Students find loopholes in loan system, directors say

Nearly nine out of every 10 full-time Youngstown State University students receive financial aid promising to use these funds for their education, but many freely admit they use proceeds for everything from car payments to clothing, and officials seem powerless to stop the practice.YSU Senior Amanda Morgan started college in 2006 and each year borrows $8,000. Like most college students in the nation, she receives a combination of grants and loans. After paying her yearly tuition of $7,000, Morgan says she has $1,000 left, which she uses for books and shopping. One year, Morgan received $12,000 in student loans; after paying off her tuition, the extra $5,000 was used to purchase a car.

Morgan is not alone.

As college students across the nation close out their first half of fall studies, many are receiving refund checks from federal student loans that have sufficiently covered their tuition. Refund checks, or reimbursement checks, are also sent out to cover the balance difference caused by a student who has elected to drop one or more classes.

More than 7,000 of the 8,000 students who receive financial aid at YSU do so through federal loans. When these students drop their classes, the money goes right into their pockets.

Denise M. Moss, director of student accounts at the University of Akron, estimates that "at least 500 students out of 27,000 a semester receive refunds" after dropping classes.

"I'm not sure how many of those students have legitimate reasons," Moss said. "No system is perfect."

Moss said the student loan process is "usually abused quite a bit before someone is stopped. It's a very generous process to the students."

While filing for financial assistance, every student fills out a Free Application for Federal Student Aid form. No FAFSA form is accepted without being signed and dated. By signing this document, students contractually agree that they "will use federal and/or state student financial aid only to pay the cost of attending an institution of higher education."

However, while most students use the money for books and tuition, others claim they spend their refund checks on car insurance, a substitute for a paycheck, living expenses and shopping. One YSU student even likened his federal student loan to a credit card, saying "it's there if you need it."

The process by which a student receives federal loans is mandated by loosely defined federal regulations and each higher learning institution's refund policy. According to the United States Department of Education, "if the loan has not been disbursed when the student's enrollment status changes . the loan for which the student is no longer eligible is returned to the lender."

The U.S. Department of Education goes on to explain that "if the loan has been disbursed, the school may -- but is not required to -- adjust the award amount for that term."

Stina Olafsdottir, manager of student accounts at Kent State University, said once the loans have been given out, the student is responsible for returning any unused funds due to dropped classes.

"[Students] now owe us," she said.

Through this process, the student is capable of exacting funds that are virtually impossible to be taken back. There are a few programs in place to check students' thirst for quick cash. Programs like YSU's Satisfactory Academic Progress Policy, also in use at other universities, catalog students who continually drop classes. The program determines a problem related to attendance or academic shortcomings and cuts off future federal funding until the outstanding balance is paid.



But the programs are flawed. The SAP program allows students to receive federal financial aid until "a student's attempted hours . reach 150 percent of the maximum hours needed to complete an associate or bachelor's degree." This loophole allows for students to withdraw federal loans for a period much longer than needed to graduate.

James Stanger, associate director of financial aid at YSU, said the SAP program does not catch offenders every time. In fact, Stanger claims that students who do not meet academic qualifications for financial aid are sometimes not discovered until the second or third attempt. Even then, the financial aid money is tucked away in the student's account, out of reach from the government and the university.

According to http://www.finaid.org, issues with failing to complete coursework and withdrawing from class early account for 75 percent of all student loan defaults. The trend is alarming. The U.S. Department of Education reports that default rates on federal student loans will reach 6.9 percent, the highest rate of default since 1998.