Paying for College Blog

The Future of Federal Student Loan Program: Daily Round-Up

Lots of action today to report:

• NASFAA President, Dr. Phil Day, in a letter to the membership today urged financial aid administrators to focus on the historic opportunity to make the Pell Grant a "true entitlement" and to come together to develop a new student loan model:

"If we simply oppose FFELP elimination without offering alternatives or including ourselves in the debate, schools will be forced to move to the Direct Loan program, either because the Obama budget will have been accepted or because ECASLA expires in 2010.

We must move forward in good faith and help design a system that works best for borrowers, taxpayers and institutions. In addition to the importance of providing a workable alternative to the abrupt elimination of FFELP, we must also remember the historic opportunity we have to make the Pell Grant a true entitlement. This is a goal that NASFAA has worked toward for decades, and there are many who never believed we would be so close to seeing this essential change enacted."

2009 SLA Private Loan Series: What Is the Meaning of "Instant Credit Response?"

Yes, we have all seen these marketing claims from private student lenders before:

• "Apply now and receive an instant credit decision"
• "Receive a preliminary decision for a loan within minutes of applying online"
• "Easy online application with fast credit decision"

When it comes to the application process, consumers clearly value speed and immediacy when it comes to the credit decisioning.  So, what really does happen after the student borrower and his/her cosigner dot the "i"s and cross the "t"s on their online private loan application?   To what extent do lenders clearly and completely disclose information on interest rates and fees after they conditionally approve a loan? (Note:  The Federal Reserve's Regulation Z includes specifics about items that lenders will be required to disclose upon loan approval)

2009 SLA Private Loan Series: What's the Interest Rate, Chase? (Part Deux)

If you read my earlier post, it takes a minimum of navigating your way through four links on the Chase student loan website to find  the range of interest rates available to private loan borrowers (in case you were curious the range is 3-month LIBOR + 4.75% to 3-month LIBOR +12.25%).  Of course, many borrowers may have stopped on the page titled "Interest Rates" which had the following description:

U.S. Student Association Provides Views on Federal Student Loan Debate

I was just thinking about this over the weekend.  One voice that had been notably absent in the debate regarding the future direction of the federal student loan program has been that of students. 

Well, here is a Letter to the Editor that appeared in the Washington Post on Monday from the President of the U.S. Student Association, which describes itself as "the country's oldest and largest national student-led organization, develops current and future leaders and amplifies the student voice at the local, state, and national levels by mobilizing grassroots power to win concrete victories on student issues:"

Struggling With Student Loan Repayment? Advice from NY Times

NY Times article today highlighted several student loan borrowers struggling with repayment as well as cohort default trends recently released by the Department of Education which increased to 6.9% for 2007 from 5.2% in 2006. 

Here is advice the article provided for students struggling with repayment of their federal loans:

What's The Interest Rate, Chase?

Chase introduced changes to their Chase Select private student loan product, switching from a Prime Rate to a 3 month LIBOR based index.  I thought I would do a little reconnaissance to determine what the range of interest rates might be on these loans.   I went to their Private Student Loan page and thought a good place to start would be a link titled "View current interest rates." 

Here is what I found for Private Loans:

Parent PLUS And Grad PLUS Borrowers At FFELP Institutions UNITE! Demand Lower Interest Rates (And Save Over $200 Million!

While Congress is making technical corrections to the Higher Education Opportunity Act, why not fix the dIscrepancy in interest rates for FFELP Grad PLUS and Parent PLUS borrowers?  In case you weren't aware, if you are fortunate to attend a Direct Lending school, the statutory interest rates on Grad PLUS and Parent PLUS loans are both 7.9%, while rates on the SAME EXACT LOANS at a FFELP institution are 8.5%. 

Two Approaches Being Considered for FAFSA Simplification

The Chronicle of Higher Education is reporting that the Department of Education in consultation with Treasury are considering two paths to FAFSA simplification:

Plan A:  Move to two factor aid formula:  adjusted gross income and family size.  "At its broadest, the plan would abolish the Fafsa and distribute aid strictly on the basis of adjusted gross income and family size, or another simple set of factors."

Recent Case Over Misapplied Student Loan Payments Opens Door for Possible Class Action Lawsuit

Here are the details of the case from the New York Law Journal:

• Hofstra law graduate consolidated $52,925 loans in 2006. 

• "His suit claims the defendants determined how much of a payment is applied to the loan's principal (instead of the amount applied to interest) based on the date the payment is received as opposed to the due date of the payment."
  • "Thus, if a payment is received on any day other than the due date -- including before the due date -- it will not be applied to principal correctly," Judge Greisa wrote.

Federal Student Loan Default Rate Jumps to 6.9% in FY08

The Wall Street Journal is reporting this evening that based on information provided by the Department of Education the cohort default rate on federal student loans has climbed to 6.9% for FY08 from 5.2% in FY07.  This preliminary figure calculates the percentage of borrowers that entered repayment in the year ending September of 2007 who went into default on or before September of 2008.