Federal investigation shows he netted over $624,000
TUCSON, Ariz. – LAWFUEL - The Legal Newswire - Stephen Gallagher, 27, of Tucson, was arrested on November 9, 2007, and made his initial appearance in U.S. District Court on November 13, 2007 for allegedly engaging in a fraudulent scheme to obtain student loan funds which netted him over $624,000. On November 15, 2007, a U.S. Magistrate Judge set a $5,000 cash or corporate surety bond for his release which was posted later that day.
The criminal complaint, filed on November 8, 2007, alleges that from 2003 to 2007, Gallagher submitted over 200 student loan applications via the Internet to various financial institutions. The majority of these loan applications originated from one of eight different America On-Line (AOL) email accounts registered in the name of Stephen Gallagher. He submitted loan applications in his own name as well as in the names of unsuspecting individuals, later adding these other individuals to his bank account so he could deposit the student loan checks which were made payable in the name of the borrower. Supporting documentation, such as proof of employment and residence verification, was submitted to each financial intuition via FAX machine. Much of this documentation was determined to be fraudulent.
To date, the Federal Bureau of Investigation has identified approximately 42 fraudulent student loans totaling $624,287.32 to be associated with Gallagher. Applications were submitted for attendance at Stanford University, George Washington University, University of Arizona, and Scottsdale Culinary Institute. None of the individuals listed as the borrower on the student loan applications ever attended these institutions. The financial institutions that funded the student loans include: First Marblehead, Wells Fargo, Key Bank, Education Finance Partners, Suntrust, JP Morgan Chase Bank, Chela Funding, Richland Bank, and Sallie Mae. In total, Gallagher applied for over $10 million in student loan funds from these financial institutions.
A conviction for bank fraud carries a maximum penalty of 30 years in federal prison, a $1 million fine, or both. A criminal complaint is simply the method by which a person is charged with criminal activity and raises no inference of guilt. An individual is presumed innocent until competent evidence is presented to a jury that establishes guilt beyond a reasonable doubt.
The investigation was conducted by the Federal Bureau of Investigation with assistance from the U.S. Department of Education. The prosecution is being handled by Eric Markovich, Assistant U.S. Attorney, District of Arizona, Tucson, Ariz.
Showing posts with label Financial Aid News. Show all posts
Showing posts with label Financial Aid News. Show all posts
11/20/2007
Reformed education act targets student fees, loans, downloading
The House of Representatives proposed changes and additions to the Higher Education Act last Friday that will affect students in many areas, including illegal downloading, student fees, accreditation practices and student loans.
The Higher Education Act is due for renewal and any legislation enacted will determine higher education policy for the next five years. The bill was originally created in 1965 to strengthen educational resources available to colleges and universities and to provide financial assistance to students.
The Senate passed its version of the bill in July. The House proposed its initial version of the bill last week, which was marked up in the Education Committee on Wednesday.
A change that will directly impact students is the crackdown on illegal downloading within the proposed legislation. It requires institutions to educate their students on policies regarding copyright infringement on campus networks. It also requires that colleges eligible for federal financial aid under Title IV, a section of the Higher Education Act that defines all federal loans available to students, to develop a plan for offering alternatives to illegal downloading,
“About 44 percent of domestic piracy losses nationwide, over $500 million, are due to college students,” said Kori Bernard, a spokeswoman for the Motion Picture Association of America, which supports the legislation.
“We are requesting minimally invasive efforts to reduce piracy on college campuses,” Bernard added.
Educause, a nonprofit organization concerned with proper technology use in higher education, called the second portion of the legislation “unacceptable,” according to The Chronicle of Higher Education.
“These provisions of the bill are misdirected at higher education,” said Steven Worona, Educause director of policy and networking programs.
Most infringement by college students occurs on commercial networks that are not associated with their college. Less than 4 percent of infringers are using college campus networks and therefore account for no more than 9 percent of the losses. The statistic that attributes 44 percent of piracy to college campuses is both misleading and false, Worona said.
“Campuses are already attacking this problem as aggressively as possible. The source of the problem should be targeted and that’s not higher education,” Worona said.
In their separate proposals, both the Senate and the House agreed on modifications to the act, including allowing the Secretary of Education to establish a Higher Education Price Index in order to identify colleges whose tuition and fees are unusually high and place them on a watch list.
The House went beyond the Senate, mandating that colleges on the watch list submit a report explaining the reasons for their unusually high fees, and outlining steps that will be taken to prevent future increases in fees, according to The Chronicle of Higher Education.
To create further incentives to prevent fee increases, the House also proposed offering additional grant money to colleges that restrained their tuition growth, said Rachel Racusen, spokeswoman for Representative George Miller of California, who is chairman of the House Education and Labor committee. States would also be punished for cutting their higher education budgets.
“States that fail to meet the mandated standards would risk losing these funds,” Racusen said. States faced with fiscal difficulties would be eligible for a waiver from the Secretary of Education.
“To expand college access to millions of students and families and to ensure that our higher education system operates in the best interest of helping students attend and pay for college is a top priority of Miller’s office,” Racusen said.
Congress is also addressing is the 90-10 rule, which requires career colleges, which provide vocational educations, to receive at least 10 percent of their revenue from sources other than federal student aid in order to be eligible for the financial aid benefits of Title IV.
“A minority of these schools were diploma mills that took advantage of students and were not legitimate institutions,” said Harris N. Miller, chairman of the Career College Association.
Currently, these institutions are subject to stringent accreditation requirements. At the same time, their student population has grown from about 2 percent of higher education students in 1995, to about 10 percent today, Miller said.
The new legislation modifies the act to broaden the sources that can comprise the 10 percent of non-governmental funding to include scholarships and existing short-term educational programs.
Miller said he is optimistic that the resulting bill will remove unnecessary restrictions.
“Schools are being forced to artificially raise tuition to meet the 10 percent standard, creating a situation where tuition is being raised only to meet bureaucratic requirements,” Miller said.
In terms of accreditation, both the Senate and the House aim to hold colleges more responsible for evidence of student achievement and to make accreditation practices more transparent, according to The Chronicle of Higher Education.
“Almost 40 percent of students that receive degrees from traditional school have transferred from one college to another, but many schools are ripping off their students by forcing them to take the same classes twice,” Miller said.
Colleges have adopted voluntary policies stating that the source of accreditation should not be the sole basis for an applicant’s rejection, but blatant violations of these self-imposed rules are frequent, Miller said.
The bill requires that accreditation practices be made publicly available.
“This is a partial victory, and a major step forward,” Miller said.
The proposed legislation also attempts to reduce student expenditures by revamping student loan practices.The Senate and the House are aiming to reduce conflicts of interest within the student loan industry between lenders and colleges by outlawing questionable practices and increasing transparency, according to The Chronicle of Higher Education.
Colleges that recommend preferred lenders must include at least three unaffiliated providers for government-backed loans and two other providers for private lenders. In addition, annual reports justifying choices and criteria for selections must be submitted to the Secretary of Education.
Revenue-sharing between colleges and lenders, and “co-branding,” or allowing lenders to use a college’s mascot in marketing materials, will be banned under the new legislation.
A top priority of Rep. George Miller’s office is to make information available to students and their families to help them understand the financial opportunities available to them, spokeswoman Racusen said.
The Higher Education Act is due for renewal and any legislation enacted will determine higher education policy for the next five years. The bill was originally created in 1965 to strengthen educational resources available to colleges and universities and to provide financial assistance to students.
The Senate passed its version of the bill in July. The House proposed its initial version of the bill last week, which was marked up in the Education Committee on Wednesday.
A change that will directly impact students is the crackdown on illegal downloading within the proposed legislation. It requires institutions to educate their students on policies regarding copyright infringement on campus networks. It also requires that colleges eligible for federal financial aid under Title IV, a section of the Higher Education Act that defines all federal loans available to students, to develop a plan for offering alternatives to illegal downloading,
“About 44 percent of domestic piracy losses nationwide, over $500 million, are due to college students,” said Kori Bernard, a spokeswoman for the Motion Picture Association of America, which supports the legislation.
“We are requesting minimally invasive efforts to reduce piracy on college campuses,” Bernard added.
Educause, a nonprofit organization concerned with proper technology use in higher education, called the second portion of the legislation “unacceptable,” according to The Chronicle of Higher Education.
“These provisions of the bill are misdirected at higher education,” said Steven Worona, Educause director of policy and networking programs.
Most infringement by college students occurs on commercial networks that are not associated with their college. Less than 4 percent of infringers are using college campus networks and therefore account for no more than 9 percent of the losses. The statistic that attributes 44 percent of piracy to college campuses is both misleading and false, Worona said.
“Campuses are already attacking this problem as aggressively as possible. The source of the problem should be targeted and that’s not higher education,” Worona said.
In their separate proposals, both the Senate and the House agreed on modifications to the act, including allowing the Secretary of Education to establish a Higher Education Price Index in order to identify colleges whose tuition and fees are unusually high and place them on a watch list.
The House went beyond the Senate, mandating that colleges on the watch list submit a report explaining the reasons for their unusually high fees, and outlining steps that will be taken to prevent future increases in fees, according to The Chronicle of Higher Education.
To create further incentives to prevent fee increases, the House also proposed offering additional grant money to colleges that restrained their tuition growth, said Rachel Racusen, spokeswoman for Representative George Miller of California, who is chairman of the House Education and Labor committee. States would also be punished for cutting their higher education budgets.
“States that fail to meet the mandated standards would risk losing these funds,” Racusen said. States faced with fiscal difficulties would be eligible for a waiver from the Secretary of Education.
“To expand college access to millions of students and families and to ensure that our higher education system operates in the best interest of helping students attend and pay for college is a top priority of Miller’s office,” Racusen said.
Congress is also addressing is the 90-10 rule, which requires career colleges, which provide vocational educations, to receive at least 10 percent of their revenue from sources other than federal student aid in order to be eligible for the financial aid benefits of Title IV.
“A minority of these schools were diploma mills that took advantage of students and were not legitimate institutions,” said Harris N. Miller, chairman of the Career College Association.
Currently, these institutions are subject to stringent accreditation requirements. At the same time, their student population has grown from about 2 percent of higher education students in 1995, to about 10 percent today, Miller said.
The new legislation modifies the act to broaden the sources that can comprise the 10 percent of non-governmental funding to include scholarships and existing short-term educational programs.
Miller said he is optimistic that the resulting bill will remove unnecessary restrictions.
“Schools are being forced to artificially raise tuition to meet the 10 percent standard, creating a situation where tuition is being raised only to meet bureaucratic requirements,” Miller said.
In terms of accreditation, both the Senate and the House aim to hold colleges more responsible for evidence of student achievement and to make accreditation practices more transparent, according to The Chronicle of Higher Education.
“Almost 40 percent of students that receive degrees from traditional school have transferred from one college to another, but many schools are ripping off their students by forcing them to take the same classes twice,” Miller said.
Colleges have adopted voluntary policies stating that the source of accreditation should not be the sole basis for an applicant’s rejection, but blatant violations of these self-imposed rules are frequent, Miller said.
The bill requires that accreditation practices be made publicly available.
“This is a partial victory, and a major step forward,” Miller said.
The proposed legislation also attempts to reduce student expenditures by revamping student loan practices.The Senate and the House are aiming to reduce conflicts of interest within the student loan industry between lenders and colleges by outlawing questionable practices and increasing transparency, according to The Chronicle of Higher Education.
Colleges that recommend preferred lenders must include at least three unaffiliated providers for government-backed loans and two other providers for private lenders. In addition, annual reports justifying choices and criteria for selections must be submitted to the Secretary of Education.
Revenue-sharing between colleges and lenders, and “co-branding,” or allowing lenders to use a college’s mascot in marketing materials, will be banned under the new legislation.
A top priority of Rep. George Miller’s office is to make information available to students and their families to help them understand the financial opportunities available to them, spokeswoman Racusen said.
Who Should Be Ashamed?
Even as they scramble for positions on some lists ("best colleges,” “top grant recipients” and so forth) colleges have lots of lists they want to stay off of: AAUP censure, NCAA probation, and others.
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* The Pendulum Swings on Accreditation, Nov. 19
* Cost of College a Bipartisan Concern, Nov. 12
* Looking Under the Hood of Public Higher Ed, Nov. 2
* Rate of Tuition Increases Is Up, Oct. 23
* Price Controls or Transparency?, June 15
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The idea that colleges would take steps to avoid being on bad lists is behind a measure drawing bipartisan support in Congress — and infuriating many college officials. A measure in the bill to reauthorize the Higher Education Act would create “watch lists” of institutions with tuition increases above the average for their sector. The hope is that colleges may moderate increases to avoid ending up on the list — or be exposed for faulty management if they do. Rep. Howard P. (Buck) McKeon, a California Republican who has been pushing the idea for some time, issued a press release that said the watch lists will “shine a spotlight on excessive tuition increases.”
The legislation comes at a time that many in Congress are also raising questions about large college endowments and asking if the wealthiest colleges couldn’t somehow spend more of their endowment or other funds and minimize tuition increases. But a review of existing data suggests that the colleges that would end up on the watch list aren’t terribly wealthy. Rather, they seem to fall into two groups: public institutions in states where appropriations are tight, and private colleges whose operating budgets are tuition driven because endowments are small.
In fact, while many experts believe that colleges — and especially the wealthiest ones — can do more to control their own costs and, in turn, what they charge to students, they point to lots of problems with the dividing lines this bill would draw.
Take the colleges with mega-endowments — the places some think could afford to be free. Of the wealthiest 10 private universities (a club you need about $5 billion to join), not a single one of them would end up on the watch list. The average tuition and fee increase for private, four-year colleges this year was 6.3 percent and the top 10 in endowment wealth didn’t have a tuition rate that hit even 6 percent (five were in the mid-5 percents, and the rest were lower still).
Among the institutions that would certainly not need to worry about ending up on the watch list is Princeton University, which this year froze tuition (although it had a healthy increase in room and board charges, which don’t count for getting an institution on the watch list).
But if Princeton has nothing to worry about it with regard to the watch list, Saint Peter’s College, in Jersey City, does. Its tuition increase this year is about 6 percent, just below average, and some years the college is above average. So in theory, this is the kind of institution that might be motivated by a watch list and want to stay off of it.
But Eugene J. Cornacchia, the president, says flat out that the watch list would by necessity have no impact on decision making — although it could hurt the college. Like many of the private colleges that would end up on the list, Saint Peter’s is tuition driven. About 90 percent of its budget comes from tuition. So the idea that the college could decide to go down a bit to avoid being on some federal list just isn’t realistic, Cornacchia said.
“Our 6 percent tuition increase does not give us any latitude,” he said. “It was the minimum amount needed to accomplish what we need to do. It’s not like we could do away with even.1 percent of it,” he said. Cut the budget, “and it would mean layoffs or reductions to students.”
Comparing Princeton and Saint Peter’s illustrates the latter’s president’s frustration. As far as the legislation is concerned, they are in the same category.
But by endowment, Princeton had $13 billion (a year ago) while Saint Peter’s has $32 million. Full professors at Princeton earn more than twice what those at Saint Peter’s are paid. About 7 percent of Princeton students are eligible for Pell Grants (a good proxy for low-income students) while about 40 percent of Saint Peter’s students are. In fact, only 1 percent of Saint Peter’s students don’t receive aid of some form from the college. (And even with the fact that Saint Peter’s had an increase this year, its tuition and fees total of just over $24,000 is much less than Princeton’s total of $33,000.)
Cornacchia stressed that he doesn’t begrudge Princeton its success and wishes it well at achieving its mission. But that Princeton’s ability to skip a tuition increase could set up Saint Peter’s for looking bad by comparison in some federal formula is a flaw, he said.
“That’s the problem with these kinds of lists that come out. I think of the No Child Left Behind disaster, and we’re again developing all sorts of lists based on data which may or may not be related to anything based on education, and it stigmatizes institutions,” Cornacchia said.
The gap between Princeton and Jersey City isn’t by any means unique. Go to other states known for wealthy private colleges and the situation is the same — the famous institutions with large endowments will not turn up on the list. In Massachusetts, there is no danger of Amherst, Mount Holyoke, Smith or Williams ending up on the watch list. Harvard University and the Massachusetts Institute of Technology are safe, too. The colleges close to the average or above it (those that would make the list) are the colleges whose endowments are small by comparison and in many cases they are colleges that educate many first generation students — places like Pine Manor and Emmanuel Colleges or Suffolk University.
Richard Doherty, president of the Association of Independent Colleges and Universities in Massachusetts, said that his state shows the flaws in basing a watch list on percentages. “The smaller schools will get hurt,” he said, because they are more dependent on tuition, and more vulnerable to sudden increases in expenses, such as energy costs. It is the colleges with the smaller endowments (which are more likely to end up on the watch list) that have the least flexibility, Doherty said.
“The notion that there are efficiencies that colleges are not trying to pursue currently is just a fallacy,” he said.
Some colleges with much larger endowments say that there are other flaws in the percentage approach. Grinnell College, with a billion-plus endowment that tops all other liberal arts colleges, added 15 percent last year to the regular tuition increase and imposed the higher expense on this year’s freshmen only (although it will carry on as more classes enroll). The extra funds are being used to forgive more student debt, to change financial aid formulas that students said previously didn’t cover the real costs of books and other expenses, to add new scholarships and so forth.
The question for the college as students arrived in the fall was whether the changes — and the higher sticker price — would scare off low-income students. Russell K. Osgood, Grinnell’s president, said that the striking thing was that the class didn’t change at all — more than 85 percent qualifying for some kind of aid, just as in previous years. To Osgood this suggests that students and parents look beyond sticker price and realize what a small share of students and families pay full price and the percentage increase associated with it.
“What I conclude from the whole thing is that parents and students are quite sophisticated about the net cost of a college,” he said. The idea that Congress is somehow saving students from colleges with high percentage increases doesn’t make sense when students realize they might be getting something valuable as a result, he added. “All I would say is that I think Congress should take into account that there are all different sorts and kinds of colleges and to identify a watch list based on a single criterion strikes me as unwise or unjustified.”
The Picture for Public Colleges
If the key factor private college leaders predict would keep a college off the watch list is wealth, the key factor public college leaders predict is the wealth of a state in a given year. If the watch list existed this year, there would be plenty of Michigan public colleges on it — with a collapsing state budget and significant cuts, colleges have imposed tuition increases, some of them double digit.
Michigan State University, which took pride a few years back in multiple years of minimal tuition increases, is up nearly 10 percent for state residents.
Terry Denbow, vice president of university relations at Michigan State, noted that trustees at Michigan State are elected in statewide votes and decide on tuition in open meetings. “The transparency and accountability of pure democracy, quite literally, are alive each time tuition is set.”
Denbow said that the university’s record makes clear that when state appropriations are available, tuition increases are minimal. And when tuition increases are needed, the university has increased financial aid budgets by an average of 4.5 percentage points above the tuition increase.
Putting Michigan State (and most of the rest of public higher education in the state) on a watch list wouldn’t really accomplish much, he said. “This would impose an unnecessary burden, administratively and otherwise, built upon a flawed process and homogeneous scorecard for declaring winners and losers,” he said.
Similarly, California State University could be headed toward a tuition increase in the 10 percent magnitude — the kind of percentage that might land an institution on the watch list.
Patrick Lenz, assistant vice chancellor of the system, said that in recent years, Cal State has had increases in the 10 percent range and years of no increases at all. In the latter, the state finds itself taking in more money than projected and “buys out” any tuition increase that would be needed. In years like this one, when reports of the depths of California’s deficit continue to increase, the opposite happens, he said.
“I’m really not sure the point of this watch list,” he said.
California State’s tuition and fees for a year (many Californians who believe in the state’s no-tuition philosophy insist on calling the total entirely fees, but it is similar to tuition and fees elsewhere) are well under $4,000 for a year (a figure that is well under the $6,185 average for public four-year institutions). Lenz said that it is legitimate to compare universities on costs, and that Cal State maintains a list of 15 institutions it looks at for comparison purposes — a group that includes University of Nevada at Reno, Arizona State University, Georgia State University and George Mason University. Cal State costs $500 less than anyone else in the group, Lenz said.
Part of the concern is that colleges wouldn’t just get branded was institutions that need to be watched, but would have to spend more money as a result. Each institution would have to create a “quality efficiency task force” that would have to analyze the ways in which the institution is operating “more expensively to produce a similar result” as its peers. Institutions whose percentage increases would place them on the list would be exempt if they are in the bottom quartile for their sector or if their dollar increases don’t top $500 over three years, an exemption expected to help many community colleges, where the average increase in actual dollars this year was just $95.
Sandy Baum, a Skidmore College economist and senior policy analyst at the College Board, said that there are many types of colleges that would not change behavior because of the watch list. The wealthiest colleges — those seen by some as contributing to an “arms race” in which new programs and fancier facilities multiply — will be able to continue that arms race without getting on the list, she said. And colleges without much money (either private institutions or publics in tight budget cycles) have real constraints on their prices.
There may, however, be a group of private colleges that are in between — not totally tuition dependent, but not with billion-dollar endowments either. Some of those institutions, she said, might be motivated to try to carve a bit out of tuition increases to stay below average on price. But Baum said it was hard to predict.
Ronald G. Ehrenberg, director of the Cornell University Higher Education Research Institute and editor of What’s Happening to Public Higher Education (Praeger, 2006), said the key question for colleges would be whether being on the watch list had an impact on the behavior of potential students. For colleges that have desirable qualities, he doubts that it will.
“If you the student are trying to make a decision to go to X vs.Y, and X is a shamed institution on the list and Y is not, is that going to affect your decision at all, if X promises you more in terms of educational opportunities and potential for earnings and graduate school education. In a way, I don’t think it’s any different from the way continuing raising high tuitions have not kept the number of applications to selective institutions from going up,” Ehrenberg said.
The potential benefit of the watch list may be rhetorical, he added. “If this is just a way of calling attention to higher education about trying to be efficient and hold down costs, maybe it will serve some useful function,” he said.
Just about everybody interviewed for this article — including several who didn’t want to be quoted for fear of attracting attention to their institutions’ rates — said that there are colleges, public and private, charging too much and deserving of more scrutiny. The problem, they said, was that the proposal advancing in Congress appears likely to point fingers in the wrong direction.
Baum said that the proposal reflected the wide consensus that the problem is real. “I’m sympathetic to the idea we have to do something to slow this down,” she said. “I don’t know that anybody has a good answer to what the best approach is.”
— Scott Jaschik
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* The Pendulum Swings on Accreditation, Nov. 19
* Cost of College a Bipartisan Concern, Nov. 12
* Looking Under the Hood of Public Higher Ed, Nov. 2
* Rate of Tuition Increases Is Up, Oct. 23
* Price Controls or Transparency?, June 15
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The idea that colleges would take steps to avoid being on bad lists is behind a measure drawing bipartisan support in Congress — and infuriating many college officials. A measure in the bill to reauthorize the Higher Education Act would create “watch lists” of institutions with tuition increases above the average for their sector. The hope is that colleges may moderate increases to avoid ending up on the list — or be exposed for faulty management if they do. Rep. Howard P. (Buck) McKeon, a California Republican who has been pushing the idea for some time, issued a press release that said the watch lists will “shine a spotlight on excessive tuition increases.”
The legislation comes at a time that many in Congress are also raising questions about large college endowments and asking if the wealthiest colleges couldn’t somehow spend more of their endowment or other funds and minimize tuition increases. But a review of existing data suggests that the colleges that would end up on the watch list aren’t terribly wealthy. Rather, they seem to fall into two groups: public institutions in states where appropriations are tight, and private colleges whose operating budgets are tuition driven because endowments are small.
In fact, while many experts believe that colleges — and especially the wealthiest ones — can do more to control their own costs and, in turn, what they charge to students, they point to lots of problems with the dividing lines this bill would draw.
Take the colleges with mega-endowments — the places some think could afford to be free. Of the wealthiest 10 private universities (a club you need about $5 billion to join), not a single one of them would end up on the watch list. The average tuition and fee increase for private, four-year colleges this year was 6.3 percent and the top 10 in endowment wealth didn’t have a tuition rate that hit even 6 percent (five were in the mid-5 percents, and the rest were lower still).
Among the institutions that would certainly not need to worry about ending up on the watch list is Princeton University, which this year froze tuition (although it had a healthy increase in room and board charges, which don’t count for getting an institution on the watch list).
But if Princeton has nothing to worry about it with regard to the watch list, Saint Peter’s College, in Jersey City, does. Its tuition increase this year is about 6 percent, just below average, and some years the college is above average. So in theory, this is the kind of institution that might be motivated by a watch list and want to stay off of it.
But Eugene J. Cornacchia, the president, says flat out that the watch list would by necessity have no impact on decision making — although it could hurt the college. Like many of the private colleges that would end up on the list, Saint Peter’s is tuition driven. About 90 percent of its budget comes from tuition. So the idea that the college could decide to go down a bit to avoid being on some federal list just isn’t realistic, Cornacchia said.
“Our 6 percent tuition increase does not give us any latitude,” he said. “It was the minimum amount needed to accomplish what we need to do. It’s not like we could do away with even.1 percent of it,” he said. Cut the budget, “and it would mean layoffs or reductions to students.”
Comparing Princeton and Saint Peter’s illustrates the latter’s president’s frustration. As far as the legislation is concerned, they are in the same category.
But by endowment, Princeton had $13 billion (a year ago) while Saint Peter’s has $32 million. Full professors at Princeton earn more than twice what those at Saint Peter’s are paid. About 7 percent of Princeton students are eligible for Pell Grants (a good proxy for low-income students) while about 40 percent of Saint Peter’s students are. In fact, only 1 percent of Saint Peter’s students don’t receive aid of some form from the college. (And even with the fact that Saint Peter’s had an increase this year, its tuition and fees total of just over $24,000 is much less than Princeton’s total of $33,000.)
Cornacchia stressed that he doesn’t begrudge Princeton its success and wishes it well at achieving its mission. But that Princeton’s ability to skip a tuition increase could set up Saint Peter’s for looking bad by comparison in some federal formula is a flaw, he said.
“That’s the problem with these kinds of lists that come out. I think of the No Child Left Behind disaster, and we’re again developing all sorts of lists based on data which may or may not be related to anything based on education, and it stigmatizes institutions,” Cornacchia said.
The gap between Princeton and Jersey City isn’t by any means unique. Go to other states known for wealthy private colleges and the situation is the same — the famous institutions with large endowments will not turn up on the list. In Massachusetts, there is no danger of Amherst, Mount Holyoke, Smith or Williams ending up on the watch list. Harvard University and the Massachusetts Institute of Technology are safe, too. The colleges close to the average or above it (those that would make the list) are the colleges whose endowments are small by comparison and in many cases they are colleges that educate many first generation students — places like Pine Manor and Emmanuel Colleges or Suffolk University.
Richard Doherty, president of the Association of Independent Colleges and Universities in Massachusetts, said that his state shows the flaws in basing a watch list on percentages. “The smaller schools will get hurt,” he said, because they are more dependent on tuition, and more vulnerable to sudden increases in expenses, such as energy costs. It is the colleges with the smaller endowments (which are more likely to end up on the watch list) that have the least flexibility, Doherty said.
“The notion that there are efficiencies that colleges are not trying to pursue currently is just a fallacy,” he said.
Some colleges with much larger endowments say that there are other flaws in the percentage approach. Grinnell College, with a billion-plus endowment that tops all other liberal arts colleges, added 15 percent last year to the regular tuition increase and imposed the higher expense on this year’s freshmen only (although it will carry on as more classes enroll). The extra funds are being used to forgive more student debt, to change financial aid formulas that students said previously didn’t cover the real costs of books and other expenses, to add new scholarships and so forth.
The question for the college as students arrived in the fall was whether the changes — and the higher sticker price — would scare off low-income students. Russell K. Osgood, Grinnell’s president, said that the striking thing was that the class didn’t change at all — more than 85 percent qualifying for some kind of aid, just as in previous years. To Osgood this suggests that students and parents look beyond sticker price and realize what a small share of students and families pay full price and the percentage increase associated with it.
“What I conclude from the whole thing is that parents and students are quite sophisticated about the net cost of a college,” he said. The idea that Congress is somehow saving students from colleges with high percentage increases doesn’t make sense when students realize they might be getting something valuable as a result, he added. “All I would say is that I think Congress should take into account that there are all different sorts and kinds of colleges and to identify a watch list based on a single criterion strikes me as unwise or unjustified.”
The Picture for Public Colleges
If the key factor private college leaders predict would keep a college off the watch list is wealth, the key factor public college leaders predict is the wealth of a state in a given year. If the watch list existed this year, there would be plenty of Michigan public colleges on it — with a collapsing state budget and significant cuts, colleges have imposed tuition increases, some of them double digit.
Michigan State University, which took pride a few years back in multiple years of minimal tuition increases, is up nearly 10 percent for state residents.
Terry Denbow, vice president of university relations at Michigan State, noted that trustees at Michigan State are elected in statewide votes and decide on tuition in open meetings. “The transparency and accountability of pure democracy, quite literally, are alive each time tuition is set.”
Denbow said that the university’s record makes clear that when state appropriations are available, tuition increases are minimal. And when tuition increases are needed, the university has increased financial aid budgets by an average of 4.5 percentage points above the tuition increase.
Putting Michigan State (and most of the rest of public higher education in the state) on a watch list wouldn’t really accomplish much, he said. “This would impose an unnecessary burden, administratively and otherwise, built upon a flawed process and homogeneous scorecard for declaring winners and losers,” he said.
Similarly, California State University could be headed toward a tuition increase in the 10 percent magnitude — the kind of percentage that might land an institution on the watch list.
Patrick Lenz, assistant vice chancellor of the system, said that in recent years, Cal State has had increases in the 10 percent range and years of no increases at all. In the latter, the state finds itself taking in more money than projected and “buys out” any tuition increase that would be needed. In years like this one, when reports of the depths of California’s deficit continue to increase, the opposite happens, he said.
“I’m really not sure the point of this watch list,” he said.
California State’s tuition and fees for a year (many Californians who believe in the state’s no-tuition philosophy insist on calling the total entirely fees, but it is similar to tuition and fees elsewhere) are well under $4,000 for a year (a figure that is well under the $6,185 average for public four-year institutions). Lenz said that it is legitimate to compare universities on costs, and that Cal State maintains a list of 15 institutions it looks at for comparison purposes — a group that includes University of Nevada at Reno, Arizona State University, Georgia State University and George Mason University. Cal State costs $500 less than anyone else in the group, Lenz said.
Part of the concern is that colleges wouldn’t just get branded was institutions that need to be watched, but would have to spend more money as a result. Each institution would have to create a “quality efficiency task force” that would have to analyze the ways in which the institution is operating “more expensively to produce a similar result” as its peers. Institutions whose percentage increases would place them on the list would be exempt if they are in the bottom quartile for their sector or if their dollar increases don’t top $500 over three years, an exemption expected to help many community colleges, where the average increase in actual dollars this year was just $95.
Sandy Baum, a Skidmore College economist and senior policy analyst at the College Board, said that there are many types of colleges that would not change behavior because of the watch list. The wealthiest colleges — those seen by some as contributing to an “arms race” in which new programs and fancier facilities multiply — will be able to continue that arms race without getting on the list, she said. And colleges without much money (either private institutions or publics in tight budget cycles) have real constraints on their prices.
There may, however, be a group of private colleges that are in between — not totally tuition dependent, but not with billion-dollar endowments either. Some of those institutions, she said, might be motivated to try to carve a bit out of tuition increases to stay below average on price. But Baum said it was hard to predict.
Ronald G. Ehrenberg, director of the Cornell University Higher Education Research Institute and editor of What’s Happening to Public Higher Education (Praeger, 2006), said the key question for colleges would be whether being on the watch list had an impact on the behavior of potential students. For colleges that have desirable qualities, he doubts that it will.
“If you the student are trying to make a decision to go to X vs.Y, and X is a shamed institution on the list and Y is not, is that going to affect your decision at all, if X promises you more in terms of educational opportunities and potential for earnings and graduate school education. In a way, I don’t think it’s any different from the way continuing raising high tuitions have not kept the number of applications to selective institutions from going up,” Ehrenberg said.
The potential benefit of the watch list may be rhetorical, he added. “If this is just a way of calling attention to higher education about trying to be efficient and hold down costs, maybe it will serve some useful function,” he said.
Just about everybody interviewed for this article — including several who didn’t want to be quoted for fear of attracting attention to their institutions’ rates — said that there are colleges, public and private, charging too much and deserving of more scrutiny. The problem, they said, was that the proposal advancing in Congress appears likely to point fingers in the wrong direction.
Baum said that the proposal reflected the wide consensus that the problem is real. “I’m sympathetic to the idea we have to do something to slow this down,” she said. “I don’t know that anybody has a good answer to what the best approach is.”
— Scott Jaschik
Not too late for spring semester
Last month we launched our "Ask the Expert" tool — and since then, your questions have been steadily rolling in. At first I was surprised by the number of inquiries we received this way. I thought the Student LoanDown community would use the comments section to ask questions — but I guess you take that section literally and use it for actual comments, not questions!
Nonetheless, I'm glad you're finding "Ask the Expert" useful. It's certainly useful for us bloggers because we learn exactly what kind of information you'd like more of — and then we can share it with the rest of our community.
So here's a question we received from a concerned parent about financial aid timing (certainly appropriate as spring semester is just a few months away):
My daughter is a freshman. We did not take out any loans for the first, fall, semester, but would like to take out one for the spring semester. Is it possible to get a Stafford or Perkins loan for the spring semester, or have we missed this cycle and have to wait for the fall of 2008?
And here's my response:
No, you haven't missed the cycle. (Whew!) If you haven't already completed the FAFSA Click here to learn about third-party website links (Free Application for Federal Student Aid), that's your first step. The 2007 FAFSA covers the 2007-2008 academic year through June 30, 2008, and will determine your daughter's eligibility for financial aid.
I'd suggest that you check with the financial aid office at your daughter's school. Low-interest Federal Perkins Loans Click here to learn about third-party website links are based on financial need and are awarded on a first-come, first-served basis, so those may not be available. But low-interest Federal Stafford Loans have both need-based and non-need-based components (subsidized and unsubsidized loans), and as long as your daughter is attending an eligible school at least half-time, this should still be an option for her.
One last thing: As a parent, if you're interested in borrowing to help your daughter pay for school, check out the Federal PLUS Loan for parents. It's also not based on financial need but does require a minimal credit check.
Nonetheless, I'm glad you're finding "Ask the Expert" useful. It's certainly useful for us bloggers because we learn exactly what kind of information you'd like more of — and then we can share it with the rest of our community.
So here's a question we received from a concerned parent about financial aid timing (certainly appropriate as spring semester is just a few months away):
My daughter is a freshman. We did not take out any loans for the first, fall, semester, but would like to take out one for the spring semester. Is it possible to get a Stafford or Perkins loan for the spring semester, or have we missed this cycle and have to wait for the fall of 2008?
And here's my response:
No, you haven't missed the cycle. (Whew!) If you haven't already completed the FAFSA Click here to learn about third-party website links (Free Application for Federal Student Aid), that's your first step. The 2007 FAFSA covers the 2007-2008 academic year through June 30, 2008, and will determine your daughter's eligibility for financial aid.
I'd suggest that you check with the financial aid office at your daughter's school. Low-interest Federal Perkins Loans Click here to learn about third-party website links are based on financial need and are awarded on a first-come, first-served basis, so those may not be available. But low-interest Federal Stafford Loans have both need-based and non-need-based components (subsidized and unsubsidized loans), and as long as your daughter is attending an eligible school at least half-time, this should still be an option for her.
One last thing: As a parent, if you're interested in borrowing to help your daughter pay for school, check out the Federal PLUS Loan for parents. It's also not based on financial need but does require a minimal credit check.
11/12/2007
Loan auctions not the safest bet
As Congress, the White House and the Department of Education moves towards reforming the student loan industry, a few changes are taking place.
One of the changes that will be partially implemented on July 1, 2009 is an auction system in the Federal Family Educational Loan program.
The National Association of Student Financial Aid Administrators released a report last month on "Evaluating Student Loan Auctions," just as President George W. Bush signed the College Cost Reduction and Access Act, which contains the auction system.
Besides dealing with the corruption within the industry, the Department of Education must ensure that the FFEL program is both saving the taxpayer dollars and not overburdening borrowers. Loan auctions are considered as one way to accomplish this.
"Beginning in July 2009, all guaranteed loans made to parents on behalf of students for whom they have not previously borrowed would be made by lenders who won the rights to make those loans through competitive auction," claims a 2007 cost estimate from the Congressional Budget Office. This system was designed with the intent to "inject market capitalism" into the program.
"Two winning lenders in each state who bid the smallest add-ons to the three month commercial paper (CP) rate used to calculate special allowance payments would have the right to make loans for two years. At the end of that two-year period, the auction of the right would be repeated," states the estimate.
Though, by all appearances, the auction system seems practical, the NASFAA report asserts, "The current auction system has been implemented based on several faulty assumptions."
These assumptions include an effort to drive down competition through subsidy rates, and having taxpayers save money by allowing lenders to compete for the right to originate loans. Loan auctions would not be affected because many do not qualify for the benefits anyway.
The Parent PLUS loan auctions will provide a good indication of what loan auctions will be like for all FFEL loans, further indicating market consolidation may occur on a limited basis, even though the market is already dominated by a few large lenders.
While the support for the auction system is rooted in the hopes that competition and capitalism will be brought into the current system, there is a strong possibility that this new system will create an environment for a potential oligopoly.
A 2001 U.S. General Accounting Office report, "Alternative Market Mechanisms for the Student Loan Program," argues that the diversity of lenders might decline. The report states that while there is the possibility of the auction system reducing federal FFEL program costs, "Their ability to realize this potential depends on whether there is sufficient competition in bidding."
When the competition is lacking, the big lenders will force out the small lenders and the system will fail. The system could only work well when there is an equal ability to raise cash for bids, which is not the case in this arrangement.
The NASFAA report points out that, "According to Department of Education figures, of the 20 large student loan originators in 2006, 12 are also the top 20 student loan holders. In other words, of the 20 largest loan providers competing for the loan volume, 12 also have the largest loan portfolios."
This is imperative, since large lenders have acknowledged that the presence of smaller providers, particularly nonprofits, forces loan costs down for borrowers.
Overall, the report concludes that the auction system in the FFEL program will not yield the expected consequences and will result in market consolidation.
The report urges the government to "work with loan providers, stakeholders and other non-partisan analysts to adjust subsidization level on a more frequent basis than has been done in the past."
One of the changes that will be partially implemented on July 1, 2009 is an auction system in the Federal Family Educational Loan program.
The National Association of Student Financial Aid Administrators released a report last month on "Evaluating Student Loan Auctions," just as President George W. Bush signed the College Cost Reduction and Access Act, which contains the auction system.
Besides dealing with the corruption within the industry, the Department of Education must ensure that the FFEL program is both saving the taxpayer dollars and not overburdening borrowers. Loan auctions are considered as one way to accomplish this.
"Beginning in July 2009, all guaranteed loans made to parents on behalf of students for whom they have not previously borrowed would be made by lenders who won the rights to make those loans through competitive auction," claims a 2007 cost estimate from the Congressional Budget Office. This system was designed with the intent to "inject market capitalism" into the program.
"Two winning lenders in each state who bid the smallest add-ons to the three month commercial paper (CP) rate used to calculate special allowance payments would have the right to make loans for two years. At the end of that two-year period, the auction of the right would be repeated," states the estimate.
Though, by all appearances, the auction system seems practical, the NASFAA report asserts, "The current auction system has been implemented based on several faulty assumptions."
These assumptions include an effort to drive down competition through subsidy rates, and having taxpayers save money by allowing lenders to compete for the right to originate loans. Loan auctions would not be affected because many do not qualify for the benefits anyway.
The Parent PLUS loan auctions will provide a good indication of what loan auctions will be like for all FFEL loans, further indicating market consolidation may occur on a limited basis, even though the market is already dominated by a few large lenders.
While the support for the auction system is rooted in the hopes that competition and capitalism will be brought into the current system, there is a strong possibility that this new system will create an environment for a potential oligopoly.
A 2001 U.S. General Accounting Office report, "Alternative Market Mechanisms for the Student Loan Program," argues that the diversity of lenders might decline. The report states that while there is the possibility of the auction system reducing federal FFEL program costs, "Their ability to realize this potential depends on whether there is sufficient competition in bidding."
When the competition is lacking, the big lenders will force out the small lenders and the system will fail. The system could only work well when there is an equal ability to raise cash for bids, which is not the case in this arrangement.
The NASFAA report points out that, "According to Department of Education figures, of the 20 large student loan originators in 2006, 12 are also the top 20 student loan holders. In other words, of the 20 largest loan providers competing for the loan volume, 12 also have the largest loan portfolios."
This is imperative, since large lenders have acknowledged that the presence of smaller providers, particularly nonprofits, forces loan costs down for borrowers.
Overall, the report concludes that the auction system in the FFEL program will not yield the expected consequences and will result in market consolidation.
The report urges the government to "work with loan providers, stakeholders and other non-partisan analysts to adjust subsidization level on a more frequent basis than has been done in the past."
7/02/2007
Financial Aid News, July 2007 Issue
Financial Aid News, July 2007 Issue
A Publication of the Student Loan Network
This month, we investigate federal student loans, plenty of scholarships and new scholarship communities, and more. We've also got two new Facebook communities you can join:
- Scholarship Points on Facebook
- The Financial Aid Podcast Loyalists on Facebook
If you have comments or questions about the newsletter, please email me at: FinancialAidPodcast@GMail.com and I'll do my best to respond as quickly as I can. Please call our toll-free number at (877) 328-1565 if you have a specific question about how we can help you pay for college.
Christopher Penn, Editor
http://www.FinancialAidNews.com
http://www.FinancialAidPodcast.com
Featured SLN Announcement
Beat the certification rush! Colleges and universities tend to get swamped with Stafford loan certifications later in the summer - apply for a federal Stafford student loan today and beat the rush. Get your fall semester funding squared away now. Visit:
http://www.StaffordLoan.com
Featured Article: Federal Student Loan Overview
Federal student loans began more or less in 1965 with the Higher Education Act. Since then, they've become an industry in their own right. Some characteristics of federal student loans are that loan funds are sent to the school directly, students with drug offenses are not eligible for the loans if the offenses occurred while receiving federal aid, most federal loans require the FAFSA to have been filed, and most require you to demonstrate financial need.
There are three fundamental types of federal student loans - the Stafford Loan, the PLUS loan, and the Perkins Loan. Let's review each quickly.
First and foremost, to qualify for most federal loans, you must have filed your FAFSA.
The Perkins Loan is a 5% fixed rate loan which is awarded to students based on financial need. Perkins loans have no fees and a 9 month grace period, or period between when you're in school and when the first payment is due.
The Stafford Loan is a 6.8% fixed rate loan which comes in four types - subsidized or unsubsidized, and undergraduate or graduate. Stafford loans are by far the most popular of the federal student loans. Subsidized Stafford loans are loans in which the interest on the loan is paid by the government while you're still in school. Unsubsidized Stafford loans accrue interest while you're in school. There is a limited amount of funding available for subsidized Stafford loans, which is why it's important to file your FAFSA quickly at the beginning of each year. The difference between undergraduate and graduate Stafford Loans is mainly in loan limits. Graduate students, because of the cost of graduate school, can borrow more than undergraduates. Stafford loans also require no cosigner and no credit check. You can get more details at StaffordLoan.com
The PLUS Loan is an 8.5% fixed rate loan which comes in two types - parent and graduate student. Both types share rates and terms, but the graduate PLUS loan requires a FAFSA on file, while a parent PLUS loan does not. PLUS loans have no loan limits - you can borrow up to the cost of attendance. PLUS loans are also credit-based; while your credit score is not used, an adverse history with defaults, judgements, liens, or other significant negative credit events in your history.
Let's talk now about the process of getting a federal student loan. First and foremost, you need to have filed your FAFSA. Your school's financial aid award letter will detail how much of each loan you can borrow. Once you know that, you can apply for the Stafford and PLUS loans online at www.StaffordLoan.com, www.ParentPLUSLoan.com, or www.GradLoans.com, depending on which loan you want to apply for. Your application is received by a lender like the Student Loan Network, and your application is sent to your school's financial aid office for certification. The school effectively certifies that you're a student at the school and that you're borrowing the maximum amount you're allowed to borrow, and not more, as a way of protecting you from overborrowing beyond what you need to attend the school. Many schools certify loans differently - some certify loan applications as they come in, while others put them in a pile and certify batches at a time.
After the school certifies your loan, it's sent back to the lender for processing and funding. The lender then sends a check to your school's financial aid office, where they apply the loan proceeds to your account at the school. If all of the school's bills are paid, such as tuition, room and board, and other fees, then any remaining money is delivered to you by the school as a check or account credit for your use with miscellaneous educational expenses.
After school is over, repayment begins, in 6 or 9 months for Stafford or Perkins loans respectively. Most federal student loans have a 10 year repayment term. If you find that you have trouble making payments, you can apply for deferment, forbearance, or consolidation. Consolidation reduces your monthly payment. Deferment and forbearance are essentially pause buttons for your loan payments - interest continues to accrue, but you are not held liable for any payments while your loan is deferred or placed in forbearance. Deferment and forbearance must be applied for through the lender.
For an overview of student loan services, visit:
http://www.StudentLoanNetwork.com/apply
Last Words: Selections from Student Loan Network Experts
- Monique Leonard tackles the various legislative pieces currently being debated
- Brooke Rickard has a short case study of loan consolidation
- Katie Dexter addresses graduate school tuition for new grad students
- Kristin Popsie details student loan rate changes
- David Bonvie has some fun poking at common political campaign marketing
- Two from me. First, an opportunity to net a $10,000 bounty.
- And second, I just rolled out a miniseries on the basics of financial aid in a five part audio series. If you or someone you know needs a primer they can listen to, grab the Starter Pack from the Financial Aid Podcast.
Scholarships
Be sure you've registered for Scholarship Points, our free college scholarship awards site. Every 3 months, we draw 3 winners for $1,000, $500, and $250 scholarships. The next drawing will be July 2; winners will be announced on the Financial Aid Podcast. Visit:
http://www.ScholarshipPoints.com
We've also got a new scholarships community on Facebook. Join in the discussions there about how to raise money for tuition!
Join today for free:
http://www.facebook.com/group.php?gid=2356742560
- Apprentice Ecologist Scholarship
- Illinois Future Teacher Corps (IFTC) Program
- Richard A. Herbert Memorial Scholarships
- MIssouri Western State University Non-Traditional Student Scholarships
- Department of Homeland Security Video Interoperability Grant
- University of Tennessee, Knoxville, School of Journalism Alex Haley/Playboy Interview Scholarship in
- Common Knowledge Public Relations Scholarship
- Global Automotive Aftermarket Symposium Scholarship
- Swedish Institute Scholarships
- American Swedish Institute
- International Education Financial Aid Scholarship Search
- Graduate scholarship, fellowship, and grant directory
- Grand Valley State University Video Scholarships
- Seton Hall University Martin Luther King Jr. Scholarship
Remember, you can get daily scholarship updates by listening to the Financial Aid Podcast and visiting the Student Scholarship Search web site!
http://www.StudentScholarshipSearch.com
http://www.FinancialAidPodcast.com
A Word from our Sponsors
Looking for tutorials about the FAFSA? Be sure to visit FAFSA Online, the Internet's best FAFSA resource!
http://www.FAFSAonline.com
Want to work at a fast-moving, fast growing company in the Boston area? Know someone who does? We're hiring! Check out our job listings here:
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The Very Last Word
Missed an issue? Did you remember a scholarship but can't find the back issue? Want to tell a friend about the newsletter? You can always find back issues of the Financial Aid Newsletter at:
http://www.FinancialAidNews.com
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