More than 50 years ago, the U.S. government created the federal financial aid (FFA) programs to give eligible students an opportunity to attend college by helping pay for their education. It was a grand idea to provide loans (to be repaid, of course) and grants (“gifts,” with no repayment required) to anyone with a high school diploma, GED, or equivalent who wanted to attend college or a post-secondary vocational school. Over the past five decades, these programs have helped millions of qualified students earn academic or vocational diplomas and degrees in everything from accounting to zoology. Without question, FFA has made a significant contribution to the great boom in post-secondary higher education that helped fuel the tremendous growth in jobs and prosperity that Americans experienced in the last half of the 20th century and into the new millennium.
But across the decades, the grand idea has experienced significant degradation. Congress and the Department of Education have promulgated a growing number of rules and regulations to control the flow of money. Today, FFA is an administrative straitjacket that suffocates its original intent: to help Americans pay for higher education. Defenders of the regulation claim it’s necessary to keep the program honest and to guarantee integrity on the part of both schools and students. Opponents say the rules are inefficient and unnecessarily handcuff the institutions and aspiring students that participate in the program.
Both sides are correct.
Certain ambitious schools perceive a seemingly endless stream of FFA money as theirs for the taking. To get it, they are willing to admit unqualified students, move them quickly through their courses, dilute the quality of instruction, and “game” the system in other small but significant ways in order to feast on the FFA largess. All schools—public, private, for-profit, and non-profit—need money to operate, pay staff, and cover the (often enormous) costs of facilities and other operating expenses in order to show a profit or build reserve funds. Virtually all schools share a motivation to accept FFA from their students (in the form of tuition income) and reduce their expenses. There is even a tendency to raise tuition with every increase in FFA awarded to students. It’s something of a perverse arms race: the federal government increases the amount or availability of FFA, and schools respond by increasing tuition and fees. Recently, publicly traded for-profit schools have been receiving the most attention as the biggest abusers of the FFA system. I submit that all schools that accept FFA have a vested interest in maximizing the financial aid money they receive by charging more for tuition and fees, keeping students longer in the educational programs, and marginalizing educational services.
THE LAW OF UNINTENDED CONSEQUENCES
Despite the initial worthy goal of helping students pay for their education, FFA has produced a litany of adverse consequences. Here are some of the most objectionable and egregious: many students do not realize when they sign up to receive FFA that the student loans provided by the government must be repaid with interest, some loans with interest in excess of six percent. Loans are designed to be repaid over as long as 25 years, so the student borrower winds up repaying two to three times the original loan amount. To ensure repayment, the government has made it virtually impossible to discharge the loan—personal bankruptcy doesn’t do the trick. And now the IRS has the power and responsibility to tap into a student’s assets and earnings in order to repay any overdue loans and interest.
FFA loans are an entitlement, meaning that almost every student enrolled at an eligible school can request and receive the maximum amount of FFA for tuition, books, and living expenses. This can quickly get out of hand, with students running up loans in excess of $20,000 per year. Many graduate from college with loans of more than $100,000 and interest payments alone of $6,000 per year. The government’s “generosity” is drowning thousands upon thousands of students in lifelong debt and repayment burdens. With nowhere to turn, the number of students who are defaulting is rising daily and the current total of unpaid loans and interest is in excess of $35 billion!
SHARED BLAME—AND RESPONSIBILITY
As I noted above, schools are far from blameless for attracting underqualified students and providing the financial aid. Yet schools have absolutely no say over who gets FFA once the student has been admitted, or how much aid they get (up to the maximum permitted by government regulations) since it is federal money and an entitlement. Students also have been gaming the system, knowing that this easy loan money is available simply by enrolling in the school. Once in their hands, the money can be used for any educational or non-educational purpose. Repaying the loan plus interest lies off on the horizon somewhere, years in the future—why worry now?
And the government? The system is badly crippled by governmental regulations that: 1) make FFA loans an entitlement for every qualified citizen, 2) prevent schools from restricting who gets FFA and how much aid they get, 3) permit charging their citizens high interest rates (the government actually shows a profit on the loans and the interest it collects!), and 4) punish those schools whose students exceed a certain default rate (even though schools can’t control who gets loans and how much, and have no ability to assist in collecting on these loans when a student leaves). In addition, administering the FFA regulations and tracking the flow of federal money and student progress is costly for schools, a cost which is passed on to students in the form of higher tuition and fees. So, the mere processing of FFA adds substantially to the costs of attending schools that award FFA.
Sure, the schools need to do a better job of admitting students who can reasonably be expected to complete the educational program, graduate, and find gainful employment. But how do you identify these students when there is scant employment history? And what about students from lower economic groups that are simply trying to get an education to improve their lives and share in the American dream? Their basic preparatory high school education might be deficient, and their financial resources minimal.
A VIEW TOWARD CHANGE
As someone whose entire adult experience has been in higher education as a student, professor, administrator, and university founder, I urge the following:
For the government - Stop charging interest on student loans. Call off the IRS and start treating students as ethical, responsible citizens. Allow colleges and universities to determine who gets FFA loans and how much each student receives based on individual need and history. Permit them to assist with tracking and collecting loan repayments. Give schools the authority to withhold transcripts and degrees until loan repayment arrangements have been made. Monitor how much FFA loans schools disburse and how much is repaid in order to qualify them to administer additional money. Finally, do not institute gainful employment regulation that measures school performance on whether or not its graduates get jobs upon graduation, since everyone (except the government, perhaps) realizes that not all college education is directed toward getting a job. In fact, most college education is for non-specific vocations or self-improvement—and these are legitimate reasons to aspire to a college education.
For schools - Schools have the option to participate in the FFA program or not. If they don’t want the burden associated with administering their students’ loans, they don’t have to offer FFA. If institutions do want FFA loans for their students, then they must properly qualify students and help to collect the loan repayments. Yes, this increases the costs of operation, but it brings in a steady stream of tuition. And the economy benefits when schools are able to reach the segments of the population that most need education and job skills.
For students - FFA should be available for those students who demonstrate academic progress in their studies, and for those who demonstrate a strong likelihood of repayment. The school is taking a risk and responsibility in awarding the FFA; the student must share in this responsibility. Perhaps FFA should be made available only after a student has demonstrated success by completing the first term, for instance. This makes students personally responsible for the first-term tuition and fees, and commits the school to enroll students with a better chance of success.
What are the chances of these suggestions being honestly evaluated—and of their ultimate implementation? The governmental behemoth is plagued by politics and slow to recognize its failings. Schools are notoriously inflicted with rigor mortis, thereby perpetuating the same tired behavior simply because it worked in the past. Students are oblivious to consequences until the shocking day the bill comes due. Overall, I see a long road toward system-wide change and improvement. However, I see individual schools taking the initiative today to make real changes that improve outcomes.
And therein lies the hope.