College Default Rates

What do you think of the following from NCHELP.org:

The Congressional Budget Office has issued its estimate of the cost to the federal government of H.R. 4137, the College Opportunity and Affordability Act of 2007, as approved by the House Education and Labor Committee on November 15.  This bill represents the House versio of Higher Education A ct reauthorization. In contrast to the budget reconciliation legislation enacted in September (which was a cost cutting and spending bill), the HEA reauthorization is referred to as a policy bill.

According to the CBO, the bill (if enacted) would increase direct spending by $75 million in 2008 and decrease direct spending by $27 million over the 2008 to 2017 period. One of the “savers” in the bill is the change in the definition of “cohort default rate”. The bill includes an amendment offered by Congressmen Grijalva (D-AR) and Bishop (D-NY) that would revise the definition of cohort default rate by adding to the period of time in which a default is counted as part of a school’s cohort default rate.  Right now, a borrower default is included in the rate only if it occurs during the fiscal year when the loan enters repayment or the following year. The amendment would add one year to this period. Schools are subject to losing eligibility to participate in Pell and the student loan programs if their default rate exceeds 25% for three years. While no schools have been subject to this sanction in recent years, that could change if the amendment were included in final legislation.

CBO projects that this change would reduce the number of schools eligible to participate in the student loan programs, thereby reducing direct spending by $27 million over the 2008 to 2017 period. Accordingly, all the net savings in the bill are attributable to the change in the cohort default rate definition.

The CBO cost estimate also points out that the bill reauthorizes and amends many of the discretionary programs, and creates new discretionary programs. Discretionary programs require annual appropriations. CBO estimates that implementing these programs would cost $97.4 billion over the 2008 to 2012 period.

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College Financial Aid Bill

Congress on Friday approved the largest overhaul of education funding in 60 years, slashing subsidies to lenders by $20.9 billion over five years and redirecting the money to boost financial aid to students and reduce interest payments on their loans.

The bill would offer debt forgiveness for students who enter certain public-sector jobs and invest $510 million in minority colleges. The bill’s increases in Pell Grants are expected to benefit roughly 5.5 million needy students nationwide.

Democrats hailed the legislation, describing it as the largest college aid package since the 1944 GI Bill and a boon to families at a time of skyrocketing college costs. But lenders warned that the bill would drive smaller financiers out of business, leaving students with fewer and less-attractive loan options. And Republicans claimed that it would burden taxpayers with costly new entitlement programs.

Despite GOP opposition, President Bush indicated Thursday that he would rescind an earlier threat to veto the bill and sign it into law.

Passage of the College Cost Reduction and Access Act comes as college costs have soared nearly 40 percent in the past five years. It also coincides with increased scrutiny of the $85 billion student-loan industry, which has been shaken by recent scandals involving conflicts of interest among lenders and school officials, as well as kickback schemes.

The bill would halve interest rates for students starting July 1, from a current 6.8 percent to 3.4 percent phased in over four years. Those rates reverse an increase that the previous Republican-led Congress allowed as a way to fund tax cuts. The lower rates would expire after five years unless Congress renews them.

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