Archive for the ‘Stafford loans’ Category
From the National Consumer Law Center’s Student Loan Borrower Assistance, a condensation of several recent reports on how student loans affect those on SSI:
In case you missed it, there has been a flurry of interest in issues that impact older student loan borrowers. Right before the holidays, the Government Accountability Office (“GAO”) released a report documenting the harsh consequences that the Department of the Treasury’s practice of garnishing Americans’ social security payments has on vulnerable student loan borrowers in default. Then earlier this month, the Consumer Financial Protection Bureau (“CFPB”) released a Snapshot report describing the increasing student loan debt that older consumers are carrying, as well as how the increased debt burden is impacting borrowers’ later life financial security. The takeaway from both of these reports is that student loans are threatening the financial security of an increasing number of older Americans.
To read the complete post, click here.
From Student Loan Borrower Assistance:
Last week, the Consumer Financial Protection Bureau’s (“CFPB”) Student Loan Ombudsman released its midyear report analyzing complaints submitted directly by consumers about their student loans. Importantly, the CFPB’s Student Loan Ombudsman announced that it is now officially accepting complaints about federal student loans. Although it has actually been accepting federal student loan complaints for a few months now, this is the first time it is openly soliciting these complaints.
I only just discovered that a few of my concerns regarding student loan repayment and public service options for contingent, part time faculty were addressed back in January and March 2012.
Among the changes are a three year break on loan capitalization for borrowers who qualify for the Public Service Loan Forgiveness program (PSLF) and working multiple jobs (under PSLF, borrowers must work 30 hours but can do so in multiple, qualifying public service organizations defined in the Q & A about Public Service Loan Forgiveness as “a broad range of employers, including any federal, state, or local government organization or agency and most not-for-profit organizations”). Also under the PSLF, remaining loan balances are not subject to IRS taxation.
Here are links to the docs as well as the Department of Education’s “Employment Certification for Public Service Loan Forgiveness Form” at the Student Aid on the Web Web site:
U.S. Department of Education | PSLF Fact Sheet
U.S. Department of Education | Q&A about Income-Based Repayment (IBR)
U.S. Department of Education | Q&A about Public Service Loan Forgiveness (PSLF)
Additional info is available at the Project on Student Debt.
I wish the Obama administration and Department of Education would have more fully, widely, advertised the positive changes to PSLF. Millions of borrowers will benefit. And so will society long term.
The right to education comes with a hefty price tag:
- Ellen Brown (May 11, 2012) ~ Seniors’ Social Security Garnished for Student Debts – Straight from Charles Dickens. Ms. Brown discusses the impact of interest, which in turn impacts capitalization.
- Devon Douglas-Bowers (May 10, 2012) ~ The Origins and Evolution of the Student Debt Crisis – Historical context of the crisis anyone?
- Lee Fang, Truthout (May 9, 2012) ~ Why Are Student Loan Interest Rates Set to Double? Thank These Lobbyists Who Helped Kill the Bill Yesterday – Background on the hostage negotiations.
- Dave Lindorff, This Can’t be Happening (May 9, 2012) ~ The ‘Subsidized’ Loan Charade: The US Government is Profiteering on Struggling Students – Ever wondered how the Dept of Ed profits on subsidized loans but couldn’t get a answer from Wm D Ford or Mohela contractors?
- OMBWatch (May 1, 2012), Student Loan Interest Fight Highlights Competing Values.
Here’s another story on student loans, this time from The Atlantic. From the article:
Meet Kelli Space. She went to Northeastern University to get a degree in sociology. And she graduated in $200,000 of student loan debt. In the economy’s newest trillion-dollar crisis, she is the 1 percent.
Kelli is not the face of America’s student debt problem. Among the 37 million people in this country with student loans to pay off, the median balance is $12,800. A whole 72 percent of borrowers have less than $25,000 left in debt, according to data from the Federal Reserve Bank of New York.
No, students like Kelli are the rarities, the white rhinos. Only about 5 percent of borrowers owe more than $75,000. The question is: How do they get there?
The article goes on to quote a study of “experiences of high-debt borrowers by analyzing survey data from about 6,500 undergraduate and graduate student loan borrowers, fully 25 percent of which have outstanding loan balances at or exceeding $100,000” by a group called NERA Economic Consulting. Neither The Atlantic article or the NERA report mention capitalization of interest (although NERA does use the phrase “interest that accrues over time”, p. 12). Recall that capitalization is accrued interest on one’s loans in addition to interest rate of the loan. To attend graduate school, for example, grad students usually carry (this is changing) subsidized (fed gov pays interest) and unsubsidized loans, where interest is not subsidized while in school and is subject to capitalization.
Of late, what most, if not all, articles and reports on student loans ignore: 1. That Kelli, like most borrowers, receive a set amount (scroll down to the chart “Annual and Aggregate Loan Limits”) of loans that only go so far, and in some cases, don’t cover the total costs of education, 2. What loans equal after one graduates does not represent the true costs of one’s education, but charges such as interest and capitalization of interest, and and 3. Kelli, again like most borrowers, probably couldn’t afford to pay her unsubsidized loans while in school, so capitalization – accrued interest – silently, grossly inflated the loan during the deferment/forbearance period. In other words, if Kelli was in deferment/forbearance during her academic studies, the loans evolved to $200,000 through the interest rate and capitalization of interest during the time she was in school.
I ran a few parameters for Kelli given in The Atlantic in the FinAid calculator to illustrate my concern with interest and capitalization (emphasis added):
|Initial Loan Balance:||$200,000.00|
|Loan Interest Rate:||6.80%|
|Loan Term:||10 years|
After the deferment period of 12 months, the new loan balance is $213,950.75, including $13,950.75 in accrued interest.
Without the interest capitalization there would have been 120 payments of $2,301.61 , for a total payment of $276,193.20 (including a total of $76,193.20 in interest) plus an additional $13,600.00 in interest paid during the deferment period.
With the interest capitalization there are 120 payments of $2,462.15 , for a total payment of $295,458.00 (including a total of $81,507.25 in interest plus $13,950.75 in interest accrued during the deferment period).
The numbers speak for themselves.
In late September, I received a response to my March 20, 2010 FOIA request, where I asked the Department of Education for the following information:
Any and all current documents, including Department of Education internal policies, procedures, and formulas concerning the determination of capitalization on Stafford loans.
I also requested the identification of the department or sub-agency responsible within the Dept. of Education responsible for the calculation of capitalization on Stafford loans and for carrying out Stafford loan capitalization activities through William D. Ford.
The FOIA officer that worked my case interpreted the request as business rules; I didn’t want to limit the search to just this area, although it appears that’s what occurred. There was no adequate search.
Here are the documents I received:
DeptEd_Business Rules ~ which tells us borrowers nothing about how the capitalization is assessed in terms of formulas, rates, the current market, and so on. The first page of the file, “ACS RoboHelp, ” is essentially unreadable. And why is the Department of Education sending info from a vendor? Perhaps some borrower out there could submit a FOIA on this?
Also note the date on the document “Direct Loan Servicing” is March 2004.
Information that is exempt from disclosure pursuant to the FOIA 5 U.S.C. $ 552 (b)(5) and Departmental regulation 34 CFR $ 5.73(a), which permits agencies to withhold inter or intraagency memorandums or letters that would not be available by law to a pafi in litigation with the agency. Exemption 5 incorporates the government’s deliberative process privilege, inter alia, protecting records of predecisional internal communications reflecting the views or recommendations of agency employees in connection with govemment policy or legal matters that are both predecisional and deliberative in nature.
I am not an attorney, but it seems to me after reading of Exemption 5, for the Department to determine that “Revised Capitalization Policies” to be exempt under the deliberative process privilege, the document must be both predecisional and deliberative as the above information from the DOJ describes. Exemption 5 doesn’t appear to concern final policies or rules the Department follows.
As I’ve blogged here at staffordloanjustice, release of this information from the Department of Education’s vault would provide borrowers with a semblance of how their loans work and the level of prolonged debt. Release of this information would also greatly assist citizens in understanding government policy. This issue is one of truth in lending, right to know, and concerns accountability for policies. To not release this information equals government secrecy. I am torn if the withholding of docs by the Department constitutes bureaucratic or political secrecy.** Perhaps both?
I will submit an appeal.
Filed an appeal and it was denied. The FOIA officer find my objection “unpersuasive.”
Bureaucratic Secrecy, which refers to the largely unconscious hoarding and withholding of information that characterizes all bureaucracies, as classically described by Max Weber. Unlike political secrecy, there is no particular advantage to be gained from bureaucratic secrecy, nor is there a persuasive national security rationale.
Source: Steven Aftergood. “Secrecy is Back in Fashion.” Bulletin of the Atomic Scientists November-December 2000. http://www.thebulletin.org/article.php?art_ofn=nd00aftergood
Political Secrecy, which refers to the deliberate and conscious use of classification authority for political advantage, irrespective of any threat to national security. Typically, the intent here is to shield an official or a vulnerable program from embarrassment or controversy.
This is the smallest of the three categories but it is the most dangerous to the political health of the nation. For example, some of the early research on the effects of radiation exposure on human subjects was explicitly classified to evade public controversy and legal liability.  More recently, the classification of a letter written by MIT Professor Ted Postol critical of missile defense technology was most likely an instance of political secrecy. 
Source: Steven Aftergood. “Secrecy is Back in Fashion.” Bulletin of the Atomic Scientists November-December 2000, 56(6): 24+
A colleague from New Faculty Majority passed along news regarding the revised Budget Control Act of 2011 (S.627). Sen. Leahy (sponsor), and Coryn, Tester, and Whitehouse were the Act’s co-sponsors. Title V., Sections 503 and 504 of the Act amend The Higher Education Act of 1965 to eliminate many provisions of the Stafford student loan program, including the Federal Direct Student Loan program – named after Rep. William D. Ford (D-MI) who served on the Committee on Education and Labor (102-103 Congress). A read of the legislative history and debate from the Congressional Record would be needed to definitively see how the Stafford loan issue got tangled into “budget control.”
From the Congressional Research Service summary (emphasis added):
Title V: Pell Grant and Student Loan Program Changes – (Sec. 501) Amends the Higher Education Act of 1965 to increase appropriations for federal Pell Grants for FY2012-FY2013.
(Sec. 502) Makes certain graduate or professional students ineligible to receive a Federal Direct Stafford loan after July 1, 2012.
Limits the maximum annual amount of Federal Direct Unsubsidized Stafford loans such a student may borrow in any academic year or its equivalent.
(Sec. 503) Prohibits the Secretary of Education from authorizing or providing any repayment incentive not otherwise authorized to encourage on-time repayment of a loan for which the first disbursement of principal is made on or after July 1, 2012, including any reduction in the interest or origination fee rate paid by the borrower. Authorizes the Secretary to provide for an interest rate reduction for a borrower who agrees to have payments on such a loan automatically electronically debited from a bank account.
The Hill summarized the alleged “savings” created by the Budget Control Act:
The Budget Control Act of 2011 would end giving interest subsidized loans to graduate or professional students excluding those students enrolled in teaching credential or certification programs required by the state, while unsubsidized loans are still available. The Act would also give Pell Grants $13 billion in mandatory funds over two years to make up for the funding gap, but would give $20 billion total to the Pell Grant program. The elimination of subsidized loans for graduate students will save approximately $18.1 billion over 10 years for all three plans. Like Boehner’s plan, the current deal will also end the Department of Education’s loan repayment incentives saving about $3.6 billion over 10 years. Based on information comparing the three acts, the deal would reduce total direct spending by about $4.6 billion over 10 years, or about the same amount that Speaker Boehner’s act would save.
These outrageous actions affect grad student borrowers – my hardworking, brilliant students – in the most nefarious way by potentially forcing them to: 1. borrow money from banks and the private sector now the FDL Staffords are gutted (which has me wondering about how capitalization and interest will be configured – and credit scores?); 2. delay their education due to the limits on the maximum annual amount of FDL Unsubsidized Staffords and lack of subsidized loans (students may still apply for Direct Plus loans but the interest is higher, and capitalization on the entire balance of the loan is apt to increase); 3. struggle to locate grants, scholarships, fellowships, and private funding in an ultra-competitive environment compressed by the poor economy; and 4. drop out of school, simply because they can no longer afford to complete their degrees; and 5. shift payments to banks who will undoubtedly charge some sort of fee for handling unsubsidized loans, although borrowers get a crumb if they “have payments on such a loan automatically electronically debited from a bank account.” I’ve posed a lot of potentialities here that can be answered only with research and time. It would have been nice to get a more complete analysis from Congressional Research Service or GAO to understand how Congress and the President arrived at the amendments to The Higher Education Act of 1965.
I believe these changes affront the right to education. Viewing Stafford cuts within a system (or network) that is the U.S., one might question how the Act resolves the current budget crisis if students drop out, or worse yet, never apply to attend graduate school due to severe economic hardship and inability to assume increased student debt? How will the loss of subsidized loans and abbreviation of Staffords influence minority recruitment? Faculty positions? Much needed new programs and areas of study? Yes, grad students may still apply for Plus Loans, but the cushion that subsidized Staffords brought is gone.
The light has just gone out for millions of existing and potential graduate students, but society at large. As Cardinal John Henry Newman (1854) wrote in his Idea of an University, “one generation forms another” (para.2). Grad students are America’s future, the brain trust, the greater hope. Congress et al, y’all get an F for flawed reasoning, shortsightedness, and overall lack of imagination in “solving” the debt problem by punishing grad students. Subsidized Staffords gave borrowers breathing room semester to semester, thus allowing students to among other things, purchase costly texts and supplies, and yes, eat. Subsidized Staffords also gave students a slight break in having to pay back additional loan interest as there was no capitalization for these subsidized loans. My sense is that Direct Plus and bank loans will add to the loan amount from capitalization.
IMHO, amending The Higher Education Act of 1965 officially splintered the vision of Kennedy’s New Frontier, Johnson’s Great Society, and of course, William Ford’s legacy. I hope I’m wrong but don’t think I am…
Baum & McPherson (2011, August 14) ~ Read opinion over at The Chronicle of Higher Ed with a critical eye as there are a few flaws and no references cited.
Nelson, Libby A. (2011, August 17), A graduate student burden. Inside Higher ED.
Wurth, Julie. (2011, August 14). With end of subsidy on Stafford loans, interest will accumulate right away. News Gazette.