Expanding Federal Student Loan Limits—Kind or Cruel for Borrowers?
Senator Kennedy has offered an amendment to the Budget Resolution that would allow Congress to increase the borrowing limits on federal student loans. Some in the student loan industry, citing growing tuition costs and the explosion in private loan borrowing, have been calling for this step for years. Their urging has grown in volume as the credit crisis has driven some lenders from the market and raised the specter of shrinking loan availability. Yet others in the industry warn that raising loan limits is a dangerous step that may permit borrowers to take on more debt while encouraging tuition costs to climb further.
The issue is far from black and white. It’s well known that tuition costs in the past 10 years have increased far beyond the rate of inflation. At the same time, federal student loan limits have remained stable. As a result, many students have turned to private student loans to fill the gap. Though some borrowers have benefited from borrowing private loans, these loans have their risks compared to federal loans, including higher interest rates and fees and less recourse for students who have trouble with repayment.
Kennedy’s amendment would open the door for federal loan limits to catch up to current tuition levels. In theory, this would allow students, particularly those at more expensive private colleges or proprietary schools, to borrow all or most of their loans from the advantageous federal loan programs.
However, critics suggest that encouraging students to borrow more debt in any form is a treacherous concept. These critics also question whether the gap between loan limits and tuition costs should be bridged from the other side—by pressuring schools to do more to make education affordable. The House moved to apply some of this pressure through its version of reauthorization of the Higher Education Act, which mandates the publication of data on college costs, such as tuition and fees; average price after grant aid is applied; recent cost increases; and fluctuations in per-student spending.
So, is it better to increase the availability of federal loans to prevent students from maxing out on more costly private loans? Or will this move only facilitate increases in college costs—and ballooning debt burdens for U.S. students?
Kennedy’s amendment must clear several hurdles before it passes, including resolving the pay-go requirement that would keep the budget cost-neutral from the previous year’s levels. Regardless of whether it becomes law, however, one thing is clear—students are in greater need of guidance than ever. After all, as Kennedy’s statement points out, in 1993, less than half of all U.S. college graduates took out loans to finance their education, but by 2004, nearly two-thirds did. The average student now graduates with more than $19,000 of student loan debt.
But just who is responsible for guiding students? If federal loan limits do rise, then it becomes even more apparent that the federal student loan program has a responsibility to increase its focus on financial wellness skills for students and parents. Pending reauthorization legislation includes language that confirms the role of FFELP guarantor as financial literacy provider, and that’s a step in the right direction. Otherwise, the next generation of students will face a new debt high—without the tools to build repayment into a successful financial plan.
What do you think about the idea of raising federal loan limits? Is it enabling students to take on dangerous levels of debt? Or is it a necessary step to catch up to rising tuition costs? We welcome your ideas about how this dilemma should be resolved with students’ best interests in mind.
I think it is a terrible idea to increase federal loan limits. In the following narrative, I will tell you why.
I read the statement on your website saying that students are unique in that they are "consumers with extra obligations." Well, I would point out that, if that is true, then the institutions that are receiving the money to educate these "consumers with extra obligations" must also be responsible for their actions and how they impact the future earning power of students.
For example, in my own case, I attended a Midwestern institution for a Ph.D. Being from a middle class background, I believed in education and that it was "the answer" to inequality. My, but was I wrong. What I found was much different. I found that I was not welcome, but that my loan money was. I believe that I was encouraged to continue pursuing my PhD, although it was never intended that I would actually graduate. As a result, I do not have the Ph.D. and I do not have a job. However, I do now have an extremely high student debt load that I will never pay off, which means that I will eventually be bankrupt one way or the other—meaning that the taxpayers will have to carry that load in addition to all the other debts this country has recently incurred.
If you think that I am full of it, and that I am the exception to the rule, then think again. It is happening all over the country, all over the world, to a whole variety of people who's departments, universities, boards of regents, etc. do not agree with them. For more information, please see the following sources before they are censored also:
Foundation for Individual Rights in Education
http://www.thefire.org/
Bullying of Academics
http://www.bulliedacademics.blogspot.com/
Chronicle of Higher Education – Academic Bullies
http://chronicle.com/article/Academic-Bullies/2321
The institution that I attended did nothing to end the behaviors I experienced and observed. They laughed at the abuse of power occurring at their institution, and sent me, and others, on our way. Please put an end to Academic Bullying now by ending the funding of educational institutions that do not support their students rights, AND do not fully fund and support their graduate students in every way. Censorship of graduate students means a reduction in the diversity of thought at our nations universities, which means a reduction in our nation’s future intellectual/social/academic/cultural/ideological diversity. If you raise the limits on federal student loans, then you encourage even more of this behavior without consequence. Consequence for negative behavior is needed (without censorship) not more student loans.
Posted by Anonymous on July 28, 2009 at 04:51 PM EST
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In her current role as American Student Assistance’s vice president of Strategic Services, Shelley Saunders serves as the organization’s primary contact for Congress, as well as for national organizations such as the American Council on Education, the American Association for State Colleges and Universities, the National Association of Student Loan Administrators (NASLA), and others. Her main focus is to educate the public policy making community on the positive results American Student Assistance has realized through its focus on student loan borrower financial Wellness.
In her 12-year career at American Student Assistance, Saunders has played an integral role in several of the organization’s global projects, including designing a new client-server based life-of-the-loan processing system and developing corporate strategy and tactics. She most recently held the position of vice president of Borrower Services.
Saunders has appeared on numerous Clear Channel radio broadcasts in the Washington, D.C. area. Her areas of expertise include the public purpose role of federal student loan administrators, as well as general facts about student loan origination and repayment.
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