National Forum on Educational Loans

1
National Forum on Educational Loans

• College Board Forum
• 2006

2
Idea and Purpose

• Need for a better option for students and
  families to finance college
  
• Growing concern about borrowing from multiple
  sources
  
• Current system has served us well for many years
  but may not serve the needs of students in the
  future
  

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Idea and Purpose

• How did the NFEL come about?
• Event organizers believe that the current system
  of educational loans is
  
• Confusing
• Inefficient
• Many believe the current system is broken others
  believe that it should be improved
  
• Presented NASFAA Board with a proposal for a
  national forum on educational loans

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Idea and Purpose

• Confusing loan system
• Some require a FAFSA and some do not
• Federal loan limits are insufficient
• PLUS/Private loans not available to all
• School certifies some but not all loans
• Repayment start dates vary widely
• Often few qualify for advertised benefits
• Consolidation can change the rules

5
Idea and Purpose

• Confusing loan system
• Private loans have answered a real call for help,
  but at a cost
  
• Schools increasingly need time and expertise to
  evaluate private loans
  
• Helping students and parents understand
  advantages and disadvantages of private loans or
  specific private loans is time consuming

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Idea and Purpose

• Inefficient loan system
• Multiple loans required from multiple lenders to
  get required funds at lowest cost
  
• Federal Stafford
• Federal Perkins
• Private loan
• Students/parents must sort out best option from
  among unknown loan sources
  
• Processing and fund delivery methods vary

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Idea and Purpose

• Organizers wondered if aid administrators could
  create a better system
  
• A more integrated system
• A less time consuming system
• A more flexible system
• An easier to understand system
• A Better Option for Families

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The Plan

• Invite participants from a cross-section of
  school aid administrators from all sectors to
  engage in a dialogue about educational
  financing.
• Identify speakers to facilitate discussions
• Develop a position paper following the forum that
  articulates a new plan for educational loans
  
• Present plan to constituent associations
• Work toward implementation

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Speaker Panel Day 1

• Ken Redd, Director of Research and Policy
  Analysis, National Association of Student
  Financial Aid Administrators
  
• Who is Going to College and Who is Not, Including
  Socioeconomic and other Demographic Profiles
  
• Sandy Baum, Economics Professor, Skidmore College
  and Senior Policy Analyst, The College Board
  
• What Does College Really Cost and What are
  Reasonable Debt Levels
  
• Jackie King, Director, Center for Policy
  Analysis, American Council on Education
  
• Who is Borrowing and How Much, Its affect on
  Life Styles and Pursuit of Advanced Degrees

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Financial Aid Administrators Panel

• Tom Babel, Vice President of Student Finance,
  DeVry University
  
• Dan Davenport, Director of Admissions and
  Financial Aid, University of Idaho
  
• Pat Hurley, Associate Dean of Student Financial
  Aid, Glendale Community College
  
• Cathy Thomas, Associate Dean of Admissions and
  Financial Aid, University of Southern California
  

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Facilitated Groups Day 2

• With the help of a professional facilitator
• Participants working in small groups
• Group charge
• Steps in creating plan
• Showcase plans
• Identify best ideas from each plan

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Brainstorming and Thinking Outside the Box

• 10 Groups of 8 participants
• Valuing members some analytical thinkers and
  some creative thinkers
  
• Awareness of barriers to creative thinking
• Conformity
• Evaluating too quickly
• Fear of looking foolish
• Unwilling to challenge the obvious
• Etc.

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Group Charge

• Describe the ideal long-term financing program to
  serve students and parents seeking higher
  education
  
• Framework with 3-4 concepts, philosophies
• Addresses all types of schools
• Addresses all types of need
• Can be implemented and is scalable
• Realistic

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Steps in Creating the Plan

• Keep in mind key points of current environment
  of student loans and key points about future
  trends
  
• Share ideas and post/record all ideas from the
  group
  
• Discuss and evaluate ideas presented
• Array ideas according to affinity
• Select 3 to 5 of best ideas that are central to
  the solution

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The Creative Process

• Each group showcased their plan using a science
  fair model.
  
• Plans were summarized in creative presentation
  formats depicting the core elements of the model
  loan program.
  
• Each group presented their plan and answered
  questions.
  
• Participants identified best features from each
  plan.
  

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Group 1 EASY

• The EASY plan is designed to create incentives
  for students and families to save for college
  (and thus limit the need for borrowing). It also
  is designed to increase the amount of loans
  students who do borrow are eligible to receive.
• The EASY plan has two parts
• An Education Savings Account
• A line of credit

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Group 2 HELP

• HELP is designed to provide students with
  educational and planning skills BEFORE they enter
  higher education, and to increase and expand
  access to federal student loans at rates and
  terms more favorable to borrowers and easier to
  understand for families.
• HELP has two major parts
• First, before entering college, all prospective
  students would have to take a high-school level
  financial literacy program.
  
• Second, a new loan program would be created that
  allowed students to borrow up to the total cost
  of education. The loan subsidy would come in the
  form of lower interest rates for higher need
  students.

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Group 3 It Takes A Nation

• The key elements of the It Takes a Nation plan
  are
  
• Everyone qualifies
• Means tested assignable repayment
• Cost of attendance minus other aid.
• Tax benefits for employers for workforce
  investment

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Group 4 Outcomes Educational Loan Trust

• A new funding mechanism.
• All loans unsubsidized
• Income contingent repayment thru IRS
• Principal and interest payments go back to the
  Trust
  
• 25 year repayment for all, regardless of actual
  loan repayment period
  
• Funds collected after loans repaid go to fund to
  provide Pell grants.

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Group 5 Ideal Outcomes, a Public-Private
Partnership

• Establish a public-private partnership that
  shares some features from both the FEEL and DL
  programs. The private funding for loans would
  come from banks and other lenders public funding
  would be in the form of interest subsidies to low
  income (needy) students. Key elements of the
  program are
• Funding private capital into a risk-sharing
  pool.
  
• A family line of credit.
• Interest subsidies for needy students
• Simple delivery of funds to students
• Income contingent repayment

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Group 6 The FLASH Loan

• The key element of this program is a flash drive
  containing all pertinent information about the
  student and his/her financial aid issued before
  entering higher education for the first time.
• Other elements of the program
• Combine all existing loan programs into one
• Fund loans with public and private sources
• Students can borrow up to the cost of attendance
• Portability of the flash drive

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Group 7 Lifetime Family Savings Account (LFSA)

• The LFSA is an account that could be used for
  multiple purposes, not just college expenses.
  
• Multiple funding sources. Under this plan,
  families and employers could make tax-advantaged
  contributions into a recipients account.
  
• A Variety of Uses. After they reach college age,
  children could use the LSFA funds for a variety
  of purposessuch as paying postsecondary costs,
  buying a home, getting married, long-term health
  insurance, etc.

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Group 8 KISS

• Create a portable line of credit that students
  could use at any accredited postsecondary
  institution. The key elements of the program
  are
• The loans would be financed by the government but
  loan consolidation would be financed by a
  secondary market.
  
• The student could borrow up to cost of attendance
  minus other aid.
  
• To encourage students to stay in school and
  complete their degree programs, interest rates
  and loan repayment terms would improve for
  borrowers for each year of attendance, such that
  completers would get the best rates and terms.
• Also, to reduce post-college loan repayment
  burdens, tax credits would be available to offset
  the cost of some portion of repayment. Otherwise,
  loan consolidation and income-contingent plans
  would be made available.

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Group 9 Education Line of Credit

• This plan includes a financial literacy component
  and increased access to college loans.
  
• All students would be required to take some form
  of financial literacy training before entering
  school.
  
• Government database that includes the schools
  costs of attendance and the students expected
  income after graduation on which repayment is
  determined.
• To help further with loan repayments, the
  borrowers interest rate would be based on their
  field of study, recognizing the different incomes
  and financial situations of students in certain
  low-wage occupations benefits for making
  accelerated or on-time loan repayments
• Employers would have some tax or other incentives
  for adding a loan repayment benefit plan.

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Group 10 CHEF

• The CHEF program would be a flexible, reliable
  source of funding that encourages early
  preparedness, identifies a role for private
  industry to play due to their vested interest in
  a well-educated workforce, promotes important
  service-based contributions to society, and
  maintains a Federal presence and priority for
  funding higher education.
• Multiple Funding Sources family, employer
• Collaborative, flexible and easily manageable
  means of repayment.

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Most Supported Ideas

• Comprehensive single loan program
• This concept provides simplicity in processing
  and eliminates confusion for students in
  repayment
  
• A student account
• Savings program
• Line of Credit
• Add to account by community service
• Tax incentives for contributors

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Most Supported Ideas

• Loan limits increased to total cost of education
  minus other aid
  
• Financial literacy programs
• Loan repayment programs
• Incentives and loan benefits based on needs test
  during repayment
  
• Employer tax benefits for assisting employees in
  loan repayment

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Most Supported Ideas

• Not intended to replace grant programs which
  should be the major source of funding for low
  income students
  

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Conceptual Model

• One source of funding for a single loan program
• Could include part of the loan repayment be
  directed at parents
  
• Need analysis still used for students but allows
  for only student data when parents refuse to
  complete the information

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Conceptual Model

• Funds delivered through the school to the
  student
  
• Loan amount up to cost of attendance minus other
  aid
  
• Schools can determine lower borrowing limits for
  their students
  

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Conceptual Model

• Repayment
• Based on financial circumstances during
  repayment
  
• Subsidies provided during repayment rather than
  during attendance time-period
  
• Payment can be part of income tax process
• Tax benefits for others helping with repayment of
  loans

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Conceptual Model

• Financial literacy provided by those
  administering the program
  
• Provided prior to attending college
• Conclusion
• Current programs fall short of family needs
• Must keep higher education accessible and
  affordable
  
• Concepts intended to stimulate thinking of new
  ideas and solutions
  

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Next Steps

• Feedback sessions from presentations to groups
• Draft white paper out this fall
• Feedback to refine basic concepts and ideas
• Present second draft white paper of the model
  program to other constituents
  
• Aid Community and other professional
  post-secondary associations
  
• Presidential Associations
• Interested Loan Associations
• Congressional Advisory Committee
• National Student Associations
• Other constituent groups

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Next Steps

• Convene meeting with key stakeholders to further
  refine the model
  
• Further develop the model to ensure all
  perspectives have been adequately addressed

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Next Steps

• Present final white paper with new loan concepts
  for further action in the political process
  
• House and Senate Committees
• Committee on Education Funding (CEF)
• Federal funding agencies (OMB, CBO, etc)
• Encourage support from associations involved in
  student financial aid programs

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Comments, Questions, Other Ideas

• Please use web site for comments
• https//finaid.msu.edu/forms/NFEL/main.asp
• Welcome comments to any of us
• Rick Shipman shipmanr_at_msu.edu
• Anna Griswold amg5_at_psu.edu
• Pam Fowler pfowler_at_umich.edu
• Dan Davenport dand_at_uidaho.edu