The Financial Aid Office's Burden
The recession has certainly forced everyone to do more with less, but financial aid administrators are dealing with a new level of this challenge. As with all campus offices, financial aid office resources and funding are being frozen or cut due to tight campus budgets. In addition, financial aid offices are serving more students and families than ever before and administering record amounts of financial aid. And at the same time, many financial aid offices must transition from the Federal Family Education Loan Program (FFELP) to the Direct Loan program by July 1, which can require financial aid administrators to learn and implement new systems, policies and procedures. On top of that, these offices must prepare to comply with a host of new, complex regulations, including the new year-round Pell Grant and consumer disclosures for student borrowers.
It is exhausting just staying informed about all the recent changes to financial aid, let alone implementing them to ensure a campus remains eligible to participate in the federal student aid programs. Doing more with less could also threaten the financial aid office's ability to effectively serve students. As more time and resources are spent ensuring compliance with complex regulations, aid offices have less time and fewer resources to direct toward counseling students and families.
The following reviews all the moving pieces that financial aid offices must keep up with and will hopefully convince college officials to provide additional resources to help aid administrators during these challenging times.
The elimination of the FFELP on July 1 has received much media attention, but making the switch to Direct Loans should be relatively easy for institutions compared to implementing the new year-round Pell Grant. The idea behind the new regulations is simple. Students who take summer courses to accelerate completing their degree should have access to additional Pell Grant funds to help pay for their courses. However, the regulations are incredibly complex and financial aid offices will likely have to use an intensely manual process to disburse the correct amount of additional funding and remain in compliance with regulations.
Two factors will make year-round Pell Grants tough to implement. First, aid offices will need to determine if the student is using the additional funds to accelerate degree completion. To be eligible for the additional Pell Grant funding, students must earn more credits in an academic year than would be required to graduate on time. This can get complicated because some credits count toward students' accelerating and other credits don't. This means financial aid offices will have to check the amount of credits a student has earned and how they earned those credits to determine if that student is eligible for additional Pell Grant funds.
The second factor making year-round Pell Grants tough to implement is when students receive these funds for a "crossover" course - one that begins in one award year and ends in the next. Award years begin on July 1, so any course that begins before July 1 and ends after July 1 is considered a crossover course. Even though the course spans award years, aid offices must assign the Pell Grant award to one of the two award years. The amount a student will receive can vary depending on the award year to which the grant is assigned. The regulations require the financial aid office to compare the varying amounts to determine which is greater, with the larger grant given to the student. This process will be a heavy administrative burden for financial aid offices and there are cases where the financial aid office will have to run the numbers several times as new information or changes to information arise.
The regulations make automating this program very difficult and aid administrators will likely be manually reviewing students' information on a case by case basis to determine eligibility and the appropriate award for each student.
The elimination of FFELP mandated by the Health Care and Education Reconciliation Act has many institutions working overtime to convert to the Direct Loan program by July 1. Fortunately, the transition process has gone relatively smoothly so far. The legislation provided the U.S. Department of Education with $50 million to help colleges make the transition, which was made available to schools beginning in May.
While the DOE is not going to provide institutions directly with funding, it has expanded its existing efforts to assist schools. In addition, it has tapped an existing contractor to help institutions during the transition period with technical and/or consulting support. The contractor has developed a pool of resources that can be deployed quickly to provide support to the institution. This includes retired and current financial aid and other campus administrators with experience in the Direct Loan Program (including recent transition experience) and other financial aid experts.
The transition presents different challenges for different institutions. A NASFAA survey found that two-year colleges experienced the most difficulty switching to Direct Loans because they have the fewest resources to take on additional tasks. Despite those aforementioned reports that the transition is going smoothly, financial aid offices will continue to be concerned until the transition is completed, and they will be working furiously to get there.
The elimination of FFELP will end the challenges financial aid offices faced when recommending a federal student loan provider through preferred lender lists, but DOE disclosures still apply to private student loan lists, and new Truth in Lending Act (TILA) regulations require institutions to provide several new disclosures to students if they help borrowers select a private loan provider.
Financial aid officials also have to develop and submit annual reports to the federal government that explain why the institution is recommending certain lenders over others. The monitoring of campus staff?far outside the financial aid office?is an additional must, for ensuring compliance with a required institutional code of conduct.
The onerous new regulations give financial aid offices two undesirable options:
- Continue to help students decipher the complex world of private loans and loan providers and risk running afoul of new regulations and possibly losing eligibility to participate in the federal aid program.
- Cease making any recommendations and leave students to select the best loan on their own.
In addition to the immediate challenges financial aid offices face, the coming years will provide additional administrative burdens.
The Higher Education Opportunity Act (HEOA), which reauthorizes the Higher Education Act, includes a requirement for undergraduate institutions to develop a net price calculator on their websites by 2011. The calculator will enable current and prospective students, families, and consumers to determine an estimate of a current or prospective student's individual net price at a particular institution. The DOE has developed a calculator template that institutions can use. But many institutions will likely choose to customize that template or develop their own calculator to provide students with the most accurate estimate. Institutions also face tougher default rate requirements in 2014 that will make it tougher on those colleges to remain eligible to receive federal student aid funds.
Currently, the DOE tracks how many student loan borrowers default within the first two years of repayment to determine the official Cohort Default Rate (CDR). A provision in HEOA alters the CDR formula by adding an additional year. Beginning in late 2014, the DOE will use the percentage of borrowers that default within the first three years of repayment to determine the CDR and will impose penalties on institutions that have official three-year CDRs above a certain level.
To remain eligible, financial aid offices will likely have to increase their default prevention efforts. This will create additional burdens for these overextended offices.
The DOE is also finalizing a host of new regulations in an effort to maintain program integrity at higher ed institutions. Complying with these regulations will add another layer of administrative burden on financial aid and other campus offices.
It is tough to criticize the recent actions by Congress and the DOE because they are working hard to increase financial aid for students and improve higher education, but their recent actions could have some unintended negative consequences. For financial aid offices and institutions, the continuous alterations to higher ed regulations create a huge administrative burden that eats up resources and can ultimately drive up the cost of college for students.
Haley Chitty is director of communications at the National Association of Student Financial Aid Administrators, www.nasfaa.org.