NASFAA Policy Recommendations for Student Borrowing

February 28, 2013

Today’s guest post is from Capella’s Senior Policy Analyst, Jillian Klein.

Jillian Klein, Sr. Policy Analyst – Title IV

Jillian Klein, Sr. Policy Analyst – Title IV

 

Yesterday, the National Association of Student Financial Aid Administrators (NASFAA) released their policy recommendations for fixing the student loan indebtedness issue. NASFAA’s paper is timely, as stories referencing student loan debt are prevalent in the media, and student loan over-borrowing is not just an issue for students, but for taxpayers, too.

NASFAA’s paper walks through recommendations that span the life-cycle of the borrower, including beefing up consumer education on the front end, rethinking and standardizing some aspects of the borrowing while the student is in school, and helping borrowers better understand repayment once they separate from an institution. The specifics of many of the recommendations center around improved transparency and tools for borrowers – for example, NASFAA suggests the creation of a “universal loan portal” where students can see all loans they have borrowed for their education (private, federal and institutional), a standardization of loan servicing policies and procedures, and a rework of the Financial Awareness Counseling Tool (FACT) to satisfy entrance and exit counseling requirements.

Most notable in the list of recommendations, however, is the suggestion that institutional authority be given to allow schools to set loan limits for certain borrowers. In fact, Capella University recommended the same policy change last year in our own white paper. NASFAA’s paper states that “institutions have very few practical ways to prevent students from over-borrowing” and they are exactly right. Taking a one-size-fits-all approach to student borrowing hasn’t worked in the past; giving this authority to schools would allow for a collaborative effort in helping to minimize the percentage of students who graduate with insurmountable student debt.

Finally, NASFAA also recommends rethinking the student loan subsidy. Specifically, moving it to the back end and automatically enrolling borrowers in Income Based Repayment. This is not a unique idea to NASFAA but one that should be given serious consideration in an effort to aid students in their repayment process, reduce institutional Cohort Default Rates, and better safeguard taxpayer funds.

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