Educators worry about Obama student loan plan - Commentary on Obama's Student Loan Proposals

Educators worry about Obama student loan plan

By John Staed
Wednesday, April 1, 2009

A national interest group says President Barack Obama’s proposed budget would help college students with the cost of college. But financial aid officers for several Anderson-area schools aren’t so sure.

It’s too early to make final judgment about the Obama proposal regarding funding for education, said Becky Pressley, financial aid director at Anderson University.

“It would definitely change the way we do business,” said Marvin Carmichael, financial aid director at Clemson University.

The Institute for America’s Future says the budget proposed by Obama would reduce or eliminate $4 billion in private lender subsidies to offer loan programs for students and shift that money to federal Pell Grant programs. Pell Grants would increase nationally by an average $121 per student in the proposed budget, according to the group.

In South Carolina, according to the IAF analysis, the average maximum Pell Grants for 2010-11 would rise $122 per student to a total $3,377 maximum. The change would allow 3,648 new Pell Grant recipients, according to the group.

In Georgia for the same period, the Pell Grant would increase $108 per student to a total $3,010 maximum grant, and an additional 8,722 students would be able to receive grants, according to the IAF.

Pell Grants traditionally, however, have only covered a portion of college costs. The average Pell Grant per year nationally would be $839 per year even with the increase for 2010-11. Average higher education tuition costs alone for 2007-08 in South Carolina were $8,389 per year, according to the IAF, citing National Center for Education Statistics data. In Georgia for the same period, the average tuition cost was $4,006, the IAF reported.

Pell Grants don’t have to be repaid and are awarded to low- and moderate-income families. The highest award per school year is $5,550, said Eric Lotke, research director at IAF.

The Obama proposal saves money by reducing the cost of making student loans, Lotke said. A U.S. Government Accountability Office study found that federal Direct Loan program costs $1.70 per $100 in loans, while using the bank-financed program cost $9.20 per $100 of loans. Visit gao.gov/new.items/d05874.pdf to view the study.

“The Obama budget redirects the subsidies from banks to students,” Lotke said.

Pressley said eliminating the private loan program would deny another loan choice to students and parents.

“In his budget, he has proposed that all student loans go to Direct Loan,” Pressley said. Direct Loan is a U.S. Department of Education loan program.

“I would like to see the FFELP (Federal Family Education Loan Program) remain intact, where there are lenders out there,” she said. “I think students need a choice where they can decide on their student loans.”

The FFELP gives students and parents another avenue for school loans, usually through banks or other financial institutions.

From 10 percent to 15 percent of the 2,000 Anderson University students usually receive the private loans, Pressley said, but the economy has hurt the program.

“Because of the economy we’re seeing a decrease in the approval rate (for loans) as well as a lot of the lenders are not participating in the … program,” Pressley said.

That can make it harder to get the money needed for college costs, she said.

Clemson’s Carmichael said his concern is that the proposal may shift administration of the loans to colleges, a job now handled by the loan originator, such as banks or the U.S. Department of Education. And, the South Carolina Student Loan Corporation has been extremely successful in handling loans for state students but could face elimination through the federal plan, he said.

Also, if students were left with the choice of loans through the education department, such as direct student loans, then they would face a maximum amount they could borrow each year, he said.

The average yearly cost of a Clemson education is about $20,000, Carmichael said, but freshmen are limited to a $5,500 loan through the U.S. Department of Education, sophomores a $6,500 loan, and juniors and seniors a $7,500 loan. Lower-income students could be awarded Pell Grants, but even with the maximum Pell Grant and combined with a federal loan, that would cover about half of the costs.

Like Pressley, Carmichael said credit has tightened considerably for students.

“What we’ve seen in the market now is creditworthiness has to be much stronger and lending rates much higher,” he said. “That’s the area I’m very concerned about.”

Colleges have been criticized for their rising costs. The IAF, citing National Center for Education Statistics, said the average cost of tuition alone at a public, four-year college increased $1,729, or 29 percent between 2000 and 2007. In South Carolina during same period, the increase was 33 percent, 6 percent alone last year, the IAF reported.

In 1977, a Pell Grant could cover 77 percent of the cost to attend a four-year public college, but dropped to 35 percent in 2007-08, according to the IAF, citing U.S. Department of Education statistics.