Running head: THE FEDERAL STUDENT AID AND LOAN POLICIES

The Federal Student Aid and Loan Policies

Keely Sopko
FN 8459
Wayne State University
September 26, 2015

THE FEDERAL STUDENT AID AND LOAN POLICIES

Current Policy
The federal financial aid and student loan policies are a long debated about topic. There
are various policies put in place that regulate financial aid for students, most of them federally
run programs. However, this analysis will examine the most recent Stafford Loan policy put into
place in July of 2012 and the current student loan debt that correlates with that policy (Office of
the U.S. Department of Education, n.d., para. 6). The current policy has limits on the amount
that can be taken out in Stafford Loans. According to the Office of the U.S. Department of
Education, first-year, dependent students are limited to taking out $5,500.00 in Stafford Loans,
with no more than $3,500.00 in subsidized loans. First-year, independent students are limited to
taking out $9,500.00 in Stafford Loans, with no more than $3,500.00 in subsidized loans.
Second-year, dependent students are allowed to take out $6,500.00, with no more than $4,500.00
in subsidized loans. Second-year, independent students are limited to taking out $10,500.00,
with no more than $4,500.00 in subsidized loans. Third and fourth-year, dependent students are
restrained to taking out $7,500.00, with no more than $5,500.00 in subsidized loans. Third and
fourth-year, independent students are only allowed to take out $12,500.00, with no more than
$5,500.00 in subsidized loans (para. 6). There have been widespread issues regarding financial
aid and student loan debt over the years. One of the largest problems regarding this subject is the
price tag placed on a higher education. Although, the federal government regulates federal
financial aid, the state oversees public universities and for this reason, they are somewhat
responsible as well. Middle-class Americans simply cannot afford to pay for living expenses
while putting themselves or their children through college.

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History of the Policy

Although financial aid policies began when the need for higher education arose, one of
the first major financial aid policies was implemented in 1958 by Congress (Grant, 2011, p. 824).
The United States saw the launch of Sputnik by the Soviet Union as a threat to their world
leadership and decided to put Americans back in college (Grant, p. 824). The Perkins Loan was
established around this time as a precursor (Grant, p. 824). In 1965, the government created a
program that guaranteed private loans to students and these were eventually named Stafford
Loans (Grant, p. 824). For many years, student loans were subject to the same bankruptcy laws
as regular debt. However, in 1978 Congress was given the power to delegate bankruptcy laws
and they would not allow the dismissal of student loans in bankruptcy court for the simple fact
that an undue hardship needed to be proven first (Grant, p. 821). Since Congress was given
this power, they have executed three major reforms to the bankruptcy laws (Grant, p. 821).
Problems surrounding financial aid policies and student loan debt arose throughout the years.
Various historical policies have led to the manifestation of the current student loan debt
and policies. According to Karger and Stoesz (2014), a historical analysis helps to curb the
tendency of decision makers to reinvent the wheel (p. 30). Ensuring that our country remains as
a world leader is one threat or problem that led to the government putting American back in
college (Grant, 2011, p. 824). Generally, new policies for financial aid have been the solution to
the historical problems. A historical analysis of the financial aid problems and policies would be
summed up properly and efficiently in a series of extremely large books. However, other
problems have surfaced because of financial aid policies.
These problems include easily accessible monies for higher education, which has led to
an enormous amount of student loan debt among Americans. Another problem consists of the

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gaps created by the limits placed on Stafford Loans which leaves students still owing for books,
tuition, and other living expenses (Office of the U. S. Department of Education, n.d., para. 6).
These gaps force middle and low socioeconomic class students and their families to be
responsible for coming up with the extra funds for the student to earn a degree (King, 2008, pp.
169-171).
Policy Problems and Goals
A primary goal surrounding financial aid and student loans is to provide access to some
type of postsecondary education for students from the lowest-income families (King, 2008, p.
11). According to King (2008), to this day, the idea of low-income families being able to access
college education equally is still an elusive goal. Statistics exhibit that one in five students from
the lowest socioeconomic class enrolled in a four-year institution, while two to three enrolled
from the highest socioeconomic class. Many lower socioeconomic class students enroll in twoyear institutions proving that college is not as accessible for these populations as it should be (pp.
177-182). These statistics prove that a college education is still hard to fund for those in a lower
socioeconomic class. Although when reviewing education as a whole, educational gains were
significant, and in 2010, over 80 percent of blacks, aged 25 and over were highschool graduates;
close to 20 percent had a bachelors degree or higher (Karger & Stoesz, 2014, p. 53). However,
ethnic minorities are negatively affected by current policies because many of them live in this
vulnerable population of low socioeconomic class.
Minorities lack access to some of the same resources that other populations utilize to
gain a college education. According to Dean (2012), Minorities are less likely to have access to
credit and other personal resources to pay for college (p. 124). One example of inaccessible
college funds for an ethnic minority student coming from a lower socioeconomic class is

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conveyed in the class-action lawsuit between Rodriguez and SLM Corp. (Dean, p. 137). Dean
explains the lawsuit resulted in a settlement. However, Sallie Mae (an affiliate of SLM Corp.)
was ordered to donate to the United Negro College Fund and the Hispanic College fund, along
with paying credit education fees, attorneys fees and expenses, and an award to the plaintiff.
Sallie Mae was ordered to pay these fees and donate these funds because of their discriminatory
companywide policies (pp. 137-140). According to Karger and Stoesz (2014), institutional
racism can occur when there are differential resource allocations in education (p. 53). The issues
with financial aid and student loan debt are tremendously widespread, not only affecting ethnic
minorities, but others as well.
As of 2013, the number of students affected by student loan debt was a staggering thirtyeight million and the debt owed by them reached over $1.1 trillion (Kapadia, 2015, p. 591).
Those who struggle financially are the ones who are burdened the most. During the Great
Recession, various individuals lacked the capability to pay back loans and this left many
Americans with enormous debt (Dean, 2012, p. 114). The causes of the problem are apparent
and in desperate need of reform.
When policymakers strive to achieve a goal, which in the past has had very little success,
it becomes difficult to remain on task and keep aiming for that same goal. The ultimate goal is
college becoming accessible to all, especially those who are disadvantaged financially (Dean,
2012, p. 113). Grandparents, parents, and students are all affected by these policies. Parents and
grandparents run themselves into debt attempting to pay for their children or grandchildrens
college (Dean, p. 113). However, the policymakers struggle to reach this goal because it still
remains unaffordable to those who are in a financial crisis. While federal policymakers strive to
make college affordable for everyone and attempt to restore the American economy by

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addressing the federal deficit, the student loan debt continues to increase. Both the student loan
debt and the federal deficit are intertwined and have a lasting effect on the economy (Dean,
2012, p. 126). Although the federal financial aid and student loan problem developed into
somewhat of a crisis, there are policies that were put in place in an attempt to alleviate some of
the hardships surrounding these circumstances. However, many of these policies are dwindling
away because of a shift in focus. According to Karger and Stoesz (2014), Given the current
political and economic climate, it appear unlikely that bold new social policy initiatives requiring
large revenues will be successful (p. 31). This may explain why some policymakers are
shifting away from creating policies that will assist with these problems. Politicians seem to
have become more centered on the increasing student loan debt than college affordability.
Many federal policies were implemented to address concerns encompassing financial aid
and the student loan debt. The College Cost Reduction Act (CCRA) manifested two programs
called the Public Service Loan Forgiveness Program and the Income-Based Repayment Program
to assist in alleviating student loan debt (Dean, 2012, p. 155). Additionally, the Income
Contingent Repayment (ICR) was also created to alleviate student loan debt (Kapadia, 2015, p.
594). These policies allow students to pay back loans based on their income, or allow for loan
forgiveness if the student gains employment in a public service agency (Dean, 2012, p. 155).
Federal Pell Grants also assist in making college affordable for those who are from low
socioeconomic class (Office of the U.S. Department of Education, n.d. para.2). However,
Federal Pell Grants seem to have decreased in the amount awarded over the past decade (W.
Casey, personal communication, September 30, 2015). Some of these policies are effective in
offsetting a small amount of the debt and they do assist in gaining access to a college education.
However, placing caps on Stafford Loans are not completely favorable to the students.

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The limits placed on the amount of money that can be taken out in loans have had a
positive impact on decreasing the amount of student loan debt. However, many students who are
required to attend classes during the spring or summer semesters to graduate on time are
negatively impacted by this (S. Chaput, personal communication, May 2015). Various students
are employed and have to manage college class schedules while working at their jobs. One
popular option that students use to help make up needed credits includes enrolling in the spring
and summer semesters. The limits placed on financial aid loans can serve as a barrier to prevent
students from graduating on time and attending classes during the spring and summer semesters
(S. Chaput, personal communication, May, 2015). In some instances, students run out of funds
to pay for their spring and summer classes (S. Chaput, personal communication, May 2015). The
limits on Stafford Loans were created to eliminate the large, overbearing amount of student debt.
However, this small population of year-round students is affected negatively due to those same
constraints. Additionally, the tuition rates are increasing yearly and the limits on the Stafford
Loans are not increasing with tuition. For this reason, college becomes less affordable every
year, which could create a huge issue in the future. Furthermore, at-risk populations who
already suffer will only continue to struggle more as time goes on. Federal Perkins Loans were
known to assist in these circumstances. However, as of September 30, 2015, Congress allowed
the Federal Perkins Loan to expire leaving these students with little to no resources to be able to
pay for extra classes (W. Casey, personal communication, September 30, 2015).
Supporters and Opposers
It seems as though there is a pretty genuine split when it comes to people who support or
oppose the current financial aid and student debt policies. However, most policymakers are
aware that action needs to be taken to decrease the amount of student loan debt and make college

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more affordable. As stated by Bidwell (2015), the 2016 presidential Democratic candidates
primarily focus on college affordability, more broadly - with plans for debt-free, or tuition-free
college, as well as reforms to student loan repayment plans (para. 2). The republican focus is
aimed at a broader collection of attitudes (Bidwell, para. 3). One program that is supported by
republicans and under consideration by many states is the Student Investment Plan (Bidwell,
para. 3). This plan would allow investors to pay for higher education and then when the student
graduates, and becomes employed, a certain percentage would be taken out of their wages for a
set period of time to repay the debt (Bidwell, para. 3). Another policy change that is being
considered is allowing students to refinance their student loan debt (Bidwell, para. 3). One
popular presidential candidate addressed the financial aid and student loan issues during her
kick-off campaign (Bidwell, para. 7).
According to Bidwell (2015), Hillary Clinton is working on introducing a proposal called
the New College Compact. This proposal provides solutions to making college more affordable,
decreasing student loan debt, decreasing the loan interest rates, allowing students to refinance
loans, and creating a single income-based repayment option (para. 2-7). According to Karger
and Stoesz (2014), policy changes similar to these are parallel to democratic socialism which is
based on the belief that radical economic change can occur within a democratic context
(Karger & Stoesz, 2014, p. 11). As stated in Bidwell, Clinton claims that students should never
be faced with having to take out loans to cover education at their states public university. It is
apparent that she opposes the current financial aid or student debt policies. Other democrats who
oppose the current policies include Bernie Sanders, Lincoln Chafee, Martin OMalley, and Jim
Webb. All of these individuals realize the issues surrounding financial aid and student loan debt.
Many of them see the consistently rising tuition rates as the largest issue. OMalley even goes as

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far as saying it is the states responsibility to freeze the tuition rates at their public universities
(para. 2-17). On the other hand, some republicans support the current policies and blame the
student more than policymakers (Bidwell, para. 18).
According to Bidwell (2015), republican presidential candidates for the 2016 race, have
some similar and opposing views on the current policies in place for student debt and financial
aid (para. 18). According to Karger and Stoesz (2014), republicans often take extreme positions
such as those conveyed in the 2012 presidential election (p. 2). Bidwell explains, Jeb Bush
thinks that students should take more credits per semester to offset the cost of college and
graduate on time. However, he does recognize that there is a problem regarding the affordability
but does not think that debt-free college is a solution. Bush thinks that if community college is
made free, America is simply giving out free hand-outs. His fellow republican candidates are
generally, in agreement with him and think that college is only free if no one is paying for it and
the debt-free college plan is a normal liberal approach. Ted Cruz supports the idea of student
loan refinancing. However, he believes that the states should be held responsible and not the
federal government. Ben Carson, Chris Christie, Carly Fiorina, Lindsey Graham, Mike
Huckabee, Bobby Jindal, John Kasich, Rand Paul, George Pataki, Rick Perry (dropped out of the
race), Marco Rubio, Donald Trump, Rick Santorum, and Scott Walker (dropped out of the race)
are all supporters for changing the current student loan debt and financial aid policies in place.
Donald Trump brings up an interesting perspective regarding student loan debt. He questions
why the federal government is allowed to make money off of student loans (para. 18-57).
However, when interviewing a professor from Macomb Community College, he asked is the
government really making money off of student loans? (W. Casey, personal communication,
September 30, 2015). Bidwell also explains Marco Rubios support of the Student Investment

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Plan. Rand Paul goes as far as stating that the failure of these policies calls for the elimination of
the Department of Education and allowing the states to take control of the higher education funds
(para. 42-46). For the most part, people are torn about their views of the current policies in
place, but one thing is clear; there is a need for reform with the policies in place today (para. 1957).
Policy Analysis
The goals of the financial aid and student loan debt are legal. However, they are very
unjust, singling out ethnic minorities and low socioeconomic classes while driving almost every
student and their families into debt (Dean, 2012, p. 113). Although, the primary goal is to create
equal access to college for all, the goals of the policy only make a slight attempt to contribute to
greater social equality (Karger & Stoesz, 2014, p. 29). As for administrative feasibility, the
government does not have access to the personnel, resources, skills, and expertise needed to
effectively implement the policy (Karger & Stoesz, p. 31). Additionally, the current policy
placing limits on Stafford Loans and the student loan debt policy do not assist in the
redistribution of income, resources, rights, entitlements, rewards, opportunities, and status
(Karger & Stoesz, p. 29). As for whether or not the policy goals attempt to create a better way of
life for the target population, this can be determined from two different perspectives. On one
hand, the target population is able to acquire a college degree, increasing their chances of
becoming employable and having a higher income. On the other hand, the same population
faces an extreme amount of student loan debt. For this reason, a better quality of life would
depend on the individuals personal opinion of whether receiving a college education produces a
higher quality of life, or if the stress from student debt contributes to a lower quality of life. For
those who are faced with student loan debt, and no graduate certificate, this would create the

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circumstances which may contribute to a lower quality of life. For this reason, the policies
regarding student loan debt and financial aid have the ability to adversely affect the target
population of students and their families as well. The goals of the policy are consistent with the
values of the social work profession, but the outcomes of the policy are not consistent with social
work practice. Opinions of people who are in the education industry are imperative when
analyzing policies regarding student loan debt and financial aid.
The Interview
The interviewee chosen for this study is a professor who has been teaching for
approximately twenty-five years. He is currently employed at Macomb Community College and
has witnessed the impacts of the student loan debt with his children, but has also observed
students who take advantage of the financial aid policies. William Casey has five children who
are all adults that have finished college. Two of the five recently graduated and are in student
loan debt. However, Mr. Casey has also observed students throughout the years, who receive
financial aid funds and drop out of school taking advantage of the current policies in place (W.
Casey, personal communication, September, 30, 2015). He has varying opinions on the current
policies put in place.
Casey believes that there is a need for reform with the current financial aid and student
loan debt policies. He states that as of 2015-2016, the amount of student debt has increased and
students owe way too much money (W. Casey, personal communication September 30, 2015).
Casey believes that policymakers have not done a good enough job trying to make college
equally accessible to all (W. Casey, personal communication, September 30, 2015).
Additionally, he does not believe that the government has moved any closer to achieving this
goal (W. Casey, personal communication, September 30, 2015). Casey believes that students

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who come from a low socioeconomic class deserve access to more funds as long as they prove
themselves worthy of the funding and do not take advantage of it (W. Casey, personal
communication, September 30, 2015). Casey also believes that the constant rise in tuition is out
of control (W. Casey, personal communication, September 30, 2015). He discussed his own
graduate degree tuition rates which were one-hundred -twenty dollars per semester for his
graduate program thirty years ago (W. Casey, personal communication, September 30, 2015).
Since his graduate program, he believes tuition raised approximately three-hundred percent (W.
Casey, personal communication, September 30, 2015). Casey also discussed that as the need for
education increased tuition did as well (W. Casey, personal communication, September 30,
2015). However, Casey explained that this did not occur parallel to standard inflation (W. Casey,
personal communication, September 30, 2015). According to Casey, everything is more
expensive, but not three-hundred percent more expensive (W. Casey, personal communication,
September 30, 2015).
The federal financial aid and student loan policies are in dire need of reform. Making
college accessible to those from lower socioeconomic classes and decreasing student loan debt
should be the primary goal of these policies today. However, instead of striving towards these
goals the federal government seems to be pulling farther away from them, taking less
responsibility toward the student debt problem that they allowed to occur and losing interest in
ensuring postsecondary education accessibility to everyone. The most recent act of allowing the
Federal Perkins Loan to expire proves their disinterest. The problems continue to grow
surrounding higher education and they continue to immobilize those faced with these issues.
Reform and change is necessary if Americans desire to keep their children educated and keep the
future of America promising.

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References
Bidwell, A. (2015). 2016 Presidential candidates scattered on higher ed, student aid views.
Retrieved from: http://www.nasfaa.org/newsitem/5223/2016_Presidential_Candidates_Scattered_on_Higher_Ed_Student_Aid_Views.
This article touches on all of the current presidential candidates opinions regarding
federal financial aid and student loan debt. Bidwell highlights various plans for reform of
the current policies. Presidential front-runners such as Hillary Clinton, Donald Trump,
Jed Bush, and Bernie Sanders all contribute their ideas of how to address the current
policy issues. Additional contenders and former candidates who dropped out of the race,
discuss their opinions on reform as well.
Dean, K. W. (2012). Student loans, politics, and the occupy movement: financial aid
rebellion and reform. John Marshall Law Review, 22(4), pp. 105-168.
Deans article describes the struggle with student loans becoming a way of life in
America. Dean explains Congress role in the most recent policy decisions created in
2012. Dean describes students becoming burdened with enormous student loan debt
during a time when the economy is struggling. This article also highlights the barriers
faced by ethnic minorities when attempting to acquire postsecondary education.
Ginder, S. A., Kelly-Reid, J.E. National Center for Education Statistics, Institute of Education
Sciences. (2013. ed. pp. 1-12). Student Financial Aid, Academic Year 2011-2012.
Ginder and Kelly-Reids study focuses on the income levels of students and their families
along with the amount of financial aid that is awarded to them. This study also shows the
difference in the cost of private non-profit, private for-profit and public universities. This
research describes the amount of grant and scholarship money given to the students in

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these findings. Ginder and Kelly-Reids study defines various terminologies regarding
financial aid.
Grant, K. L. (2011). Student loans in bankruptcy and the undue hardship exception: who
should foot the bill? Brigham Young University Law Review, 2011(3), pp. 819-847.
Grants article conveys the percentages of students who graduate from a public, private,
and for-profit universities with student loan debt. Grant discusses bankruptcy codes,
laws, and the necessary criteria to obtain loan discharge as a result of undue hardship.
Additionally, Grant touches on various tests developed to determine undue hardships
regarding students trying to get out of paying student loans. This article also discusses
the hardships faced by lenders who manage student loans.
Kapadia, R. (2015). Solution to the student loan crisis: human capital contracts. Brooklyn
Journal of Corporate, Financial, & Commercial Law, 9(2), pp. 591-614.
This article discusses the 2013 statistics regarding student loan debt. Kapadia explains
the current federal and private student loan models. Kapadia also describes economist
Milton Friedmans perception of the economy and its relation to investment in the human
capital contract. Additionally, Kapadia explains the four problems regarding the current
student loan model, along with four concepts that make human capital contracts attractive
to investors as well as students.
Karger, H., & Stoesz, D. (2014). American social welfare policy: A pluralist approach (7th ed.).
New Jersey: Pearson Education.
Karger and Stoesz describe issues related to policies regarding poverty, taxes and income,
the health care system, public assistance programs, mental health and substance abuse,
criminal justice, and child welfare. They discuss policy framework and analysis in their

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book. Karger and Stoesz also cover topics such as the social welfare state and social
welfare programs. Additionally, they also focus on instances of discrimination in
America.
King, J. E. (2008). Financing a college education: how it works, how its changing. CT: The
American Council and the Oryx Press.
Kings book highlights equal access to college for low socioeconomic class families.
King describes student loan debt that is endured by students and their families. This book
discusses ethnic minorities who prefer two-year programs, over four-year institutions
based on cheaper tuition. Additionally, Kings book touches on the problems faced by
independent low-income students and dependent middle-income students.
Office of the U.S. Department of Education, Federal Student Aid. (n.d. ed.). Subsidized and
Unsubsidized Loans.
This government website highlights the amount of financial aid that is available to all
different types of students. Additionally, the website discusses the Stafford Loans along
with the differences in eligibility requirements for direct unsubsidized and subsidized
loans. Information regarding Federal Pell Grants can also be located on this website.
The answers to various frequently asked questions regarding financial aid are available
on this website.