College Families Bushwhacked by New Loan Legislation

On September 4, 2007, President Bush signed the College Cost Reduction Act of 2007, designed to make more financial aid available to the poorest families, as well as lowering interest rates for new borrowers. As a bonus, the bill also created an opportunity for students to avoid repayment of loans by teaching in some inner city schools, or by working in public service jobs for ten years, after which time the loan balance will be forgiven.

The Act also reduced interest rates on new subsidized Stafford Loans from 6.8% to 3.4% over four years, and increased the amount of Pell Grants from $4,310 to $5,400 per year over the same period of time.

Though long overdue, it genuinely seemed to be a good piece of legislation that promised financial aid at lower rates and more availability of grant money to students. However, at the bill signing ceremony, President Bush, in what now appears to have been a foreboding understatement, said he didn’t know how all the increased grant money would be funded. Apparently, the problem has been solved – to the benefit of colleges and lenders. So, what else is new?

Mark Twain once said, “No man’s life, liberty, or property are safe while the legislature is in session.” Once again, it seems Mr. Clemens, one of America’s greatest and most beloved writers, was right on target.

Just when you thought it was safe to say something positive about the House Education and Labor Committee, who were responsible for the aforementioned College Cost Reduction Act, comes The Ensuring Continued Access to Student Loans Act of 2008. Sponsored by Rep. George Miller III (D-CA) along with 32 other House democrat and republican co-sponsors to ensure continued availability of access to the Federal student loan program for students and families, this new legislation not only fails its intended purpose, but actually is quite damaging to the very same students it intended to benefit.

Introduced on the floor of Congress on April 8th, it was passed by the House on April 17th, by the Senate on April 30th, and signed into law by President Bush on May 7th, 2008, the very same day it was received for his consideration. You’d think with all of those learned men and women that our tax dollars severely overpay, just one of them might have taken the time to consult with a college funding expert before rushing to the so-called aid of all of those needy college families.

Following on the heels of the Higher Education Reconciliation Act of 2005 (HERA, a far better piece of legislation), the new law should be re-titled the Ensuring Continued Increases to Student Loans Act! Under the guise of aiding college families overwhelmed and victimized by the student loan crisis, the Act did little else than add fuel to an ongoing fire by ensuring that colleges and lenders would benefit at the expense of students and their families. This perpetuated yet another deception on the academic public in a manner that has become typical of the no child left behind administration.

When legal gambling was proposed in many states, voters were assured that a significant percentage of the revenues would benefit education and other community service projects, and it did. However, what many of them neglected to make public was that the moment those funds were realized, many states reduced their own contributions to education and civic projects accordingly. In other words, the states withdrew their budgeted funds and replaced them with profits from gambling. The only listings in the plus column were the states; education and civic projects broke even.

The same deceptive maneuvering has happened here. This is how it has and will continue to play out:

· Beginning in school year 2007-2008, HERA increased Stafford Loans for freshmen from $2,625 to $3,500, and from $3,500 to $4,500 for sophomores. Need-based aid recipients lost $1,875, as the colleges reduced their own aid dollar for dollar and lenders will prosper from the increased loans.

· Beginning in school year 2008-2009, the new Student Loans Act increased Stafford borrowing power for undergraduates by $8,000 ($2,000 per year for 4 years). Now, colleges will save as much as $9,875 per student in grants and scholarships they would have otherwise awarded, and lenders will benefit handsomely with more interest from larger loans!

The University of Miami was so anxious to hop on the college savings bandwagon, their financial aid office cranked up the presses and doled out a loan to one student – two weeks before President Bush signed the new Act into law!  Instead of awarding a deserved grant or scholarship, they chose an unsubsidized Stafford Loan two weeks before it was even authorized – and saved $2,000.

The new act is the proverbial “wolf in sheep’s clothing,” and I can only hope that everyone, not only college families, writes his or her congressional representative and demands a repeal or modification of this shameful legislation.

It is also inconceivable to me that the media has applauded this bait ‘n switch when it so obviously benefits the colleges and lenders. Only time will tell if the media comes to realize it and alerts the public to what college funding professionals already know – these families have all been bushwacked – again!

The Bush administration promised no child left behind – and none reportedly were, even those who should have been. Yet, the benefits of that philosophy, if any, disappear completely in the shadow of a darker reality. All that remains when the smoke clears is the assurance that students will graduate from high school unprepared for college, and those whose academic credentials are strong enough, will graduate from college far deeper in debt than at any other time in history.

Consequently, in whatever career they choose to pursue, one thing is certain – they’ll be charging more for their services than their predecessors, and that contributes significantly to the vicious cycle of higher pricing that has, is and will continue to plague our economy…