NASFAA convened a virtual roundtable on the recently passed College Cost Reduction and Access Act (CCRAA). Aid administrators from an assortment of different colleges and universities responded to NASFAA's questions about the CCRAA. The aid administrators interviewed found consensus on several issues, but remained divided on others. Participants included: Robert Shorb, director of financial aid at Skidmore College; Sharon Wurm, director of financial aid for the Nevada System of Higher Education; Eileen O'Leary, director of financial aid at Stonehill College; Rick Shipman, director of financial aid at Michigan State University; and Pat Watkins, director of financial aid at Eckerd College. Some of the questions and the participants' responses follow.

Overall Impressions of the CCRAA

Universally, the aid administrators interviewed felt that the CCRAA included provisions that will benefit students. However, how much they thought it would help students varied greatly.

"When it passed CCRAA, Congress finally put students first," said O'Leary. "It made difficult, politically charged decisions that will benefit needy students."

Wurm echoed O'Leary's sentiments, saying that the CCRAA is "a great step towards improving access for our students." Wurm pointed to increases in the Pell Grant, interest rate reductions, additional deferments for military personnel, and need analysis revisions as "wins" for students.

While little has been said about the new College Access Challenge Grants, Wurm believes that these grants will greatly benefit students in Nevada. "We suffer from a low college-going rate," she explained. Wurm thinks these new grants may provide needed funding to increase college participation in her state.

But other aid administrators interviewed questioned whether CCRAA went far enough. Shorb pointed out that even with the increases in the Pell Grant, funding through the appropriations process may not fully fund those increases. He also believes that the interest rate reduction is too limited in scope and that public loan forgiveness will be too difficult for most students to obtain.

Shipman found the reconciliation process to be extremely distasteful. "If there are excess subsidies going to lenders, then I understand the cuts made to their subsidy rates," said Shipman. "But I don't think it's right that those funds would be used to pay down the deficit. Everything should have gone back to students," he says.

He also questioned whether college access has really been expanded under CCRAA provisions. "It seems to me that the bulk of the dollars are going to students who are already out of school," Shipman explained.

Watkins believes that Congress took on a Herculean task in trying to reduce costs to students while at the same time providing additional access. She pointed out that Congress attempted to accomplish both tasks by cutting subsidies to student loan providers, which she worries could have a negative impact on the availability of funds to students as loan providers pull back borrower benefits and their willingness to participate in the FFEL program.

Congress very quickly began drawing comparisons between CCRAA and the GI Bill, calling it the largest increase in student financial aid since the GI Bill's introduction. Shorb finds that comparison a bit misleading. "The GI Bill's impact on education was much more monumental and far reaching than CCRAA will ever be," he said.

Teach Grants

Almost universally the aid administrators felt that the TEACH Grants would cause major difficulties for students and schools. "I see a plethora of problems with a grant program that can revert to a loan and requires a promissory note before any disbursement," said O'Leary. A TEACH Grant that reverts back to a loan for a student who is unable to gain employment as a qualified teacher in a specified field is bad enough, but stipulating that interest accrue back to the day of disbursement is worse according to O'Leary.

"This could be a very expensive ‘grant,'" she adds.

Watkins is concerned that the grant is "frontloaded" with a "promise" that it's a grant but could later turn into an unsubsidized loan. "This will be confusing to students," she said. Watkins believes that the TEACH Grant program is "a noble and worthwhile" program, but she would have preferred to see those funds used to expand loan cancellations for eligible teachers.

"Would it not be more effective to take these funds to expand the loan cancellation provisions of the Stafford Loan program?" Watkins asked.

Other panelists were worried about the administrative burden that such a program would cause. "TEACH Grants are another example of an administrative nightmare," says Shorb. "Get ready for ACG/SMART part two!"

Wurm also shares those administrative concerns. "Who tracks students beyond graduation and initiates the conversion to a loan if necessary?" she asked.

Interest Rate Reductions

Certainly interest rate reductions are good, but the aid administrators interviewed felt that funds could have better been used elsewhere. Watkins believes that an interest rate reduction wasn't really warranted. She feels that the pressure to lower interest rates stems from the low interest rates in recent years when the Stafford rate was tied to the 91-day T-Bill, which was being auctioned at extremely low rates from 2001 through 2005.

"A 6.8 percent fixed interest rate is significantly lower than any commercial, personal, or credit card rate," she said.

Watkins also believes this provision will be confusing for students who have both unsubsidized and subsidized Stafford loans because only the subsidized portions will be reduced. She also feels it will cause confusion for students who ascend to graduate level within the same academic year. Those students will have a portion of their subsidized loans at a reduced level while their graduate level loans will remain fixed at 6.8 percent.

O'Leary said that the money could have been better spent on Pell Grants. She explained that rate reductions will be awarded to students based on their (or more likely their parents') past incomes and not on their future incomes. Consequently, students may receive reduced interest rates when they really don't need them. By the same token other students who really need a reduced rate after graduation may be denied that benefit.

"Pell is definitely a better option," said O'Leary.

PLUS Loan Auctions

Panelists identified a variety of potential problems with the PLUS loan auction provisions in the CCRAA. Shorb believes there could be several problems with the PLUS loan auctions, especially for states that have so little loan volume that they cannot really support two lenders. Watkins sees problems for parents who have students attending colleges in multiple states. Unless the same loan provider is the winning bidder in each of those states, the parents would be forced to use two different lenders. Watkins also foresees problems for parents when their students leave, but then return to school later when there are different loan providers in place. She believes these provisions cause inconsistencies for parents and makes it difficult for them to plan and may make it more likely for them to default.

Some aid administrators were more supportive of the idea, despite not having all of the kinks worked out. "I believe that the government should explore different ways of finding the right market mechanism for pricing FFELP loans for taxpayers," said O'Leary, who believes that special allowance payment rates as currently set through "lobbying are not efficient."

Wurm said that further analysis of the auctions is needed, something NASFAA recently proposed in a discussion paper. Shipman shares that view. While he is supportive of an auction system, he says he would have preferred a study to examine the option more closely as opposed to the "knee-jerk" way that it was implemented.

Cuts to Loan Providers

All of the aid administrators expressed some concern about the amount of cuts sustained by loan providers whose subsidies have been reduced by more than $40 billion over the last three years. Watkins believes this will have a negative effect on students.

"Lenders are cutting benefits, especially benefits that support timely payments or that may potentially reduce defaults," Watkins said. She predicts that some lenders will leave the federal student loan market, but will likely reemerge in the private student loan market where there has been "a proliferation of direct-to-consumer loans from even reputable lenders."

Wurm said she is most concerned about guarantors who may not have enough resources to continue their current levels of default prevention services. Watkins also voiced concern about the impact these cuts will have on loan guarantors that offer training of aid administrators and many other services to borrowers.

O'Leary believes that some lenders will be hurt by the subsidy cuts, citing recent layoff announcements as an example. But she also points to the difficulty in determining how much is too much.

"[Loan providers] have cried wolf so often in the past that many do not believe that the results of the cuts will be as bad as they are predicting," said O'Leary. She also believes that far fewer students will lose benefits as some predict.

"Since the benefits typically being cut are those with strings attached, only a small subset of borrowers will lose those benefits," she explained.

But Shipman points to a different story on his campus, where students are offered a zero percent interest rate after 36 on-time payments. A study done by Morgan Stanley showed that nearly 76 percent of PLUS loan borrowers and 73 percent of Stafford loan borrowers were on track to receive that benefit. Shipman contended that even if no borrowers achieved the zero percent interest rate for the entire repayment period many students will still save money if they are only eligible for a couple of years.

"If you can make the borrower understand the value of the benefit, than they will be motivated to achieve it," said Shipman.

Perkins Loan Recalls

Even though Perkins Loan recalls have been delayed another year, most of the aid administrators expressed concern about the repeated attempts to either kill the program outright or to starve it to death by taking money out of the revolving fund. Both Wurm and Watkins believe the program should be left intact.

Shorb expressed a different point of view. "Personally I would like to see one grant, one loan, and one work program," he said. Shorb acknowledged the danger in advocating a more consolidated federal student aid system.

"Preserving all the funding we now get in various programs and securing increases would be even more difficult if there were fewer programs," he explained.

Should the Perkins Loan program be eliminated, Shorb believes annual loan limits in the Stafford loan programs should be increased to offset the reduced aid.

O'Leary would have preferred Congress to adopt NASFAA's proposal, which would have allowed schools to opt out of the Perkins Loan program while keeping their institutional funds as an endowment to generate more FSEOG funds.

Public Loan Forgiveness

Shipman, Watkins, and Wurm each expressed concern about the new loan forgiveness program for public service being limited to Direct Loan borrowers.

"Taking federal dollars and only giving a benefit to students in the Direct Loan program is unconscionable," said Shipman. "The more than 70 percent of students who are borrowing the exact same loan in the FFEL program are being penalized for a decision made by the school. Once again the programs have been pitted against each other."

Shorb believes that relatively few individuals will actually benefit from the program, given the many limitations placed on it.

Need Analysis

The aid administrators interviewed saw increases in income protection allowances as a plus, but Shorb and Watkins expressed concern over provisions that will expand the definition of an independent student to include applicants who are emancipated minors.

"In Florida, if an individual is under the age of 18, the law requires the consent of the parent for emancipation, except in situations of abuse," explains Watkins who fears there will be an increase in the number of court petitions for emancipation from families who have means to support a student's education but will use this as a way to shirk that responsibility.

Shorb believes that the issue should have been left for financial aid administrators to decide through professional judgment on a case-by-case basis.

Share Your Thoughts

NASFAA Chair Michael Bennett recently blogged on the CCRAA at the NASFAA National Chair Blog. Post your comments and thoughts on the CCRAA at Bennett's blog online.

By Justin Draeger
NASFAA Assistant Director for Communications

Posted 11/19/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.