POL 321 Lecture Notes - Lecture 19: Student Loans In The United States, Pell Grant, Federal Direct Student Loan Program

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Lecture 19
Higher Education
Higher Educationcolleges & universities
Justification of government involvement is again the positive externality
o Citizenship skills, workforce, economy
Role of federal government in higher education is almost exclusively funding
o No performance measures, sanctions, etc.
o Don’t get involved in accountability, methodology, etc.
Where university funding comes from
o In 2010, state universities got more money from states than federal government, but
federal funding is increasing
o Many states cut some funding in the recession & it hasn’t gone all back yet
o 21% for state universities comes from state, 16% federal, 21% tuition & fees, 42%
other (donations, sports tickets, investment/endowment interest, products)
Federal government provides funding through significantly research grans accounting to ~
$40 billion
o Public & private universities get them
o Mostly from the Department of Human Health & Services
o Universities get some money on top for operations, & rest goes to the researchers
Federal Grants & Loans
Federal government gives out grants & loans to students to pay for higher education
Pell Grantsbased on financial need (FAFSA), but not too big (~$5,920)
Student loans for school prior to 1965 were issued by private banks
o This meant banks considered credit history, the school, the major > not everyone
got it
In 1965, the federal government began guaranteeing the private student loans (like a
cosigner), meaning they would repay if the student couldn’t
o So, banks more willing to loan
In 1992 under Clinton, started piloting Direct Lending to save on administration costs, cut
out middle-man
In 1993, Congress passed nationwide Direct Loans
o Optional for universities, so some skipped because of strings like Title 9
Healthcare & Education Reconciliation Act (2010)eliminated federal government
guaranteeing of private loans, though banks could still offer them
o Student loans now mainly direct loans, & must be federal if to be guaranteed
o So banks revert to previous considerations if giving private loans
Federal student loans for undergraduate are Direct Subsidized or Direct Unsubsidized
o Direct Subsidizedif student demonstrates financial need, government will pay the
interest on the loan while you are in school
o Direct Unsubsidizedthe interest starts accruing as soon as you take it out (though
you aren't paying it while in school)
o Have maximum limits (different dependent vs. independent)
o Borrower is the student
o No consideration of credit worthiness
Federal student loans for graduate students are Direct Unsubsidized or Direct PLUS
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