Sallie Mae drops ‘unemployment penalty’

Under pressure from an online petition, Sallie Mae, the nation’s largest private student-loan provider, will stop charging a $50 quarterly fee to unemployed borrowers who’ve asked for forbearance, reports the New York Times.

The “good faith deposit” now will be credited to the borrower’s account.

Stef Gray, 23, a New Yorker who owes $600 a month on four loans, saw it as a predatory effort to squeeze blood from a generation of turnips — graduates already buried under a mountain of student debt. In November, she started a petition, “Tell Sallie Mae: Stop the Unemployment Penalty,” with Change.org., a group based in San Francisco.

“Sallie Mae is preying on people like me and cashing in on the fact that we need more time to find work before we can repay our student loans,” it said.

Despite working while in college, Gray borrowed $40,000 to earn a bachelor’s and master’s degree in geography. With interest, she now owes more than $65,000. Despite her expertise in geographic information systems, she’s been unable to find a job analyzing census or health statistics.

Orphaned as a child, she didn’t understand the difference between federal and private loans when she borrowed, she said.

Stop Sallie Mae’s unemployment penalty

Tell Sallie Mae: Stop the Unemployment Penalty demands a Change.org petition by Stef Gray, a recent public college graduate who borrowed at 9.75 percent to pay college costs.

I graduated in May with honors, but even with an advanced degree in a technical field, I still haven’t found full-time work. I’m doing everything I can to avoid defaulting on my loans, but Sallie Mae has charged me hundreds of dollars in extra fees because I’ve had to delay my payments (called forbearance).

While federal loans let the unemployed defer payments without fees, Sallie Mae charges $50 per loan every three months, writes Gray, who has three loans that can’t be consolidated. Meanwhile, interest is accruing.

If I don’t find full-time work before the end of January, Sallie Mae is going to charge me another $150 in “forbearance fees” — while my total debt continues to grow by approximately $1,200.

Please join me in asking Sallie Mae to stop double-dipping. Sign my petition calling on Sallie Mae CEO Albert Lord to stop charging forebearance fees to unemployed students wishing to avoid default.

Sallie Mae spokesperson Patricia Christel described the fee as “a good faith deposit that acknowledges the importance of and commitment to resuming payments in the future,” reports the Chronicle of Higher Education.

“When I pay a deposit on my apartment, I get my money back at the end of the lease,” Gray responds. “If this were a ‘deposit,’ borrowers would either get their fees back at the end of the forbearance or the money would be applied to the loan’s balance. Neither of these is true.”

Obama: Raise tuition, lose federal aid

College affordability was the theme of President Obama’s speech at the University of Michigan yesterday. He called for spending more on Perkins loans and work-study programs — going from $3 billion now to $10 billion  – but only at colleges and universities that provide “value.” Students at colleges that raise tuition could lose access to loans and work-study jobs.

In addition, the president’s plan (pdf) includes a $1 billion “Race to the Top for college affordability” and a $55 million “First in the World” competition to encourage productivity innovations, reports the Washington Post.

Higher education — including community colleges and lifelong learning for workers — is “an economic imperative,” Obama said. While he proposed increasing tuition tax credits and keeping interest rates low on student loans, he said that’s not enough. “Look, we can’t just keep on subsidizing skyrocketing tuition.”

So from now on, I’m telling Congress we should steer federal campus-based aid to those colleges that keep tuition affordable, provide good value, serve their students well.  (Applause.)  . . . If you can’t stop tuition from going up, then the funding you get from taxpayers each year will go down.

If “provide good value” and “serve their students well” means anything, it means the federal government will monitor graduation rates and employment outcomes, as well as tuition, for the entire higher education sector. Currently, “gainful employment” rules, which monitor former students’ earnings and ability to pay back loans, cover only for-profit colleges and community college vocational programs.

Following the speech, Molly Corbett Broad, president of the American Council on Education, issued a statement saying there’s concern that the proposal would “move decision-making in higher education from college campuses to Washington, D.C.”

Sen. Lamar Alexander, R-Tenn., a former education secretary, said the autonomy of U.S. higher education is what makes it the best in the world, and he’s questioned whether Obama can enforce any plan that shifts federal aid away from colleges and universities without hurting students.

“It’s hard to do without hurting students, and it’s not appropriate to do,” Alexander said. “The federal government has no business doing this.”

President Obama also touted college “report cards” showing college costs and how well graduates do in the job market.

The U.S. Education Department and the Consumer Financial Protection Bureau are working on Know Before You Owe, a financial aid shopping sheet that will let future students estimate their debt, monthly payment and likely ability to repay loans. Parents and students also have requested a breakdown of college costs and information on repayment rates for graduates at each college.

More women choose college over a bad job

While young men will take any job they can get, young women are passing up dead-end jobs to seek more education, reports the New York Times. “The next generation of women may have a significant advantage over their male counterparts,” economists say.

“It doesn’t surprise me that in a poor economy women are ramping up their schooling,” said Heather Boushey, an economist at the Center for American Progress, a left-leaning research organization. “The real question is: Why aren’t more men doing that too?”

Of course, women who leave work for college are gambling their investment will pay off. The Times‘ lead anecdote, Laura Baker, quit her Starbucks barista job to pursue a master’s degree in strategic communications at a private university. She hopes to work at a nonprofit.

Including the loans that financed her undergraduate education at Wartburg College in Waverly, Iowa, she will complete her master’s program next year owing about $200,000 in debt.

“I have to have faith that I will eventually get a good job that pays enough to pay my living expenses and pay back my loans,” she said, “and hopefully make me happy in the process.”

Communications specialists with a master’s start at $37,500 a year, estimates PayScale. Nonprofits tend to pay less.

It’s crazy to borrow $200,000 for a communications degree, adds Cost of College. The FinAid loan calculation website estimates a debtor who spends 10 percent of gross monthly income on repaying student loans will need an income of $213, 044.40 to repay $200,000 in student loans. “If you use 15% of your gross monthly income to repay the loan, you will need an annual salary of only $142,029.60, but you may experience some financial difficulty.”

Savvier women are enrolling in community colleges. State budget cuts have pushed up tuition, but it remains a good deal.

Most new students are women at Wake Technical Community College in Raleigh, one of the country’s fastest-growing community colleges. “We now have 6,000 students on a waiting list because we didn’t have the resources to offer more classes,”  President Stephen Scott told the Times.

Rethinking federal student aid

Let’s Rethink Federal Student Aid, writes Jeff Selingo in a Chronicle of Higher Education commentary.

The higher-ed establishment in Washington spends most of its time trying to protect the status quo on student-aid programs, all the while arguing for more money to help pay higher tuition prices. But if we’re headed for an age of at least some austerity in the federal government, then the higher-ed associations are going to need a new playbook.

Selingo throws out some ideas, starting with allowing colleges to limit loan eligibility so students don’t borrow well more than the cost of tuition, live off the extra cash and find themselves unable to repay their loans. That’s more of an issue at low-cost colleges and universities.

He also suggests linking aid to measures of student success, such as graduation rates.

Nearly 60 percent of high-school graduates from the bottom income quartile entered college in 2009, but only 7.3 degrees went to students from the lowest quartile. In part, that’s because low-income students tend to choose colleges with a low sticker price — such as community colleges — and low graduation rates.

Needy students and their parents don’t realize the net price of colleges is much lower than the sticker price, says Andrew P. Kelly, a research fellow at the American Enterprise Institute.

If low-income families knew more about the net price of a college, Kelly maintains they would be better able to balance cost with the likelihood of success. Rather than just go to the cheapest college, they might pick a slightly more expensive one with a higher graduation rate.

In addition, Selingo writes, “colleges that fail to graduate a reasonable number of low-income students, whether those on Pell Grants or with sizable loan burdens, should be banned from the federal student-aid programs.”

That could hit community colleges hard:  Pell Grant recipients’ graduation rates are low.

More degrees for the dollar?

Productivity push could hurt community colleges in U.S. News, by me, looks at how the push to control college costs could affect community colleges, which are strong on affordability but weak on productivity or dollars-per-degree.

In National Journal’s college cost containment discussion, Lumina Foundation‘s Jamie Merisotis calls for “productivity improvement” to increase “the number of high-quality degrees and certificates produced, at lower costs per degree awarded, while improving access and equity for the least well-served populations.”

That will require rethinking the entire system of grants and loans, improving data analysis and changing from a seat-time system “to one based on learning,” Merisotis writes.

Low-income students ‘maximize debt’

Inspired by Education Sector’s Debt-to-Degree report, the Flint (Michigan) Journal looked at   how much local students are spending per degree.

At Flint’s Mott Community College, dividing total degrees awarded by total undergraduate debt, yields a debt load of $10,171 per degree for 2007-09.  That’s better than Henry Ford Community College ($22,691) but much higher than Southwestern Michigan College ($81.19). 

Unemployment is high and incomes are low in Flint. “Some students take longer to get a degree, stopping and starting school several times because of jobs or families,” reports the Journal. “Some use college loans to pay life expenses as well as tuition.”

MCC Spokesman Michael Kelly said Genesee County’s economy is a big culprit. Many low-income students have their tuition covered by the Pell grant, but still take out loans for other expenses, he said.

“This is also being perceived as a revenue stream, as a source of income,” Kelly said of loans. “They’re taking out more money than education expenses require and using it for rent, groceries and car payments.

“They’re maximizing their debt.”

He said MCC officials last year tried to reduce the amount students borrowed but were told by U.S. Department of Education officials that that wasn’t an option.

Borrowing to pay living expenses is a very dangerous strategy for high-risk students. Student loans can’t be discharged in bankruptcy.

“If students are going to borrow money and pay those loans back, they need to get a degree,” said Education Sector policy director Kevin Carey. “The job market doesn’t give partial credit for going to college and not graduating.

Brandon Kreiner, 24, dropped out of University of Michigan at Flint after three years because of poor grades, then spent three years at Macomb Community College to raise his grade point average. Now back at UM-Flint, he’ll need three more years to complete a degree in secondary education. He expects he’ll owe $30,000 in student loans, despite receiving Pell Grant aid.  “As long as I can get a job, I’ll be able to pay it back,” Kreiner said, “but the teaching industry isn’t great in Michigan right now.” Even if schools are hiring, a would-be teacher with poor grades will be competing with stronger candidates.

Enrollment plunges at for-profit colleges

New-student enrollments are way down at for-profit colleges, reports the Wall Street Journal.

Companies have pulled back on aggressive recruiting practices amid criticism over their high student-loan default rates. And many would-be students are questioning the potential pay-off for degrees that can cost considerably more than what’s available at local community colleges.

“People are just frozen or deferring, delaying decisions to go to school,” said DeVry Inc. Chief Executive Daniel Hamburger in a conference call earlier this month. “The average person in the U.S. has become much more risk-averse and cautious when it comes to spending or committing to anything.”

Kaplan Higher Education lets new students take trial classes before enrolling and paying tuition: New-student enrollment declined by 47 percent in the last quarter.

Capella Education cut recruiters’ commissions and saw a 35.8 percent drop in new enrollments.

The specter of a hefty debt load dissuaded Jason Tomlinson from enrolling to study business at Berkeley College, a for-profit school with locations in New York and New Jersey. Mr. Tomlinson, now 25, said he would have had to pay more than $20,000 per year, for four years, for that school’s bachelor’s degree program.

On Mr. Tomlinson’s $8-per-hour salary as a part-time sales associate at the Gap, “it just didn’t seem realistic” he said. “I really did not want to go into that much debt.”

Mr. Tomlinson enrolled in LaGuardia Community College, where he pays $3,600 per year for his full-time associate-degree program in business management and works at the school’s fitness center to help cover expenses. A barber in his spare time, Mr. Tomlinson plans to open a high-end men’s day spa after graduating with his associate’s degree in business management this spring.

New enrollments are down by nearly half at Apollo Group’s University of Phoenix, the for-profit higher education leader, reports AP.

The three-week orientation program is now required of all prospective students with fewer than 24 college credits. The program is free, but those who don’t pass can’t continue. The company scrapped its financial incentive program for enrollment counselors and there’s less reliance on outside sales companies to generate leads, and more emphasis on finding corporate partners willing to help pay for their employees’ education.

In addition, a new social network, PhoenixConnect, links students to alumni who can provide job leads.

Officials expect the changes will lead to higher graduation rates and lower federal loan default rates.

College still pays

The U.S. doesn’t need more college graduates, writes New York Times columnist Paul Krugman, who sees high-wage jobs vanishing or going overseas in a “hollowed out” economy.

Not so, counters economist Gary Becker on the Becker-Posner Blog. The high-tech economy favors the educated, which is why people around the world are seeking higher education. College still pays.

While there are more college graduates, the degree premium has continued to rise.

In the United States, for example, the average earning of persons with four year of college increased from about 35% above the average earnings of high school graduates in 1980 to about 55% higher in 2009, despite a growth during this period in the fraction of the American labor force with a college education. The earnings premiums for persons with a post-graduate education have increased even faster over this 30 year-period. Moreover, the unemployment rates of lower educated persons have remained much higher than the unemployment rates of persons with higher education.

President Obama is right to push for more college graduates, Becker writes.  Achieving a highly educated workforce will require a focus on males, who’ve fallen behind women, in higher education. It also will require strengthening  preschool and K-12 education to stem the very high high school dropout rate, especially for African-Americans and other minorities.

A college education does more than impart knowledge needed for a job, adds Richard Posner.

But student loans aren’t always a good idea, warns the Washington Post, citing an Institute for Higher Education Policy report on high delinquency rates for borrowers.

New college graduates are having a hard time getting that first career job — and they may never catch up.

Fixing Pell Grants

What’s the future of Pell Grants? The Chronicle of Higher Education features six views on the increasingly costly program. Several commentators call for rewarding students who move quickly to a degree.

Pell should be updated to stress cost effectiveness, writes Rick Hess, education policy director at the American Enterprise Institute,

How about transforming Pell into something more like a federally funded education savings account that recognizes the mix-and-match opportunities and lifetime learning dynamic of the 21st century? Students could take courses—online or otherwise—from more than one institution at a time. . . .

Shorten the eligibility window; reward students who finish their degree or credential in an expedited fashion, as well as institutions whose students finish on time and find employment; and permit students to retain half of any unspent Pell dollars in a dedicated account for future education.

Jorge Klor de Alva, president of Nexus Research and Policy Center and former president of the University of Phoenix, also wants incentives to encourage more students to complete a certificate or degree. His idea: Give students loans that will convert to grants as they reach academic milestones, such as earning a minimum number of credits. Students who complete a certificate or degree would owe nothing.

To motivate colleges, “an institution would receive a bonus for each Pell recipient who completes a certificate or degree — a bonus that would have to be spent on improvements to the institution’s retention program.”

Also in the Chronicle, $44 billion should buy some accountability, writes Ed Sector’s Kevin Carey.