Federal Student Aid Gets an Overhaul

Adriana Orellana

The United States Department of Education issued on Oct. 28 a set of rules that will strengthen federal student aid programs, ensure only eligible students and programs receive aid, and will protect students from misleading recruiting practices to obtain loans.

The statement released by the Obama administration said the strengthening of federal student aid programs will be aimed at all institutions. Students at for-profit institutions represent 11 percent of all higher education students, 26 percent of all student loans, and 43 percent of all loan defaulters. The median federal student loan debt carried by students earning associates degrees at for-profit institutions is about $14,000. The majority of community college students do not take out loans.

The Department of Education also worked on the development of proposals around 14 specific issues that will strengthen the integrity of the federal student aid program that will also ensure that taxpayer funds are being used properly. More than a quarter of the for-profit institutions receive 80 percent of their revenues from taxpayer money financed federal student aid.

“This new set of student aid rules will protect the students and the taxpayers because there won’t be any more false promises for students who take out high amount loans, which are often unnecessary,” said Sara Gast, U.S. Department of Education spokeswoman.

The rules, which go into effect July 1, 2011, will target bad recruiting practices aimed at students who take out loans. Gast said there is pressure on recruiters to enroll students so that students have to take out a loan. Recruiters do not give students the complete information of how the career they are choosing is doing in relation to job placement and payment, and just enroll students because recruiters receive a bonus for however many students they enroll.

“These new rules will help ensure that students are getting from schools what they pay for: solid preparation for a good job,” said Arne Duncan, Secretary of Education, in a Department of Education press release.

The rules will require institutions of higher education and postsecondary vocational institutions to provide prospective students with each eligible program’s graduation and current job placement rates. Colleges will also be required to provide the Department of Education with information that will allow it to determine the levels of student debt and the students’ incomes after they complete the program.

It will also protect consumers from overly aggressive and misleading practices. The new regulations will strengthen requirements designed to protect students and taxpayers. The Department of Education has received many complaints from students who were enrolled in programs where they felt they had been misled on what was and was not being offered, the way the programs could be paid for, and the jobs prospects offered upon completion.

“Colleges and universities will have to release the data about their programs and the students will be able to make informed decisions about the careers and programs that they choose to obtain,” said Gast. “The current law has too many loopholes where recruiters rush students into loans just to obtain a bonus. We intend on setting the blueprint so that these problems stop and help students, rather than take advantage of them taking out unnecessary amounts in loans, and have the state and local institutions enforce this so that it stops.”

Gast said that currently some students aren’t obtaining their degrees and drop out, not paying back their loans that they took out. When students do not pay their loans back, it is a loss of taxpayers’ money, and the new regulations will make more reasonable loans that students will be able to pay, and if they stop paying will be a smaller loss of unused money.

The Department of Education was also informed of aggressive recruiting practices that resulted in students taking out loans that they could not afford or enroll in programs where they were unqualified or could not succeed in. Current laws prohibit institutions from compensating recruiters, but there are provisions known as “safe harbors,” which allow for questionable practices.

Currently, students are eligible to obtain financial aid if they have a high school diploma or pass an “ability to benefit” test, and are required to have satisfactory academic standing. The regulation will require institutions to develop and follow the procedures and evaluate the validity of a student’s high school diploma, if there is reason to believe that the diploma is not valid. The regulations will also extend eligibility for federal student aid to students without high school diplomas after successful completion of six credits of college work.

Loopholes also complicate the measure of how much federal funding must be paid back if a student drops out of a program, and the regulations will eliminate the problems and clarify the calculation of returning the funds to the Department of Education.

For many students, receiving their federal student aid funds late does not give them enough time to buy their books, especially before school starts, and the ruling will make sure that the neediest students, mainly Pell Grant recipients, can get books and supplies by the seventh day of their payment period.

“We are taking additional time to strike the right balance between holding these programs accountable to protect students and taxpayers from abuse and making sure we keep whole those programs that are doing a good job,” said Duncan in a statement.

One of the biggest picture changes that this regulation will make is that students will be able to make informed decisions about the programs that choose and that will lead to their employment. Institutions will be required to report information about students who started and completed the program, as well as the costs, debt levels, graduation rates, and placement rates.

For more information on the new regulations, visit www.ed.gov.