How Low-Income Students Can Avoid This College Debt Trap

"This fall, millions of students stepped onto college campuses with dreams of degrees and the better lives that can come with them. For many, though, the journey won’t be easy: Six years after enrolling, some 30% will have left without graduating," MarketWatch reports.

"... The reason students end up in this situation is a regulation, created in 1998, that now comes with more than 200 pages of guidance about how to implement it.

The policy, known as Return to Title IV, mandates that when a student using financial aid drops out before completing 60% of a term, any portion of the aid they haven’t technically 'earned' from attending school must return to the federal government.

Schools sometimes return the money on behalf of the student, in many cases because the aid went directly from the government to the school. In cases where the student owes the federal government, the school often pays it on their behalf to protect the student from having a debt that could jeopardize their future aid eligibility.

... Sabrina Ramos hoped to become a nurse when she used a Pell grant to pay for 18 credits of classes at the New York City College of Technology in the fall of 2012. Two weeks into the semester, Ramos, then 18, had to leave school to help care for her mother, who had been hospitalized due to schizophrenia.

The following spring, she received a bill for the $2,775 she owed the school over an unearned Pell grant, according to a letter her lawyer, Johnson Tyler of Brooklyn Legal Services, sent to the school in 2015.

Ramos, who at the time earned about $250 a week cleaning apartments, said in an interview late last year that she spent most of the money supporting herself and her son, and lived with her mother to control costs.

... Situations like Ramos’s are a side effect of a decades-old federal effort to standardize students’ withdrawal deadlines, an effect experts say led to new rules governing the timing of schools’ repayment of unused federal loan dollars.

In the nearly 20 years that Return to Title IV has been in place, it is morphed into a complex regulation financial aid officers say is a burden for both them and students — especially vulnerable ones.

'The hidden truth that all schools know is that [Return to Title IV] tends to affect/punish the most at risk students,' a task force convened by the National Association of Financial Aid Administrators said in a 2015 report. 'It is the at-risk students who withdraw, and in many cases end up owing money they cannot afford to repay.'

In some cases, the trouble appears to be communication. While the rules are explained in the grant paperwork and elsewhere, the grants are typically framed by college counselors, financial aid officers and others as 'free money.'

... There is no single source of public data on how many students the rule affects each year, though it appears to be comparatively small: The 10 schools that were part of NASFAA’s task force said they return 1% to 2% of the federal financial aid — which includes both Pell Grants and other funds — as part of the policy."

NASFAA's "Headlines" section highlights media coverage of financial aid to help members stay up to date with the latest news. Inclusion in Today's News does not imply endorsement of the material or guarantee the accuracy of information presented.


Publication Date: 10/13/2017

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