill answers to some questions on the FAFSA based on their federal income tax returns will reduce the number of data elements that may need to be verified. (The IRS Data Retrieval process has also been improved, so that applicants should be able to use the IRS Data Retrieval process within two weeks of filing their federal income tax returns electronically.) Applicants who do not use the IRS Data Retrieval process will be required to provide IRS tax return transcripts for verification of income data. This will prevent a form of fraud in which applicants supply falsified copies of their federal income tax returns that do not match the tax returns that were actually filed with the IRS.

There will be a crackdown on financial aid fraud and waste, especially in distance education and the Pell Grant program.

Automatic across-the-board spending cuts totaling $1.2 trillion over 10 years may be triggered starting in FY2013. This may yield a reduction in the maximum Pell Grant of as much as $450.

The 2012 elections may have a significant impact on future changes in student financial aid programs. Several of the presidential candidates have called for the elimination of the US Department of Education and severe cuts in or the elimination of federal student aid programs. Control of the US House of Representatives and the US Senate may potentially shift between the political parties.


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