Higher Education Act Works to Regulate Student Loan Industry

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Over the past year, Congress has taken steps aimed at relieving the heavy cost of higher education in America-increasingly a pressing concern as families face fallout from the financial downturn.

As it worked to pass the Higher Education Opportunity Act of 2008, signed by President George W. Bush in August, Congress pinpointed paying for college as a key economic concern for Americans.

The act represented a series of bills that re-authorized the Higher Education Act of 1965, originally created to widen access to higher education.

Several components of the Higher Education Opportunity Act directly address the issue of affordability by regulating the student loan industry and increasing access to financial aid.

One of the most important components of the act is the requirement of private lenders to adhere to stricter guidelines when it comes to informing students about the risks involved with borrowing money, said Robert Shireman, president of the Institute for College Access and Success.

"(The act) included a lot of good protections for students and important information about private student loans," Shireman said.

One of the measures, added in response to predatory lending scandals, prevents colleges from co-branding student loans with private lenders. Co-branding is a practice that often confuses students into thinking they are receiving a federal loan when they are instead getting a higher-risk private loan, he said.

University of California Students Association president Lucero Chavez agreed with Shireman, citing the regulations as even more important in the midst of the Wall Street downturn, when the financial crisis has the potential to threaten students' ability to pay for school.

The act also increased the maximum students are allowed to borrow through federal student loans by $2,000 per year and lowered fees and interest rates by a significant margin, Shireman said.

Legislators also created new programs for repayment and loan forgiveness through the act, including up to $10,000 in loan forgiveness for graduates who take jobs that are defined through the act as public service jobs, said Carolyn Heinrich, UC legislative director on education.

Beyond strengthening loan regulations and adjusting repayment options, the legislation also makes Pell Grants available through the summer and increases the maximum grant amount by slightly more than $400.

The increased accessibility of the Pell Grants is especially helpful for students who take summer school, Heinrich said.

The increase in the maximum amount for a Pell Grant-raising it from $4,310 to $4,731-will impact UC students in particular since the university has many more Pell Grant recipients than most other universities, said student regent D'Artagnan Scorza.

Still, despite the act's loan and financial aid reforms, some experts say it should have gone further to help alleviate the massive burden of college costs.

Some pointed out that regulating the lenders and reforming financial aid might not be the way to make college truly affordable.

"We definitely need a greater emphasis on grants," Chavez said. "The federal government has shifted to providing more loans, and judging by the market now, that is not the best way of funding education."

Patrick Callan, president of the National Center for Public Policy and Higher Education, said that because the federal government has little to leverage in getting schools to comply with regulations, the act as it is remains largely symbolic in the end.

"I don't think the incentives (to comply with the act) are powerful enough, but it is a strong warning to colleges as to the level of concern Congress is having about the issues of access and affordability," Callan said.


Kelly Fitzpatrick covers higher education. Contact her at [email protected]

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