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For-Profit School's Offer New Financial Aid Strategy

BusinessWeek

A changing lending environment is hurting for-profit colleges but may help students by compelling them to use often-overlooked federal loans

In January, Sallie Mae (SLM), the largest student lender, pulled out of the subprime market, a development that leaves many prospective students with fewer options to help pay their tuition bills, and the colleges themselves in a financial bind.

The for-profit career colleges are quick to point to the disadvantage low-income, nontraditional students face as a result of the pullout. Miller, from the Career College Assn., says the recent move could lead to a potential crisis where the lowest-income students are unable to pay for college. In response, private for-profit schools are looking for Congress to increase low-interest federal loans available to nontraditional students.

This week, the House is expected to consider a financial aid bill that will address the issue of accessibility for nontraditional students. The legislation would give part-time and nontraditional students more access to aid by making Pell Grant scholarships available year-round. It would also tighten regulations on lenders, requiring them to disclose all terms and conditions to borrowers up front and report private loans of $1,000 or more to students’ schools. The bill would also encourage more students to apply for federal aid by simplifying the process and cutting down on the number of questions on the Free Application for Federal Student Aid.

Alternative Lending

In the meantime, schools have taken matters into their own hands. Corinthian is looking at alternatives including giving loans directly, finding new lenders to work with, and guaranteeing high-risk loans against default. Career Education Corp. is making similar moves and ITT Educational Services (ESI) recently agreed to work with three new lenders after learning about Sallie Mae’s cutbacks.

Such increased financial risks for schools will likely raise costs for new students. While larger for-profits including Corinthian, Career Colleges, and ITT can absorb the additional costs at least in the short term, the smaller to midsize for-profit schools that attract blue-collar students will have more trouble.

Financial aid experts agree federal—not private—loans are not used enough by those who need them most. Students should be sure to take out their limit in federal Stafford or Perkins loans, and if parents can, they should also consider taking out a PLUS loan, which is available even in the absence of much credit history. Kal Chany, author of Paying for College Without Going Broke, says the Stafford loan is not taken advantage of by enough people who qualify for it, which is virtually everyone.

If students have exhausted all possibilities and still have a substantial financial gap in need of filling, Hawkins, from the National Association for College Admission Counseling, has one final bit of advice: Haggle or look elsewhere for cheaper alternatives. Says Hawkins, “If a student needs to borrow beyond what’s available by the federal government, it’s a sign that they should really press the school on what is being offered in terms of financial aid.”

© 2008, Yellowbrix


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