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

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

Mark Kantrowitz

January 05, 2012

New Gainful Employment regulations establish affordable debt restrictions on most programs at for-profit colleges and on non-degree certificate programs at public and non-profit colleges starting on July 1, 2012. The gainful employment rules establish minimum loan repayment rates (35%) and maximum debt-service-to-income (12%) and debt-service-to-discretionary-income (30%) ratios that the programs must satisfy to retain eligibility for federal student aid. New rules restricting substantial misrepresentation and incentive compensation became effective on July 1, 2011. These rules ban false advertising and commissioned recruiting at all types of colleges.

The Budget Control Act of 2011 (P.L. 112-25, August 2, 2011) eliminated new subsidized Stafford loans for graduate and professional students and discounts on new federal student loans in the Direct Loan program (other than auto-debit discounts) starting July 1, 2012, saving $21.6 billion over ten years. Of this, $17 billion was used to address an existing funding shortfall in the Pell Grant program for 2012-13, leaving the program with a $1.3 billion funding shortfall. The remaining $4.6 billion in savings was used for deficit reduction. The Budget Control Act of 2011 also mandates unspecified cuts in all federal spending (not just student aid) totaling $2.1 trillion over the next ten fiscal years. But federal student aid remains a big target for further cuts.

A student aid policy analysis paper, The Distribution of Grants and Scholarships by Race, found that white students are 40% more likely to win private scholarships than minority students. White students were more likely to win private scholarships even after controlling for differences in income and academic performance. This paper debunked the myth that minority students win more than their fair share of scholarships.

Short-term cohort default rates on federal student loans increased to 8.8% from 7.1% the year before. This is the highest cohort default rate in 13 years. The main drivers of default rates are interest rates, unemployment rates, graduation rates and increases in the amount of debt.

Robert Applebaum, a New York attorney, organized an online petition calling for forgiveness of all student loan debt. The petition endorses a proposed Congressional resolution calling for student loan forgiveness that was introduced by Rep. Hansen Clarke (D-MI-13) in the US House of Representatives on July 22, 2011. The petition has collected more than 659,500 signatures from September 2, 2011 through the end of 2011.

The Occupy Wall Street protest movement began in Zuccotti Park on September 17, 2011. Among the many grievances are complaints about student loans. Many of the protesters have high education debt and are having difficulty getting jobs. The Occupy Student Debt Campaign has called for forgiveness of all student loans, zero-interest student loans, free tuition at public colleges and universities and greater transparency on how tuition dollars are spent at private non-profit and for-profit colleges and universities. On November 21, 2011, the Occupy Student Debt Campaign called for student loan borrowers to sign a pledge to stop making payments on their student loans after one million people have signed the pledge.

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