Unlocking Insights from the Kiplinger Letter on Education
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A New Era for Higher Education Policy
With the recent passage of the largest higher education policy update in two decades, Congress has introduced new caps on federal loans, repayment plans, and an overarching accountability system. The Department of Education and colleges have a fast-approaching deadline of next July to implement these changes.
Overhaul of Federal Student Loans
An overhaul of federal student loans is set to be introduced to help alleviate high college prices and student debt. Currently, federal student debt sits at $1.7 trillion, affecting approximately 43 million borrowers. This new policy will introduce caps on yearly and total borrowing for graduate students and parents of undergrads, alongside a simplified loan repayment plan.
Accountability System Revolutionizes School Lending
The new accountability system will disqualify schools from federal lending if their graduates do not earn more than nonattendees in the state. According to an analysis by Preston Cooper, a senior fellow at the American Enterprise Institute, 20% of associate degrees fail this test. This system is designed to prompt high-cost programs to reduce their prices.
Implications for Schools and Private Lenders
With these changes, schools need to adapt quickly and inform their students about the changes in financial aid. This could impact revenue as the number of students that enroll may decrease, especially at schools heavily relying on grad programs. Consequently, private lenders such as College Ave, SoFi, Sallie Mae, and Ascent may see an increase in business.
The Role of The Education Department
As the Education Department faces implementation struggles, delays are expected. This includes issuing rules and guidance about loans, starting the new accountability system, and policing lending violations. Sarah Sattelmeyer, an education policy analyst at New America, claims that passing the bill is “just the tip of the iceberg.”
Future Changes in Education
With a decrease in foreign enrollment and an impending decline in the college-age population, schools are facing financial challenges. Add to this the rising costs of construction, insurance, and the new policies, schools are considering budget cuts, sharing resources, or even mergers.
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