![]() NASFAA proposes that colleges should be allowed to limit loans for “specific populations, academic programs, credential levels, or other categories established by the school.” Some organizations, such as the National Association of Student Financial Aid and Administrators (NASFAA) have criticized this law. That’s because another option-minimizing default risk on the front end of the financial aid process-is not open to them.įor example, it is illegal for colleges to weigh factors such as a student’s program of study or borrowing history to determine loan amounts, even if school officials may doubt the student’s ability to make loan repayments in the future. Leaving federal loan programs is the only option many colleges have to protect their Pell Grant eligibility. A majority of the state’s 58 community colleges have opted out. To avoid having Pell Grant funding withdrawn, many of North Carolina’s community colleges, for example, have stopped participating in student loan programs altogether. If that happens, colleges risk losing all federal funding, including Pell Grant money, a major income source for two-year schools. Under federal law, colleges, especially those with open enrollment such as two-year technical schools, face severe consequences if, for three consecutive years, 30 percent of student borrowers default on their loans. This is especially concerning given that there are presently eight million people in default on their student loans. Student loan debt, now totaling roughly $1.3 trillion, is the second largest source of debt in the United States.
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