Gag law keeps B-On-Time Loan funds underused

Alexa Ura

In 2011, UT financial aid administrators were prevented from promoting a state loan program that would forgive up to $7,100 in loan debt per year. The B-On-Time Loan Program may face changes if recommendations to transform it into a rebate system are approved once legislators fill the Texas Capitol in January.

The B-On-Time Loan Program offers students forgivable, no-interest loans if they graduate with a 3.0 GPA within four years and do not exceed more than six credit hours of the total required to complete their degree. Most UT degrees require 120 credit hours. The Office of Student Financial Services has been struggling with a federal gag rule enacted in 2011, said Thomas Melecki, director of financial services.

“Unless students call and ask about the program by name, we can’t offer it and a lot of our students don’t know about the program,” he said.

Qualifying students at four-year institutions can receive up to $7,100 per year. Students must repay the loan with a zero percent interest rate if they don’t meet the requirements.

Prior to the gag rule, B-On-Time loans were packaged into students’ financial aid awards.

The program’s funds are underused because most students are not aware the program exists and UT cannot promote the program openly or package it with financial aid awards, Melecki said. In order to promote the program, the University would have to disclose a Preferred Lender Agreement that includes a list of independent lenders, including banks, who offer private student loans.

“The B-On-Time loan is considered a private education loan even though it is coordinated through the state,” Melecki said. “We prefer to award students federal direct subsidized and unsubsidized loans that are more transparent and disclose interest rates and repayment requirements upfront.”

Figures obtained from the Office of Student Financial Services show UT awarded $3.9 million of $6.7 million allocated to the University for the program in the 2011-2012 biennium. Since the program was first created in 2003, Melecki said 59 percent of UT students have qualified for forgiveness.

In 2010, UT awarded 66 percent of the allocated funds. Before 2010, B-On-Time awards ranged from 78 percent to 98 percent.

Last year, the University received an initial allocation of $3.6 million for the program. An additional $3.1 million was then allocated to UT in October, less than two weeks before the federal law was enacted, leaving the University unable to release funds to students unless they had previously signed up for the program’s waitlist.

This semester, the University received $2.6 million to renew loans for 285 students and enroll 105 incoming students.

Melecki said there are 700 students on the waitlist who have called to specifically ask about the program. 

The B-On-Time program is funded through student tuition set-asides, or 5 percent of every student’s tuition that goes into the B-On-Time program – amounting to about $6.7 million a year. Each university then sends funds to the Texas Higher Education Coordinating Board, which administers the program at the state level. THECB allocates funding in tuition set-asides to each university with accompanied state funds.

In the upcoming legislative session, the coordinating board will recommend changes to B-On-Time, essentially changing it to a rebate system under which qualified students could receive a check after graduation.

THECB spokesperson Dominic Chavez said checks would vary by institution ranging anywhere from $1,500 at Texas A&M University to $22,000 at Texas Southern University, and students at smaller institutions would receive larger rebates.

“It takes the tuition-set asides of 65 students to fund one B-On-Time loan,” he said. “Our recommendation is to make the program more effective so more students can participate and give all contributors access.”

Current B-On-Time borrowers would continue to receive their loan until graduation if the THECB recommendation is approved, Chavez said.

Sen. Judith Zaffirini, D-Laredo, said she opposed THECB’s rebate-like program.

“I don’t understand the coordinating board’s logic,” she said. “Students need the money upfront. There is so much talk about incentivizing financial assistance, and this is it.”

Zaffirini authored the legislation that created the program in 2003 and said she would push to restore funding for the program in the upcoming session. Zaffirini formerly chaired the Senate Committee on Higher Education but now serves on it as a general member.

“Some may argue the program is unsuccessful because only 38 percent of B-On-Time loan students qualify for forgiveness, but that is higher than the state average of 27 percent graduating in four years,” she said.