Concerns raised over excessive borrowing by part-time & distance learning students


Federal lawmakers and college financial aid administrators expressed growing concern that some part-time and distance learning students may be over-borrowing and spending their taxpayer-subsidized loans for purposes unrelated to completing their college education.

“Some of the students may be borrowing the money, taking out these low-cost loans simply to get the money, not for education but for other purposes, and that many of them have little intention of getting a degree,” said Sen. Lamar Alexander (R-Tennessee) at the Senate Health, Education, Labor and Pensions Committee hearing on March 27th.

Read more: Spotlight: Federal Student Loans

Alexander worried that loopholes in the Title IV federal student loan programs may have exacerbated the problems of ballooning student debt, which has climbed over $1 trillion in recent years.

Alexander pointed out that under the current law, part-time students can take out the same amount of federally-backed student loan as full-time students.

Marian Dill, Director of Student Financial at Lee University in Tennessee, testified that some part-time students who took out the maximum loan amount exhausted all of their funds even before they were halfway through their degree programs.

“As an aid administrator, this is alarming. Yet, we have no authority over borrowing [limits for part-time students], thus no practical tools to stop this from occurring,” said Dill. “This over-borrowing pattern can have severe consequences for the student, the institution, and the federal government.”

Dill urged Congress to change the law to allow colleges to “limit borrowing based upon broad categories of students”, such as part-time students.

Another area of concern brought up by Alexander dealt with students loans for online colleges – a fast-growing segment of higher education.

A February report by the Department of Education’s Inspector General warned that not enough oversight and safeguards are in place to prevent waste, fraud, and abuse of student loans for distance learning programs.

“Current regulations are not sufficient to mitigate the risk of Title IV funds being paid to students who fraudulently enroll and do not intend to complete a course or program,” according to the Inspector General.

The Inspector General’s audit of 8 colleges found 42,000 distance education students did not earn any college credits during the time they received $222 million in student loan funds. According to Alexander, the finding suggested that “some students [are] borrowing excessively for personal expenses not related to their education.”

The Inspector General urged the Department of Education to tighten regulations on verifying a student’s identity, determining the student’s academic attendance and the actual cost of attendance, and requiring schools to use “smaller, more frequent disbursements” of student loans.

James W. Runcie, Chief Operating Officer of the Department of Education’s Federal Student Aid, said the department has taken steps to “verify the intent and actions” of students who receive federal loans.

“We’ve increased our verification and we’ve worked the schools to ferret out situations where there might be fraud or abuse of the of the loan and grant program,” said Runcie.

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