Borrower Loan Limits: Key Reauthorization Topic
By Sandy Ninemire, EdFund Governmental Relations

Should federal borrowing limits for students who attend the nation’s colleges, universities and vocational schools be lifted or remain at the levels last set by Congress in 1992? The subject has captured the attention of many financial student aid professionals as college costs have increased, and is being discussed even more ardently this year as reauthorization of the Higher Education Act looms.

To frame the debate, here are some of the arguments on both sides of the issue.

Pros:

• Federal loan limits have not been increased since 1992 and have failed to keep pace with rising college costs.
• Federal loan programs offer students favorable terms and conditions and should be increased to counterbalance borrowing through private, non-federally insured loans.
• Federal loan programs reduce reliance on credit cards and private loans for middle- and low-income families.
• Federal loan programs offer students an opportunity to work less and concentrate on their higher education goals.
• Higher loan limits allow students to continue accessing all types of institutions, both private and public, and a variety of different types of programs.
  
  

Cons:

• Increased loan limits could encourage colleges to raise tuition.
• Some students are already borrowing excessively and may not realize the salaries they are expecting upon graduation.
• The priority for Congress should be increases in Pell Grant funding and other non-repayable sources of aid over raising loan limits.
• Debt is already rising, especially among at-risk students.
• Increases in loan limits may exacerbate default management problems for some students and educational institutions.

Where do these discussion points lead in this debate? A number of different options, outside of leaving the current limits intact, have been proposed.

The National Association of Student Financial Aid Administrators (NASFAA) in 2002 proposed increasing undergraduate loan limits to $7,000 annually and graduate loan limits to $10,000. Under this proposal, undergraduate students would have a uniform $7,000 loan limit instead of the graduated limits (from $2,625 to $5,500) in place right now.

In contrast, the American Association of Community Colleges and some student groups are advocating for no change in the current limits.

Flexibility in imposing the annual loan limits is one option that has been proposed by other groups. This would allow students to borrow more than the current annual loan limits in their first two years, but not allow them to borrow more than the current aggregate limit over their college career.

The American Council on Education (ACE), the umbrella advocacy group for higher education associations, has asked Congress for an adjustment in the loan limits to recognize changes in the cost of living, which would increase the current aggregate limit from $23,000 to $30,000 and allow first-year students to borrow up to $4,000.

But in a nod to the community college and state college associations, the ACE also recommends the exploration of loan limits that are related to students’ “unmet financial need” after institutional costs and student aid have been considered.

Some community colleges in the western U.S. have called for allowing each college to set its own lower loan limit if necessary as a way of accommodating the need to higher loan limits in some other institutions. Most advocates also agree that if loan limits are increased, repayment plans must be more flexible and offer borrowers the opportunity to reduce their monthly payment.

While these issues will be debated by members of Congress in the upcoming reauthorization, one thing is abundantly clear – loan counseling and good repayment experiences are critical for borrowers and essential to default prevention.

It remains to be seen whether loan limit changes will add to the task of making sure that borrowers understand and fulfill their loan obligations and simultaneously realize their educational aspirations.

EdFund/CSAC Recommendation on Loan Limits
The final recommendation of EdFund and the California Student Aid Commission to Congress is to increase federal loan limits to better keep pace with loan volume and the cost of education. It recognizes that schools should have the authority to set lower limits if appropriate. The proposal also encourages Congress to provide similar benefits to students regardless of whether they borrower through the Direct Loan Program or the FFEL Program.

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