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Sen. McCaskill hears from students, parents and school officials on financial aid

This article first appeared in the St. Louis Beacon, Oct. 23, 2009 - Sen. Claire McCaskill this morning held a video conference on financial aid in which college and high school officials, financial aid counselors, and students and parents from across the state sounded off on everything from the difficulties in filling out federal aid forms to the challenges in switching loan programs.

The backdrop to the discussion is a student aid bill passed by the U.S. House of Representatives last month that would amount to a vast overhaul of student loan programs. That legislation, supported by President Barack Obama, would end the federal government's subsidy of private lenders that make college loans. Instead, the lending would come directly from the federal government.

Democratic leaders and the Obama administration estimate that the government could save more than $80 billion by ending the subsidy system, but some Republicans say the program amounts to a federal takeover of the lending industry.

The bill next moves to the Senate, where the outcome seems uncertain. McCaskill, speaking from Columbia, said she doesn’t expect the financial aid bill to pass before the end of the year. But she does expect it to pass eventually. "It’s too shiny of an object -- $81 billion; that’s a chunk of change," she said.

Some colleges have already begun moving from the bank-based Federal Family Education Loan Program to the existing Direct Loan Program.

"What you are experiencing in the FFELP program is a decrease in lenders participating," McCaskill said. "Credit is hard to come by now, and because there are fewer lenders who think this is a good deal anymore, colleges will gravitate toward the direct-lending program."

But McCaskill said she doesn’t want Congress finalizing aid legislation before colleges are ready to deal with the change. "The worst thing is if we do this precipitously and send schools that aren’t doing direct lending scrambling. It could be the perfect storm in the financial aid community if we were to rush this.”

Several financial aid officials in the video conference said they are concerned that students are confused about the shift to direct lending. College officials said they are having a difficult time deciding how to communicate with students about the change in lending programs, and they expressed concern that some would fall through the cracks during the transition.

Many speakers took shots at the federal financial aid form known as FAFSA, derided by many as overly complicated. The student aid legislation would aim to simplify the application process. Students, parents and aid officers alike shared horror stories about filling out the forms, which ask dozens of questions about income, family earnings and the like. One common concern is that the forms are so complex that students have to rely on parents for help.

“How are we penalizing students who don’t have parental involvement?” McCaskill said. “It’s almost like a double whammy. So many students who have become independent operators at a young age and have not had a lot of help at home. How do we help them through a financial aid program that assumes parental involvement?”

Participants also called for more financial aid literacy, which they say is lacking in high schools. “If we spent a little more money on financial literacy, we’d see a dramatic impact on the default rate,” McCaskill said.

The Missouri Department of Higher Education announced last month that the student loan default rate in the state rose to 6 percent from 4.3 percent. The agency said in a release that the increase of default rates "could be effectively addressed by teaching students how to better manage their money."

McCaskill said she would bring issues discussed during the session to colleagues in the Senate.