A decade after its last reauthorization and five years since an updated version was due, a new version of the Higher Education Act has finally passed Congress. Here is what to like in the final higher ed bill.
Putting Teeth Into Loan Auctions
Last year, Congress created a groundbreaking pilot auction program that uses market forces to set student loan subsidy rates for lenders making federal PLUS loans to parents and graduate students. With about a year left to enact the pilot project, lawmakers have added penalties for lenders who win an auction and then back out. The bill allows the Education Secretary to punish lenders that violate the terms of the auction agreement by one of the following methods: fining the lender for any additional costs needed to find and subsidize a replacement PLUS loan lender; banning the offending lender from future auctions; or, kicking them out of the Federal Family Education Loan (FFEL) program entirely. We particularly like the fact that the Secretary can retrieve the fine by reducing subsidies paid to the lenders on other FFEL loans or having another federal agency garnish other subsidies the lender might receive. While we have some complaints about the language (it doesn't, for example, address the PLUS loan auction bidding cap, which needs to be more flexible to encourage robust bidding in a range of financial market conditions), overall, we believe that this provision is an important step forward in getting this pilot program off the ground.
Adding Key Protections for Private Loan Borrowers
The reauthorization legislation takes a stab at addressing concerns that students borrowing high-cost private loans frequently don’t understand the terms and conditions of these loans before taking them out. Under the bill, lenders would be required to provide clearer information about the interest rates and fees they charge and to inform potential applicants about the availability of cheaper, safer federal loans. Borrowers would have up to 30 days, after a private loan offer is made, to decide whether or not they want to take out the loan, and another three days, after the loan is consummated, to cancel it. In addition, the measure would ban lenders from branding private loan products with a college’s name or logo in a way that implies the school has endorsed the loan. The measure would also bar lenders from penalizing borrowers who pay off their private loans early. These are all good provisions. The bill, however, does not goes far enough in addressing the fact that large numbers of students take out private loans without exhausting their federal student loan eligibility first. We also are extremely disappointed that the measure doesn’t do anything to help financially-distressed borrowers carrying unmanageable levels of private loan debt. Still, this legislation makes a good-faith effort to confront this problem. And that’s a start.
Banning Opportunity Loan Deals
The legislation would forbid colleges from entering into sweetheart deals with lenders in which loan companies agree to waive or loosen credit requirements on private student loans in exchange for becoming the school's exclusive federal student loan provider. These types of harmful "opportunity loan" arrangements give lenders a major incentive to provide subprime private loans to high-risk borrowers. The damage has been particularly grave at some of the most scandal-ridden chains of for-profit colleges, where disadvantaged students with poor credit ratings have been stuck with loans with interest rates and fees exceeding 20 percent. Now many of these borrowers are in default and wishing they had never pursued a post-secondary education in the first place. While this legislation won't do anything for those borrowers, it will hopefully prevent students from being victimized by such predatory lending practices in the future.
Maintaining a Watchful Eye on College Costs
The legislation has two tactics for targeting the rising cost of college: penalizing states that don't live up to their end of the bargain and shaming colleges that raise their prices too high. The bill holds states accountable through a "maintenance of effort" (MOE) provision, which withholds funds from states that fail to maintain their levels of spending on higher education. States in violation of MOE would be ineligible for College Access Challenge Grants, a new $66 million program included in the College Cost Reduction and Access Act that is only funded through fiscal year 2009. With falling state support a major driver of massive tuition hikes and questionable revenue deals, the MOE provision, albeit an extremely weak one, should provide at least a small incentive for states to avoid slashing higher education funding.
The bill also tackles college costs by requiring the Education Department to publish an annual list of the top 5 percent of colleges with the highest tuition and fees and net price, along with those with the largest percentage change in tuition and fees and net price over the preceding three years. Lists would be disaggregated by type of institution, though not by region. Colleges with the highest percentage increases would have to provide the Education Secretary with a report explaining factors behind those price increases, and steps they plan to take to limit them in the future . These lists would provide students with an idea of which schools are likely to hike tuition, but also make colleges think twice before jacking up their prices. The provision is more thoughtful than previous efforts because it would not penalize state colleges that don't have any control over setting their tuition rates.
To see more favorites, please visit www.HigherEdWatch.org