In attempting to strengthen the student loan process and keep funding moving for students attending reputable schools, the Obama Administration has revised a series of regulations designed with For Profit Colleges in mind. The idea is to tie access to Federal financial aid to the success of graduates of these schools.
What is a For Profit College?
If you are unfamiliar with the term, a For Profit College is an educational institution that is run by one or more private businesses. They are not Private Colleges nor are they Public (State-Sponsored) Schools despite many of them using a National Landmark or State Capital in their name. Two of the more well-known For Profit Colleges are the Grand Canyon University and the University of Phoenix.
The original For Profit College regulations were blocked after a U.S. District Judge struck down the ‘Gainful Employment Rule’ in July of 2012. In his decision, the judge stated that it could not be determined if a school had actually prepared its students to enter the workforce. Without that, the government had no standard to use in restricting For Profit Colleges access to Federal financial aid programs.
Why are the rules being changed?
The concerns over For Profit Colleges though are quite valid. From Oct 1st 2009 thru Sep 30th 2012, an average of twenty-two percent of For Profit College graduates defaulted on their student loans. In the same period, thirteen percent of students defaulted from public colleges and universities. 8.2 percent of students from private, non-profit schools defaulted in the same period.
The revised regulations now contain a standard that the Department of Education believes will stand up to judicial review. This is the Cohort Default Rate. The rate is not new, but it has not been previously used as a standard for determining a college’s access to Federal student loan funding. In a March 13th conference call with members of the media; James Kvaal, Deputy Director on the White House Domestic Policy Council, explained that it has “been in place for more than two decades [and] we feel much more comfortable with it.”
With the new regulations the government hopes to implement, any For Profit College that has a Cohort Default Rate over thirty percent for three years out of a given four year period is at risk of losing access to Federal Student Loan Programs. In addition, access can also be lost if their graduates annual repayment amounts exceed either 8 percent of their total annual income or twenty percent of their discretionary income in the same timeframe. These numbers are higher than the original regulations that were in place before the judge overturned them in 2011.
Are the new rules harming students?
The For Profit Colleges are not happy of course. Association of Private Colleges and Universities President and CEO Steve Gunderson recently sent a letter to Education Secretary Arne Duncan, calling the new guidelines “financial discrimination”. He pointed to the fact that For Profit Colleges serve a very large percentage of minority students and lower-income families that are unable to attend traditional colleges due to their financial status or because they are working full time and/or have young children. He specifically pointed out the average age of a person attending a For Profit College is 24 and supporting him or herself. These are not recent high-school graduates living at home and going to the mall when they’re bored.
While this is not a perfect solution, it is a step in the right direction at least. Previous attempts that put new requirements and restrictions on the students and their parents have been plagued with unintended consequences, especially for Historically Black Colleges and Universities. These new regulations may restrict the overall number of colleges that students may be able to attend using Federal Student Loans, but they do not place additional hardship on students and their parents seeking to use them.
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.