NAICU Washington Update

Financial Aid Briefs

September 26, 2012

Pell Grants:  Flexibility in Using Eligibility

The Department of Education has issued Dear Colleague Letter GEN-12-18, explaining how students may decline or return Federal Pell Grant funds.  The issue of returning funds has arisen since the Consolidated Appropriations Act of 2012 was enacted, and students’ eligibility for Pell Grants was limited to 12 semesters, down from 18.

This restriction, effective for the 2012-13 award year, has presented problems for students whose eligibility for Pell Grants was less than the time required for them to complete their studies.  The shorter time period has led some students to consider ways to preserve eligibility for an enrollment period later in the award year, when they might need the funding more or might qualify for a larger award.

A recent poll by the National Association of Student Financial Aid Administrators found that 57 percent of colleges aren't providing additional aid for students who have lost Pell eligibility due to the new Lifetime Eligibility Used (LEU) limit.  Of the 376 institutions responding, 21 percent are offering self-help such as loans and work-study, 12 percent are providing additional institutional grant aid, and more than 6 percent are providing additional FSEOG.

Private Loans:  Students Borrowing First

The Consumer Financial Protection Bureau (CFPB) recently updated its initial report on private student loans, issued in July.

The report, conducted in conjunction with the Department of Education, concluded that 40 percent of those who took out private student loans also used federal Stafford Loans, but not at levels that would exhaust their borrowing eligibility.  In its revision, the CFPB states that the correct percentage is 54.5.  The change results from including borrowers who chose not to use any federal loans, even though they may have applied for federal financial aid.

The update also confirmed that the level of private loan borrowing was highest during the heyday of direct to consumer loans, before the 2008 Higher Education Act reauthorization.  Under that act, private lenders must obtain a self-certification form, signed by the applicant, showing the school to be attended, cost of attendance, and any other financial aid the borrower expects to receive.  Borrowers can jeopardize their federal grant and loan aid by taking out private loans that are for more than their cost-of-attendance.  Certification helps avoid this.

Due to the number of private loan borrowers and defaults, plus their higher interest rates and less repayment flexibility than the federal loans, the report - along with some in Congress - have urged that that private loan borrowers be able to avail themselves of bankruptcy protection.

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