Tighter federal lending standards yield turmoil for historically black colleges
Tighter standards in a federal loan program have dealt a significant blow to Howard University and other historically black colleges and universities over the past year, curtailing funds for thousands of students and contributing to a sudden and unexpected decline in enrollment.
The change in federal lending to parents of college students had an acute impact at Howard, where finances are also under pressure from the federal budget sequester and expenses at its hospital. Howard President Sidney A. Ribeau announced budget cuts in January in response to shortages in revenue from tuition and other sources.
Federal data show that parent loans for Howard students fell by at least $7 million in the 2012-13 academic year compared with the previous year, a 17 percent decline.
Howard’s 5 percent enrollment drop and loss of revenue fueled a debate over fiscal issues that has roiled the university community. The vice chairwoman of the board of trustees, Renee Higginbotham-Brooks, warned in a letter to trustees disclosed June 7 that the school “is in genuine trouble.” Days later the board chairman, Addison Barry Rand, countered that it remains “financially and operationally strong.”
But the federal lending squeeze, which quietly took effect in the fall of 2011, has reverberated at Howard and many other historically black schools.
“The concern that many people have is, will students find the resources they need to come back to school in the fall?” said Beverly Daniel Tatum, president of Spelman College. The historically black women’s school hosted a federal hearing in Atlanta on June 4, during which several college leaders urged the government to take more steps to help parents obtain loans.
Spelman, Tatum said, scrambled last year to find scholarships to support scores of students whose parent loans were unexpectedly denied. There were reports of fiscal troubles related to parent loan denials elsewhere, including staff furloughs at Morehouse College and budget shortages at Clark Atlanta and Hampton universities, according to the Association of Public and Land-grant Universities.
Some analysts say it is high time for the government to limit how much parents borrow. Federal PLUS loans to parents, they note, have a 7.9 percent interest rate, higher than rates on federal loans to undergraduate students, which range from 3.4 percent to 6.8 percent. Parents also face higher borrowing fees than students and can borrow far more. Some, willing to sacrifice for their children, are vulnerable to taking on too much debt in order to cover ever-rising tuition.
“Having created a new class of student debtors, higher education is now reaching back in time to indenture the preceding generation,” Kevin Carey, an education analyst with the New America Foundation, wrote this month in the Chronicle of Higher Education in an essay headlined “The Federal Parent Rip-Off Loan.”
Congress is debating federal loans as it faces a July 1 deadline to prevent a doubling of the 3.4 percent rate on certain undergraduate loans for about 7 million students in financial need. Some lawmakers want to include parent loans in a broader overhaul that would link lending rates to fluctuations in the government’s cost of borrowing.
An Education Department action in October 2011 touched off the turmoil over parent loans. At the time, federal officials considered the matter routine. They tightened the screening process for loan applications to ensure that certain kinds of unpaid debts were considered in a review of a parent’s credit record. That made it more likely that some applicants would be deemed to have an “adverse credit history” and therefore ineligible.
Acting Deputy Education Secretary Jim Shelton said the action was taken by “middle management” officials in an effort to fix what they saw as “a glitch in the system.” He said that top officials did not review the decision before it was implemented, but that the department stood by it as consistent with laws and regulations.
The full force of the underwriting shift began to be felt in the summer of 2012, when parents applied for loans for their children in advance of the fall term.
For all colleges nationwide, the dollar volume of federal loans approved for parents in the 2012-13 school year fell 11 percent compared with the total in 2011-12, according to a Washington Post analysis of federal data for the first three quarters of each year.
For historically black colleges and universities, known as HBCUs, the parent loan volume fell 36 percent. That translated to an annual cut of more than $150 million.
The figures suggest that tighter underwriting standards affected many colleges and universities, but with a disproportionate impact on schools such as HBCUs that serve a high share of disadvantaged students. Such students, compared with affluent peers, are more likely to have parents with checkered credit records.
The Post analysis also found that the number of parents borrowing to support HBCU students plummeted. There were about 18,800 borrowers in 2012-13 at about 90 HBCUs in the federal database, compared to 35,400 the year before ? a 47 percent drop. The decline in borrowers for all schools was 19 percent.
As a result, HBCUs were forced to find alternative financing for students or slash their budgets. Many students, college leaders say, were sidelined at least temporarily from school or had their academic schedules disrupted.
Government officials, responding to upheaval they had not anticipated, urged parents who had been denied loans to file appeals.
In March, Education Secretary Arne Duncan told radio interviewer Roland Martin that parents could call a toll-free number to have applications reconsidered, with approval possible “sometimes within six minutes.”
Duncan acknowledged that some students had been forced out of college for lack of money. “We desperately want to get them back into school,” Duncan said.
But Duncan indicated that he was also concerned about whether parents are taking on debts they can’t repay.
“We’re committed to the program,” he said, “but we don’t want to put families in a financial situation they can’t recover from. That’s not right.”
Education officials estimate that 80 percent of students whose parents were denied a federal PLUS loan ultimately enrolled in school.
T. Alex Hooks, 20, of Richmond, who is a rising senior at Howard, said he entered the university in the fall of 2010 with help from scholarships, grants and a federal parent loan. Last year, Hooks said, his parents were turned down for a federal loan. An uncle co-signed a private loan to help him remain at Howard.
Now Hooks is seeking to cobble together enough money to finish his bachelor’s degree in marketing. “I’m not exactly sure how things are going to work out,” Hooks said.
Howard said in a statement that the university is making every effort to ensure that students secure the loans and grants they need following “changes in national student loan policies [that] led to a staggering increase in loan denials for undergraduates and their parents.”
The university said that nearly 600 federal loan denials for its students were reversed on appeal in 2012-13, helping to “soften the decline in enrollment.” Howard had 10,002 students in the fall of 2012, down from 10,583 the year before.
Howard, like numerous other schools, has grown more reliant on parent loans. Federal data show that tuition and fees at Howard doubled from the 2000-01 school year to 2011-12, to about $20,000 a year. In that span, the volume of federal loans approved for parents of Howard students more than quadrupled, to about $45 million. Tuition and fees at Howard are now about $22,700 a year.
For the Obama administration, the uproar over parent loans at HBCUs poses a political challenge. Leaders of the United Negro College Fund and the Thurgood Marshall College Fund have pressed Duncan for relief for parents and students they say have been unjustly deprived of loans. The administration has helped with loan appeals but has shown no indication that it is willing to reverse the 2011 action.
Shelton, the acting deputy secretary, acknowledged that the department failed to adequately assess the impact of the underwriting shift and mishandled its early communication with colleges on the issue. “There’s a bunch of stuff that could have been done better,” Shelton said. But he added: “We think that we did the right thing.”