On the Brink of Extinction: FFELP
Anyone paying for college knows the feeling
FFELP? That’s short for the Federal Family Education Loan Program. If you have a federal Stafford or PLUS student loan, odds are you got it through the FFELP. It is the private student loan program subsidized by the federal government. It is also the program that came under fire a couple of years back for kick-backs to colleges for sending student borrowers their way.
Now it looks like the Obama may be cutting it out completely, leaving only the Federal Direct Loan Program (FDLP). While there are specific benefits to taxpayers by removing public subsidies (the administration believes it can save taxpayers $4 billion a year, and $47.5 billion in the first 10 years, mainly from subsidy removal), the benefits to borrows (students and their parents) aren’t so clear.
Why? Most FFELP lenders offer rate reductions for qualified buyers. Take for example the NC Advantage Program through the CFI (and endorsed through the College Foundation of North Carolina and the North Carolina State Employee’s Credit Union, etc.) offers savings for automatic draft. For loans before September 20th of last year, a student loan could get a 1% reduction for making your first payment on time, and another 1.5% off for using automatic draft. While not so glamorous, even its .25% discount for automatic draft is still worth it (bring the rate to approximately 6.55%, in line with many automobile loans).
The administration has not made it clear if it will offer any type of rate reductions or incentives. Overall, this could be a good move for students and parents if they decide it drop rates across the board. However, looking at the recent bubble burt reminds us of the dangers of easy money.
Being a college student who may need to get a loan after transferring, this is of particular interest to me. We’ll have to watch and see what the administration does. Although there are significant reasons that these types of loans should be moved to be strictly governmental, the move should be done not just to help the taxpayer, but improves the borrowing situation for students. These loans are for a very specific purpose, and their value should not be lost just to bean counters.
But while we are on the topic of paying for college, Congress needs to set its sight on another, maybe even more important goal. Cleaning up the Free Application for Federal Student Aid, better known as the FAFSA. Anyone who has ever filled it out knows that it nearly takes a postgraduate to fill out this thing. It may be a free application, but you pay for it in time and confusion. They did away with some of the confusion by moving it strictly online, but it is still painful and difficult. I have one out every year, and honestly, I look forward to finals week more. You can see more on the problems with the FAFSA here.
And for my final $0.02 worth, there is one change that I believe is worth of merit. Currently, individuals under the age of 24 MUST claim their parents’ and/or legal guardians’ income. While for a number of students this makes sense, given that they are only independent because they are off to college, but in the essential use, they are still dependents. However, there are students who are penalized hard with this requirement. Take for example myself. My wife and I were married young and had a child young (I was 21, she was 19). We were completely independent, owning our own home, raising our own child, and receiving very little financial from any relatives. The most we got was free child care. In our first year of marriage, we earned about $27,000. Guess what, neither one of us could get financial aid. A couple of years later I finally started going to school, and was paying completely out of pocket because I was still unable to collect financial aid. Thankfully community college is affordable, but books are still ridiculous. I was smart enough to scrape during the semester to have enough for the next. Finally, the year I turned 24, I was finally eligible for financial aid. I had to scrape and starve to pay for that fall semester, so when I found out I was getting a refund because I got aid, relieved would not cover it.
I made too much last year though, and I’m not eligible for the Pell Grant, NC Community College Incentive, or the NC Lottery grants anymore. Unfortunately, in order to get scholarships (I wouldn’t have been able to afford this semester without a scholarship), I still have to fill out that damned form. I’d rather do my taxes again.
