$188M at risk for PHEAA college grant program
A U.S. Department of Education plan to designate a single company to collect $1.2 trillion in federal student loans could have a major impact on a state grant program for Pennsylvania college students.
The need-based grants, known as PHEAA grants, helped underwrite college costs for 154,000 Pennsylvania students in the 2015-16 school year.
Part of the money for the grants comes from state tax revenue, but a growing portion — $125 million last year — comes from the Pennsylvania Higher Education Assistance Agency.
One of PHEAA's major revenue sources — about $188.5 million last year — comes from fees it earns for collecting payments on $246.8 billion in outstanding federal student loans.
That money could disappear if the U.S. Department of Education, which contracts with several companies to collect student debt, transitions to a single contractor in 2019. Conversely, the state agency's revenue could balloon should it win the contract.
Officials at PHEAA declined to comment, citing the agency's participation in ongoing bidding for the federal contract.
College and university officials across Pennsylvania said it's too soon to comment on the new plan, but they are worried about PHEAA's fiscal health.
About 30,400 students, or nearly one-third of the 105,000 enrolled in the 14 universities in the Pennsylvania State System of Higher Education, received PHEAA grants averaging $3,145 in 2015-16, according to system records. The grants were capped at $4,340.
“We're watching it very closely because it could have a significant impact on students if PHEAA were unable to supplement the (grant) program as they have been. It would be hard to make up more than $100 million,” State System spokesman Kenn Marshall said.
Robert Morris University spokesman Jonathan Potts said about 35 percent of RMU students rely on PHEAA grants to help cover costs at the private university in Moon.
“It's too soon to say anything, but we're definitely concerned about the well-being of PHEAA,” Potts said.
The cap on PHEAA grants declined to $3,700 about a decade ago when the agency had to retool in the face of changes to student loan programs and was unable to contribute to the grant program, said Don Francis, executive director of the Pennsylvania Association of Independent Colleges and Universities.
“If they don't have (PHEAA contributions), it would be very difficult now for the state to step back in and put up the money. We wanted the state to use (PHEAA contributions) to supplement the state appropriations, not supplant it,” he said.
The U.S. Department of Education had sought a single contractor to create a new platform to collect student debt. But last week, the agency amended its bid solicitation to include creating a new platform and handling all federal student debt repayment.
Critics have warned that going to a single contractor could create an entity “too big to fail.” But the federal agency says the amended proposal will create a simpler, more efficient process for borrowers.
“With changes in the new amendment, we have simplified the process to ensure meaningful borrower protections while saving taxpayers more than $130 million over the next five years,” Education Secretary Betsy DeVos said in announcing the plan.
“Savings are expected to increase significantly over the life of the contract. Borrowers can expect to see a more user-friendly loan servicing interface, shorter email and call response times and an improved payment application method that will maximize the benefit of each payment the borrower makes,” DeVos said.
Debra Erdley is a Tribune-Review staff writer. Reach her at 412-320-7996, derdley@tribweb.com or via Twitter @deberdley_trib.
