Federal student loans to parents:
See PLUS loan
Usually these are PLUS loans (formerly standing for "Parent Loan for Undergraduate Students"). Unlike loans made to students, parents can borrow much more — usually enough to cover any gap in the cost of education. However, there is no grace period: Payments start immediately.
Parents should be aware that THEY are responsible for repayment on these loans, not the student. This is not a 'cosigner' loan with the student having equal accountability. The parents have signed the master promissory note to pay and, if they do not do so, it is their credit rating that suffers. Also, parents are advised to consider "year 4" payments, rather than "year 1" payments. What sounds like a "manageable" debt load of $200 a month in freshman year can mushroom to a much more daunting $800 a month by the time four years have been funded through loans. The combination of immediate repayment and the ability to borrow substantial sums can be expensive.
Under new legislation, graduate students are eligible to receive PLUS loans in their own names. These Graduate PLUS loans have the same interest rates and terms of Parent PLUS loans.
Parents should also be aware that legislation raised the interest rate on these loans significantly — to 8.5% on July 1, 2006.
Disbursement: How the money gets to student or school:
Federal Direct Student Loans, also known as Direct Loans or FDLP loans, are funded from public capital originating with the U.S. Treasury. FDLP loans are distributed through a channel that begins with the U.S. Treasury Department and from there passes through the U.S. Department of Education, then to the college or university and then to the student.
According to the U.S. Department of Education, more than 6,000 colleges, universities, and technical schools participate in FFELP, which represents about 80% of all schools. FFELP lending represents 75% of all federal student loan volume.
Debt levels:
The maximum amount that any student can borrow is adjusted as federal policies change. A study published in the winter 1996 edition of the Journal of Student Financial Aid, “How Much Student Loan Debt Is Too Much?” suggested that the monthly student debt payment for the average undergraduate should not exceed 8% of total monthly income after graduation. Some financial aid advisers have referred this as "the 8% rule." Circumstances vary for individuals, so the 8% level is an indicator, not a rule set in stone. A research report about the 8% level is available at the Iowa College Student Aid Commission.[7]
Private student loans
These are loans that are not guaranteed by a government agency and are made to students by banks or finance companies. Advocates of private student loans suggest that they combine the best elements of the different government loans into one: They generally offer higher loan limits than federal student loans, ensuring the student is not left with a budget gap. But unlike federal parent loans, they generally offer a grace period with no payments due until after graduation (this grace period ranges as high as 12 months after graduation, though most private lenders offer six months). However, some higher education advocates are private loan detractors because of the higher interest rates, multiple fees, and lack of borrower protections private loans carry that are not associated with federal loans.
Private student loan types
Private student loans generally come in two types: school-channel and direct-to-consumer.
School-channel loans offer borrowers lower interest rates but generally take longer to process. School-channel loans are "certified" by the school, which means the school signs off on the borrowing amount, and the funds are disbursed directly to the school.
Direct-to-consumer private loans are not certified by the school; schools don't interact with a direct-to-consumer private loan at all. The student simply supplies enrollment verification to the lender, and the loan proceeds are disbursed directly to the student. While direct-to-consumer loans generally carry higher interest rates than school-channel loans, they do allow families to get access to funds very quickly — in some cases, in a matter of days. Some argue[citation needed] that this convenience is offset by the risk of student over-borrowing and/or use of funds for inappropriate purposes, since there is no third-party certification that the amount of the loan is appropriate for the education finance needs of the student in question.
Direct-to-consumer private loans are the fastest growing segment of education finance[citation needed] and under legislative scrutiny due to the lack of school certification. Loan providers range from large education finance companies to specialty companies that focus exclusively on this niche.[citation needed] Such loans will often be distinguished by the indication that "no FAFSA is required" or "Funds disbursed directly to you."
Private student loan rates and interest
Private student loans typically have variable interest rates while federal student loans have fixed rates. Consumers should be aware that some private loans require substantial up-front origination fees. These fees raise the real cost to the borrower and reduce the amount of money available for educational purposes.
Most private loan programs are tied to one or more financial indexes, such as the Wall Street Journal Prime rate or the BBA LIBOR rate, plus an overhead charge. Because private loans are based on the credit history of the applicant, the overhead charge will vary. Students and families with excellent credit will generally receive lower rates and smaller loan origination fees than those with less than perfect credit. Money paid toward interest is now tax deductible. However, lenders rarely give complete details of the terms of the private student loan until after the student submits an application, in part because this helps prevent comparisons based on cost. For example, many lenders will only advertise the lowest interest rate they charge (for good credit borrowers). Borrowers with bad credit can expect interest rates that are as much as 6% higher, loan fees that are as much as 9% higher, and loan limits that are two-thirds lower than the advertised figures.
Private student loan fees
Private loans often carry an origination fee. Origination fees are a one-time charge based on the amount of the loan. They can be taken out of the total loan amount or added on top of the total loan amount, often at the borrower's preference. Some lenders offer low-interest, 0-fee loans. Each percentage point on the front-end fee gets paid once, while each percentage point on the interest rate is calculated and paid throughout the life of the loan. Some have suggested that this makes the interest rate more critical than the origination fee.[citation needed]
In fact, there is an easy solution to the fee-vs.-rate question: All lenders are legally required to provide you a statement of the "APR (Annual Percentage Rate)" for the loan before you sign a promissory note and commit to it. Unlike the "base" rate, this rate includes any fees charged and can be thought of as the "effective" interest rate including actual interest, fees, etc. When comparing loans, it may be easier to compare APR rather than "rate" to ensure an apples-to-apples comparison. APR is the best yardstick to compare loans that have the same repayment term; however, if the repayment terms are different, APR becomes a less-perfect comparison tool. With different term loans, consumers often look to "total financing costs" to understand their financing options.
Private student loan cosigners:
Eligible loan programs generally issue loans based on the credit history of the applicant and any applicable cosigner/co-endorser/coborrower. This is in contrast to federal loan programs that deal primarily with need-based criteria, as defined by the EFC and the FAFSA. For many students, this is a great advantage to private loan programs, as their families may have too much income or too many assets to qualify for federal aid but insufficient assets and income to pay for school without assistance.
Many international students in the United States can obtain private loans (they are usually ineligible for federal loans) with a cosigner who is a United States citizen or permanent resident. However, some graduate programs (notably top MBA programs) have a tie-up with private loan providers and in those cases no cosigner is needed even for international students.[citation needed]
Private student loan termsThe terms for private loans vary from lender to lender. A common suggestion is to shop around on all terms, not just respond to "rates as low as..." tactics that are sometimes little more than bait-and-switch. However, shopping around could damage your credit score.[11] Examples of other borrower terms and benefits that vary by lender are deferments (amount of time after leaving school before payments start) and forbearances (a period when payments are temporarily stopped due to financial or other hardship). These policies are solely based on the contract between lender and borrower and not set by Department of Education policies.
Private student loan consolidationSeveral lenders offer private consolidation programs. Borrowers of privately subsidized student loans may face the same restrictions to bankruptcy discharge as for government based loans: New legislation makes clear that these loans are, like federal student loans, not dischargeable under bankruptcy. Even before the legislation was passed, private student loans that were guaranteed "in whole or in part" by a nonprofit entity are non-dischargeable in bankruptcy (and most private loans, regardless of the lender, were guaranteed by a nonprofit).
Discharge of student loans
US Federal student loans and some private student loans can be discharged in bankruptcy only with a showing of "undue hardship." Bankruptcy Code Section 523(a)(8) determines what loans can and cannot be discharged. The undue hardship standard varies from jurisdiction to jurisdiction, but is generally difficult to meet, making student loans practically non-dischargeable through bankruptcy. While US Federal student loans can be discharged for total and permanent disability, private student loans cannot be discharged outside of bankruptcy.
The rules for total and permanent disability discharge are undergoing major changes as a result of the Higher Education Opportunity Act of 2008. Loan holders will no longer be required to be unable to earn any income, but instead the standard will be "substantial gainful activity" (SGA) as a result of disability. Comments on the proposed rules were open until August 24, 2009, and the new regulations will take effect July 1, 2010.[12]
Criticism of US student loan programs
After the passage of the bankruptcy reform bill of 2005, student loans are not wiped clean during bankruptcy. This provided a risk free loan for the lender, but interest rates remained high, averaging 7% a year.
In 2007, the Attorney General of New York State, Andrew Cuomo, led investigation into lending practices and anti-competitive relationships between student lenders and universities. Specifically, many universities steered student borrowers to "preferred lenders" which resulted in those borrowers incurring higher interest rates. Some of these "preferred lenders" allegedly rewarded university financial aid staff with "kick backs." This has led to changes in lending policy at many major American universities. Many universities have also rebated millions of dollars in fees back to affected borrowers.
Here are some contents about federal loans:
1 Federal loans
1.1 Federal loans to students
1.2 Stafford loan aggregate limits
1.3 Federal student loans to parents
1.4 Disbursement: How the money gets to student or school
1.5 Debt levels
2 Private student loans
2.1 Private student loan types
2.2 Private student loan rates and interest
2.3 Private student loan fees
2.4 Private student loan cosigners
2.5 Private student loan terms
2.6 Private student loan consolidation
3 Discharge of student loans
4 Criticism of US student loan programs
5 References
6 External links
7 Further reading
Federal loans to students :
Federal student loans in the United States are authorized under Title IV of the Higher Education Act as amended.
These loans are available to college and university students via funds disbursed directly to the school and are used to supplement personal and family resources, scholarships, grants, and work-study. They may be subsidized by the U.S. Government or may be unsubsidized depending on the student's financial need. The U.S. Department of Education published a booklet comparing federal loans with private loans.[5] In this same document, the government describes what you may use the loan for:
You may use the money you receive only to pay for education expenses at the school that awarded your loan. Education expenses include school charges such as tuition; room and board; fees; books; supplies; equipment; dependent childcare expenses; transportation; and rental or purchase of a personal computer.
Both subsidized and unsubsidized loans are guaranteed by the U.S. Department of Education either directly or through guaranty agencies. Nearly all students are eligible to receive federal loans (regardless of credit score or other financial issues). Both types offer a grace period of six months, which means that no payments are due until six months after graduation or after the borrower becomes a less-than-half-time student without graduating. Both types have a fairly modest annual limit. The dependent undergraduate limit effective for loans disbursed on or after July 1, 2008 is as follows (combined subsidized and unsubsidized limits): $5,500 per year for freshman undergraduate students, $6,500 for sophomore undergraduates, and $7,500 per year for junior and senior undergraduate students, as well as students enrolled in teacher certification or preparatory coursework for graduate programs. For independent undergraduates, the limits (combined subsidized and unsubsidized) effective for loans disbursed on or after July 1, 2008 are higher: $9,500 per year for freshman undergraduate students, $10,500 for sophomore undergraduates, and $12,500 per year for junior and senior undergraduate students, as well as students enrolled in teacher certification or preparatory coursework for graduate programs. Subsidized federal student loans are only offered to students with a demonstrated financial need. Financial need may vary from school to school. For these loans, the federal government makes interest payments while the student is in college. For example, those who borrow $10,000 during college will owe $10,000 upon graduation.
Unsubsidized federal student loans are also guaranteed by the U.S. Government, but the government does not pay interest for the student, rather the interest accrues during college. Nearly all students are eligible for these loans regardless of demonstrated need. Those who borrow $10,000 during college will owe $10,000 plus interest upon graduation. For example, those who have borrowed $10,000 and had $2,000 accrue in interest will owe $12,000. Interest will begin accruing on the $12,000. The accrued interest will be "capitalized" into the loan amount, and the borrower will begin making payments on the accumulated total. Students can choose to pay the interest while still in college; however, few students choose to exercise this option.
Federal student loans for graduate students have higher limits: $8,500 for subsidized Stafford and $12,500 (limits may differ for certain courses of study) for unsubsidized Stafford. Many students also take advantage of the Federal Perkins Loan. For graduate students the limit for Perkins is $6,000 per year.
Stafford loan aggregate limits :
Students who borrow money for education through Stafford loans cannot exceed certain aggregate limits for subsidized and unsubsidized loans. For undergraduate students, these amounts are $23,000 in subsidized and $34,500 in unsubsidized loans.[6] Once a student has borrowed the maximum amount (s)he is eligible for (based on grade level, such as undergraduate, graduate/professional, etc.), in subsidized loans, the student has the option to take out a loan in an additional amount less than or equal to the amount (s)he would have been eligible for in subsidized loans. Once both the subsidized and unsubsidized aggregate limits have been met for both subsidized and unsubsidized loans, the student is unable to borrow additional Stafford loans until a portion of the borrowed funds has been paid back to the respective lender(s). Once the student has paid back some of these amounts, (s)he will regain eligibility up to the aggregate limits as before.
1 Federal loans
1.1 Federal loans to students
1.2 Stafford loan aggregate limits
1.3 Federal student loans to parents
1.4 Disbursement: How the money gets to student or school
1.5 Debt levels
2 Private student loans
2.1 Private student loan types
2.2 Private student loan rates and interest
2.3 Private student loan fees
2.4 Private student loan cosigners
2.5 Private student loan terms
2.6 Private student loan consolidation
3 Discharge of student loans
4 Criticism of US student loan programs
5 References
6 External links
7 Further reading
Federal loans to students :
Federal student loans in the United States are authorized under Title IV of the Higher Education Act as amended.
These loans are available to college and university students via funds disbursed directly to the school and are used to supplement personal and family resources, scholarships, grants, and work-study. They may be subsidized by the U.S. Government or may be unsubsidized depending on the student's financial need. The U.S. Department of Education published a booklet comparing federal loans with private loans.[5] In this same document, the government describes what you may use the loan for:
You may use the money you receive only to pay for education expenses at the school that awarded your loan. Education expenses include school charges such as tuition; room and board; fees; books; supplies; equipment; dependent childcare expenses; transportation; and rental or purchase of a personal computer.
Both subsidized and unsubsidized loans are guaranteed by the U.S. Department of Education either directly or through guaranty agencies. Nearly all students are eligible to receive federal loans (regardless of credit score or other financial issues). Both types offer a grace period of six months, which means that no payments are due until six months after graduation or after the borrower becomes a less-than-half-time student without graduating. Both types have a fairly modest annual limit. The dependent undergraduate limit effective for loans disbursed on or after July 1, 2008 is as follows (combined subsidized and unsubsidized limits): $5,500 per year for freshman undergraduate students, $6,500 for sophomore undergraduates, and $7,500 per year for junior and senior undergraduate students, as well as students enrolled in teacher certification or preparatory coursework for graduate programs. For independent undergraduates, the limits (combined subsidized and unsubsidized) effective for loans disbursed on or after July 1, 2008 are higher: $9,500 per year for freshman undergraduate students, $10,500 for sophomore undergraduates, and $12,500 per year for junior and senior undergraduate students, as well as students enrolled in teacher certification or preparatory coursework for graduate programs. Subsidized federal student loans are only offered to students with a demonstrated financial need. Financial need may vary from school to school. For these loans, the federal government makes interest payments while the student is in college. For example, those who borrow $10,000 during college will owe $10,000 upon graduation.
Unsubsidized federal student loans are also guaranteed by the U.S. Government, but the government does not pay interest for the student, rather the interest accrues during college. Nearly all students are eligible for these loans regardless of demonstrated need. Those who borrow $10,000 during college will owe $10,000 plus interest upon graduation. For example, those who have borrowed $10,000 and had $2,000 accrue in interest will owe $12,000. Interest will begin accruing on the $12,000. The accrued interest will be "capitalized" into the loan amount, and the borrower will begin making payments on the accumulated total. Students can choose to pay the interest while still in college; however, few students choose to exercise this option.
Federal student loans for graduate students have higher limits: $8,500 for subsidized Stafford and $12,500 (limits may differ for certain courses of study) for unsubsidized Stafford. Many students also take advantage of the Federal Perkins Loan. For graduate students the limit for Perkins is $6,000 per year.
Stafford loan aggregate limits :
Students who borrow money for education through Stafford loans cannot exceed certain aggregate limits for subsidized and unsubsidized loans. For undergraduate students, these amounts are $23,000 in subsidized and $34,500 in unsubsidized loans.[6] Once a student has borrowed the maximum amount (s)he is eligible for (based on grade level, such as undergraduate, graduate/professional, etc.), in subsidized loans, the student has the option to take out a loan in an additional amount less than or equal to the amount (s)he would have been eligible for in subsidized loans. Once both the subsidized and unsubsidized aggregate limits have been met for both subsidized and unsubsidized loans, the student is unable to borrow additional Stafford loans until a portion of the borrowed funds has been paid back to the respective lender(s). Once the student has paid back some of these amounts, (s)he will regain eligibility up to the aggregate limits as before.
Student loans in the United States
- Federal student loans made to students directly: No payments while enrolled in at least half time status. If a student drops below half time status, the account will go into its 6 month grace period. If the student re-enrolls in at least half time status, the loans will be deferred, but when they drop below half time again they will no longer have their grace period. Amounts are quite limited as well. There are many deferments and a number of forbearances one can get in the Direct Loan program.[1] For those who are disabled, there is also the possibility of 100% loan discharge if you meet the requirements.[2] Due to changes made by the Higher Education Opportunity Act of 2008, it will become much easier to get one of these discharges as of July 1, 2010.[3] There are loan forgiveness provisions for teachers and health professionals serving low-income areas. Currently, certain loan forgiveness or discharges are considered income by the Internal Revenue Service due to 26 U.S.C. 108(f).[4]
- Federal student loans made to parents: Much higher limit, but payments start immediately
- Private student loans made to students or parents: Higher limits and no payments until after graduation, although interest will start to accrue immediately. Private loans may be used for any education related expenses such as tuition, room and board, books, computers, and past due balances. Private loans can also be used to supplement federal student loans, when federal loans, grants and other forms of financial aid are not sufficient to cover the full cost of higher education.
Re-evaluations, Tax Credits, and New Perspectives on Student Loans:
After 1972, new initiatives such as the Middle-Income Assistance Act of 1978, which widened Pell Grant eligibility, further catered to the middle class. Already a gap was becoming apparent between the availability of federal aid and access to institutions as tuition began to rise steadily. President Reagan cut spending significantly during the 1980s though demand for loans continued to rise, though less rapidly than before. The leveling off of student aid spending was partially responsible for the shift toward loan spending and away from grant spending that has continued to the present day. Colleges formed new boards such as the 568 Presidents’ Working Group to further discuss financial aid policy as well as assess the financial need of their student body in order to adopt a set of standardized rules. This group built upon the work of the College Scholarship Service as well as the now-defunct Overlap Group of 1958, which had met to smooth the field of financial aid so separate institutions would make the same offer to individual students. But antitrust action eroded the Overlap Group to encourage competition, much to the dismay of college administrators.
The next widening of the gap between loan and grant spending occurred in 1993 with programs that increased borrowing limits and brought about unsubsidized loans for middle-income students. Essentially, more students were made eligible for aid and, as more students entered into postsecondary education of all kinds, tuition naturally increased, Unfortunately, this happened at a rate higher than the rate of inflation, outpacing the average family income throughout the 1990s (Glaudieux and Hauptman). But in 1997, tax credits for college expenses became law, and this was the first instance of non-need-based federal financial aid. President Clinton had aggressively pursued a complete overhaul of the federal financial aid system early in his first term, but the process was overwhelming and new phases of the program intended to pursue long-range reform were lost to downsizing when the Republican party took control of Congress during the midterm election of 1994. The 1998 reauthorization of the Higher Education Act organized federal programs for student aid through the U.S. Department of Education.
In its present state, the system of federal financial aid is “an amalgam of state programs, federal programs and tax credits, practices of private institutions, and programs of some private foundations and charities” (Archibald 2002). The consequence of this ramshackle architecture is “a bewildering maze of programs and options” that is chronically under-performing and in a constant state of deterioration (ibid 2002). For most observers, this situation screams for reform, but where precisely to begin is a difficult question to address. Among the many models and formulas, the frontrunner in the reform debate is a more integrated approach to financial aid. This approach begins with making higher education more affordable by closing the gap between loan and grant spending. Presently, students overwhelmingly rely upon loans, and the combined loan cap increase and demand for college admission has helped drive tuition up far beyond the Pell Grant maximum.
A more integrated approach to federal and state grants exists in the form of the Leveraging Educational Assistance Program from the Higher Education Act. The federal government matches 50 cents to every dollar spent at the state level, which early in the twenty-first century has amounted to a combined $150 million a year, but is only a fraction of the total spent for aid. Meanwhile, programs such as the Guaranteed Student Loans and Tax Credits remain immensely popular with the middle class, which makes them politically valuable (Price 2004).
Today the focus on affordability continues to center on the middle class, subordinating the discussion on access (Archibald 2002). One result of the affordability crisis is that students from low-income families and, in particular, minority students commonly attend less-expensive and lower-tier colleges. And while debts accrued by students in this situation are not necessarily higher, the subsequent ability to pay the debt off is usually much more difficult for students graduating from trade schools or lower-tier colleges since the average starting income is typically much smaller than students graduating from upper-tier colleges (Price 2004). In other words, even as the federal government spends some $86 billion a year in financial aid, solutions remain elusive for successfully overhauling such a complex financial system.
After 1972, new initiatives such as the Middle-Income Assistance Act of 1978, which widened Pell Grant eligibility, further catered to the middle class. Already a gap was becoming apparent between the availability of federal aid and access to institutions as tuition began to rise steadily. President Reagan cut spending significantly during the 1980s though demand for loans continued to rise, though less rapidly than before. The leveling off of student aid spending was partially responsible for the shift toward loan spending and away from grant spending that has continued to the present day. Colleges formed new boards such as the 568 Presidents’ Working Group to further discuss financial aid policy as well as assess the financial need of their student body in order to adopt a set of standardized rules. This group built upon the work of the College Scholarship Service as well as the now-defunct Overlap Group of 1958, which had met to smooth the field of financial aid so separate institutions would make the same offer to individual students. But antitrust action eroded the Overlap Group to encourage competition, much to the dismay of college administrators.
The next widening of the gap between loan and grant spending occurred in 1993 with programs that increased borrowing limits and brought about unsubsidized loans for middle-income students. Essentially, more students were made eligible for aid and, as more students entered into postsecondary education of all kinds, tuition naturally increased, Unfortunately, this happened at a rate higher than the rate of inflation, outpacing the average family income throughout the 1990s (Glaudieux and Hauptman). But in 1997, tax credits for college expenses became law, and this was the first instance of non-need-based federal financial aid. President Clinton had aggressively pursued a complete overhaul of the federal financial aid system early in his first term, but the process was overwhelming and new phases of the program intended to pursue long-range reform were lost to downsizing when the Republican party took control of Congress during the midterm election of 1994. The 1998 reauthorization of the Higher Education Act organized federal programs for student aid through the U.S. Department of Education.
In its present state, the system of federal financial aid is “an amalgam of state programs, federal programs and tax credits, practices of private institutions, and programs of some private foundations and charities” (Archibald 2002). The consequence of this ramshackle architecture is “a bewildering maze of programs and options” that is chronically under-performing and in a constant state of deterioration (ibid 2002). For most observers, this situation screams for reform, but where precisely to begin is a difficult question to address. Among the many models and formulas, the frontrunner in the reform debate is a more integrated approach to financial aid. This approach begins with making higher education more affordable by closing the gap between loan and grant spending. Presently, students overwhelmingly rely upon loans, and the combined loan cap increase and demand for college admission has helped drive tuition up far beyond the Pell Grant maximum.
A more integrated approach to federal and state grants exists in the form of the Leveraging Educational Assistance Program from the Higher Education Act. The federal government matches 50 cents to every dollar spent at the state level, which early in the twenty-first century has amounted to a combined $150 million a year, but is only a fraction of the total spent for aid. Meanwhile, programs such as the Guaranteed Student Loans and Tax Credits remain immensely popular with the middle class, which makes them politically valuable (Price 2004).
Today the focus on affordability continues to center on the middle class, subordinating the discussion on access (Archibald 2002). One result of the affordability crisis is that students from low-income families and, in particular, minority students commonly attend less-expensive and lower-tier colleges. And while debts accrued by students in this situation are not necessarily higher, the subsequent ability to pay the debt off is usually much more difficult for students graduating from trade schools or lower-tier colleges since the average starting income is typically much smaller than students graduating from upper-tier colleges (Price 2004). In other words, even as the federal government spends some $86 billion a year in financial aid, solutions remain elusive for successfully overhauling such a complex financial system.
Paying for college is an issue faced by parents today virtually from the moment of their child’s birth. And where parents can only partially help or not help at all, many students entering college face complex decisions about how to pay for their education, from applying for scholarships and grants to low-interest student loans from the federal government. Total financial packages put together by institutions can be difficult to understand, let alone manage. In recent generations, demand for (what would come to be called) postsecondary education of all forms continues to increase in large part because of money being made available by the government to offset some or all of the financial burden of college. Access to college has come a long way especially within the last century because of several key events that caused a major shift in attitude about higher education, though issues of access and affordability continue to arise.
College Scholarship Services and the Higher Education Act of 1965:
In some instances, colleges and universities took initiative to evaluate and compare their systems of financial aid to establish some uniformity of practice to better understand how to deal with the needs of their students. The College Scholarship Service of 1954 was a board of private institutions designed to remove the individual student’s financial considerations when selecting where to attend in favor of providing aid commensurate with need. Moreover, financial aid would be provided based on academic prowess, a predecessor to today’s politically popular, state-sponsored merit-based scholarships. Less talented but deserving students could still qualify for money and admission to less selective schools. At state-supported schools, a kind of hierarchy developed that separated institutions into the elite universities, state colleges, and junior colleges. The College Scholarship Service established models of high and low tuition to aid ratios that were ideal in theory but were largely never accomplished. Many institutions were simply ill equipped to handle the needs of all their students.
The federal government officially entered the student loan arena in 1958. Not only was the demand for access to college increasing, but a report from 1947 called the President’s Commission on Higher Education had revived the debate in Congress in time for the National Defense Education Act of 1958, which was a program of low-interest student loans (to become the Perkins Loan) provided in response to concerns that the United States was falling behind in fields of science and engineering. The scare was caused by the Soviet launch of Sputnik which, combined with the war on poverty, provided for the government a kind of back entrance into the arena of federal student aid (Archibald 2002).
Of the eight titles of the Higher Education Act of 1965, only Title IV addressed assistance to students, and initially it took a back seat to institutional aid. Title IV established Educational Opportunity Grants based on institutions aggressively pursuing students with “exceptional financial need” (Gladieux and Hauptman 1995). The Guaranteed Student Loan Program (to become the Stafford Loan) was designed to appeal more to middle-income students by providing loan subsidies; the government paid interest accrued during the student’s collegiate career and paid the difference between a set low interest rate and the market rate after graduation. It was, however, in 1972 with the reauthorization of the Higher Education Act that Congress rounded out the program to form what is the “basic charter of today’s federal student aid system” (Gladieux and Hauptman 1995). Out of the heated debates about the program there emerged new language, new types of assistance, expanded opportunity grants, and more incentives for the states. The term “postsecondary education” replaced “higher education” in order to expand aid to students entering junior colleges as well as trade schools and career colleges. During a congressional session in 1980, the Pell Grant (named after Senator Claiborne Pell) emerged from the Basic Economic Opportunity Grants; it was larger than its predecessors and designed to encourage students from low-income situations to attend college. Eligibility for Pell Grants is based on a family’s total income and assets. Finally, the State Student Incentive Grant Program, which also originated with the 1972 Higher Education Act, offered matching funds to states to encourage their need-based aid programs, and within three years all fifty states actively participated in this program (Archibald 2002).
College Scholarship Services and the Higher Education Act of 1965:
In some instances, colleges and universities took initiative to evaluate and compare their systems of financial aid to establish some uniformity of practice to better understand how to deal with the needs of their students. The College Scholarship Service of 1954 was a board of private institutions designed to remove the individual student’s financial considerations when selecting where to attend in favor of providing aid commensurate with need. Moreover, financial aid would be provided based on academic prowess, a predecessor to today’s politically popular, state-sponsored merit-based scholarships. Less talented but deserving students could still qualify for money and admission to less selective schools. At state-supported schools, a kind of hierarchy developed that separated institutions into the elite universities, state colleges, and junior colleges. The College Scholarship Service established models of high and low tuition to aid ratios that were ideal in theory but were largely never accomplished. Many institutions were simply ill equipped to handle the needs of all their students.
The federal government officially entered the student loan arena in 1958. Not only was the demand for access to college increasing, but a report from 1947 called the President’s Commission on Higher Education had revived the debate in Congress in time for the National Defense Education Act of 1958, which was a program of low-interest student loans (to become the Perkins Loan) provided in response to concerns that the United States was falling behind in fields of science and engineering. The scare was caused by the Soviet launch of Sputnik which, combined with the war on poverty, provided for the government a kind of back entrance into the arena of federal student aid (Archibald 2002).
Of the eight titles of the Higher Education Act of 1965, only Title IV addressed assistance to students, and initially it took a back seat to institutional aid. Title IV established Educational Opportunity Grants based on institutions aggressively pursuing students with “exceptional financial need” (Gladieux and Hauptman 1995). The Guaranteed Student Loan Program (to become the Stafford Loan) was designed to appeal more to middle-income students by providing loan subsidies; the government paid interest accrued during the student’s collegiate career and paid the difference between a set low interest rate and the market rate after graduation. It was, however, in 1972 with the reauthorization of the Higher Education Act that Congress rounded out the program to form what is the “basic charter of today’s federal student aid system” (Gladieux and Hauptman 1995). Out of the heated debates about the program there emerged new language, new types of assistance, expanded opportunity grants, and more incentives for the states. The term “postsecondary education” replaced “higher education” in order to expand aid to students entering junior colleges as well as trade schools and career colleges. During a congressional session in 1980, the Pell Grant (named after Senator Claiborne Pell) emerged from the Basic Economic Opportunity Grants; it was larger than its predecessors and designed to encourage students from low-income situations to attend college. Eligibility for Pell Grants is based on a family’s total income and assets. Finally, the State Student Incentive Grant Program, which also originated with the 1972 Higher Education Act, offered matching funds to states to encourage their need-based aid programs, and within three years all fifty states actively participated in this program (Archibald 2002).
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