U.S. Education (ED) Secretary Arne Duncan told eCampus News on June 12 he will work with private lending companies as the Obama Administration pushes for a direct federal student loan system, adding that he will not compromise in extending college money to low-income students or in bolstering the nation’s college-completion rate.

“I just think we should be in the business of investing in students and not in subsidizing banks,” said Duncan, who added that the federal government underwrites about 97 percent of student loans every year, with most of that money coming from private lenders.

Duncan’s remarks came during a wide-ranging interview at department headquarters in Washington, D.C.

Duncan has led the charge in the Obama Administration’s proposal to have student loans come directly from the federal government and save tax payers more than $90 billion by doing away with the lender-based program in coming years.

Extending loans to students who may not qualify under the current system would not just help teenagers finishing high school, Duncan said, but would also aid low-income grade-school children whose parents have been laid off in a down economy and now see higher education as an expensive luxury for middle-and-upper-class families.

“I worry about smart kids whose dreams start to die at a young age,” he said. “So I would love to be able to say to the country, ‘It doesn’t matter what’s going on at home. … If you work hard, we’re going to have money there.’ … So we can tell not just [high school] juniors and seniors, but 9, 10 11 year olds, ‘Work hard and you’re going to be ok,’ and be able to mean it.”

***See page 3 for audio of the eCampus News interview with Arne Duncan***

President Obama’s 2010 budget — for the fiscal year starting Oct. 1 — includes a major shift in the Pell grant program, which would increase by 13 percent, making more money available while expanding student eligibility. The maximum Pell grant under the new plan would be $5,500.

The federal government would continue to offer direct lending as college applicants struggle to find lending companies willing to loan tens of thousands of dollars every school year while the financial markets have been in flux. Obama’s 2010 budget proposal also alters the federal Perkins loan program to encourage more opportunity for low-income applicants. Universities and colleges that provide need-based aid for students would be rewarded with Perkins funds, which would increase from the current $1 billion annually to $6 billion in the newest budget plan.

Increasing the number of students who can afford college, Duncan said, would not just advance education, but would also train a 21st century workforce that could help the country out of its current recession.

“I think this is one of the most important things we can do,” he said.

Online colleges and universities are benefiting from the wave of federal dollars alongside their brick-and-mortar counterparts, thanks to a 2005 law that made web-based students eligible for Pell grants and other federal assistance, higher-education officials have told eCampus News.

Michigan State University has had a 27-percent increase in Pell-grant recipients over the past year, said Val Meyers, the university’s associate director of financial aid. About 8,900 Michigan State students will receive Pell-grant aid in 2010, a jump from the 7,000 who received the assistance during the 2008-09 school year.
The average amount of aid per student has increased, too. The average Pell-grant recipient at Michigan State received about $3,400 last year. In the coming year, the average student will get $4,300 from the Pell grant program, Meyers said.

Over the past year, major universities such as Indiana, Penn State, and Michigan State have announced they will use the federal Direct Loan Program as the source for federally backed student loans. On Indiana’s Bloomington campus, nearly 40 percent of undergraduates–or about 12,000 students–use subsidized federal loans through private lenders. Nationally, 40 percent of students who receive student aid pay for college through federal loans, according to a 2007 study released by The College Board. Sixty-one percent of graduate students who use financial aid receive federal loans.

In a survey conducted in April by Student Lending Analytics, an organization that provides data for colleges’ financial aid offices, officials at 7 percent of two-year colleges said they were planning to switch to direct federal lending, while 28 percent said they were considering the move. Overall, 5.8 percent of college officials in the survey said they were committed to the direct lending program.

Duncan said one of the administration’s primary goals is to raise the country’s college graduation rate. President Obama has said he wants the United States to produce the most college graduates in the world by 2020.

“We used to be there,” Duncan said. “We’ve flat-lined. Other folks have passed us by.”

A recent report shows how common an unfinished college career has become in the United States. About half of students in four-year colleges and universities do not get their diploma within six years, according to a report issued this month by the American Enterprise Institute on Public Policy, which used ED statistics in its analysis.

The report took statistics from 1,400 U.S. campuses and found that students leaving school without a degree pile on tens of thousands in student loan debt, including the interest charges that extend payments by years, and sometimes decades.

The country’s most competitive universities graduated almost nine out of 10 students, according to the report, while colleges deemed to be the least competitive saw 35 percent of students graduate. Still, there are highly competitive schools that have consistently low graduation rates, such as the University of Louisville, which graduates 44 percent of its students within six years.

“At a time when growing unemployment disproportionately affects workers without a degree, it is critical that this information is available and accessible so that consumers can make informed decisions,” said Kevin Carey, coauthor of the report.

Links:

Click here for audio of the eCampus News interview with Arne Duncan (mp3 audio)

American Enterprise Institute for Public Policy Research report