For HBCUs PLUS loans are predatory capitalism at the federal level

[Editor’s Note: Published by Age of Awareness on Medium May 2019]

Recently Bennett College a four-year liberal arts women’s college in Greensboro, North Carolina, has been in the news; not for its history of being one of only two all women HBCUs in the country, not for any of its notable successful alumni but for possibly losing its accreditation under the Southern Association of Colleges and Schools. Bennett College as of late has taken to fundraising about 5 million dollars to show financial stability and keep its accreditation. Though this problem may seem to appear out of nowhere, it’s nothing new. In 2015 their need for money led to them cutting about 11% of their staff due to declining enrollment.

Institutions of higher education have always been dependent not only on tuition but financial aid funds guaranteed by the federal government but lent from private financial institutions to its students in order for them to pay for tuition, room and board, and books and supplies. Losing its accreditation Bennett won’t be able to accept federal funds as payment for tuition so no more FAFSA loan funds, Pell grants or funds for work-study. The current kerfuffle Bennett is in isn’t unique to Bennett but also affects other HBCUs like Morgan State. The current situation reveals the ballooning cost of college tuition and how the options governments have to help students pay is becoming more predatory. These institutions of knowledge production are dependent on government subsidization, philanthropy, and charity overall which sets up the college in a precarious situation. Depending on who gives or is able to give back to their alma mater determines how much a school is “endowed” with the ability to survive financially unstable times. In comparison, billionaire Michael Bloomberg has given 1.8 billion to John Hopkins University.

Getting government to subsidize education is a staple of representative democracy, a bread and butter proposition that serves its citizens and reflects our overall concern that all folks should get the opportunity to continue their education. Rising tuition affects all colleges but especially HBCU students are the most vulnerable. Tuition for Bennett can cost around 18k not including room and board or books and supplies which would bring it closer to 32k a year. In comparison Howard University’s annual tuition and fees alone cost at least 25k with everything else included can end up being almost 40k. A potential absence in the ability to receive federal funds, including loans subsidized by the government because of lack of accreditation, would be terminal. Sixty percent of Bennett’s annual revenue comes from tuition paid by students and their families while ninety-eight percent of their students get some sort of need-based financial aid. With that being the case Bennett has struggled within the last decade dealing specifically with declining attendance coupled with changes to Parent PLUS loans.

Traditionally when the government lends money, they could do it directly through the Federal Direct Student Loan Program known as the “Direct Loan Program” which bypasses any lending institutions and pulls funds directly from the U.S. Treasury or through FFELP(Federal Family Education Loan) which are funds provided by a bank or lending institution, insured by a guarantor and insured again by the government, both are part of the Higher Education Act. Another popular option is a PLUS loan which is a loan given to the parents of children who qualify for financial aid. PLUS loans are for at most the cost of tuition outside of other loans like Stafford and Perkins, Pell grants or scholarships, and comes with an interest rate of 7.6%. Repayment of the loan starts after it is disbursed. These loans are especially useful for families of students at historically black colleges because of the history of disenfranchisement and lack of generational wealth for the majority of Black America. The loans are especially necessary after the “housing crisis” and the Great Recession of 2008 that wiped out a lot of home ownership for black folks and has black families less likely to still be able to use their house as leverage to borrow against to send their kids to college. These loans give a leg up to folks who if it wasn’t available would need added scholarship funds or worst case take out a regular loan with high interest from a bank and stringent underwriting standards including a check on personal credit history.

President Barack Obama delivers remarks at an Affordable Care Act event at Temple Emanu-El in Dallas, Texas, Nov. 6, 2013. (Official White House Photo by Pete Souza)

Whereas before most loans were provided by a private lending institution like a bank, guaranty agencies insured the loan and that loan was again guaranteed by the federal government, shortly after the great recession of 2008, the Student Aid and Fiscal Responsibility Act of 2009 changed loans to solely being distributed by the government. The Act was a rider included in the Health Care and Education Reconciliation Act of 2010 passed as an amendment to Obamacare. As a result of the act, the Department of Education under Obama decided to make 100% of student loans, PLUS loans included, directly through the government, ending loans distributed via private banks through FFELP backed by the government essentially skipping the middleman. This means taxpayer’s money distributed directly from the U.S. treasury to parents of students for college tuition. Seeing this opened the floodgates and the Department of Education quietly added restrictive underwriting standards to the Direct Loans Program. These loans now require there be no delinquency past 90 days or financial issues for the past 5 years, now 2 years since 2014. According to Education Department standards, prospective borrowers can’t have any current accounts more than 90 days delinquent, or any foreclosures, bankruptcies, tax liens, wage garnishments or defaults within the past five years with the new restrictions to qualify for a PLUS loan. In 2011, 63 percent of Bennett families who applied for a PLUS loan got one, according to a report from the Association of Public and Land-Grant Universities. A year later, after the new eligibility rules took effect, only 18 percent of loan applications got approved.

Historically Black Colleges and Universities are institutions of knowledge production that create folks that can justify, reform, and create the knowledge and culture of the future, there’s a tension between providing those without access to funding an opportunity to acquire it and curtailing the predatory lending environment implemented by the government’s direct lending program where parents borrow directly from the government at their own risk. Without stable funding or consistent enrollment HBCUs can easily enter a death spiral where they’ll have to continue to raise tuition to be financially stable which will up the price on tuition, in turn decreasing enrollment and tuition revenue. The government is now the sole entity that makes a loan to students and they’re monopolizing that role and giving few options. This is the precarious position Bennett and other HBCUs are in and there needs to be sustainable funding for educating those who have the least ability to pay. If things don’t change it’s almost certain that other HBCU’s will be on the news making history as victims of predatory lending and the government will be responsible for one of two of the only Black women’s colleges in the United States not existing anymore.

Published by clare

Entrepreneur, writer, organic intellectual scholar, avid reader and cat whisperer.

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