Collins, Business Ethics 3e
SAGE Publishing, 2021
Test Bank
CASE STUDY 6: TROUBLES IN HIGHER EDUCATION: THE GROWING DILEMMA OF
STUDENT DEBT
Multiple Choice
1. According to the Federal Reserve Bank of New York, the increased use of student
loans has ______.
a. lowered the average consumer interest rate
b. contributed to increased college costs
c. decreased the number of private loan defaults
d. raised the credit scores of 30 million Americans
2. Interest rates and loan limits for student loans are established by which body of
government?
a. Congress
b. U.S. Department of Education
c. U.S. Department of Treasury
d. Federal reserve
3. Why do lenders assign higher interest rates to student loans than auto loans?
a. They have higher limits.
b. They are regulated by the government.
c. They have lower interest rates.
d. They are uncollateralized.
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4. Institutional eligibility for participation in the federal student financial aid program is
determined by the______.
a. U.S. Secretary of Education
b. National Defense Education Act
c. U.S. Department of Education
d. accrediting agencies that are federally recognized
5. Shortly after the Soviet Union launched Sputnik, the first orbiting human-made
satellite, the U.S. government initiated the National Defense Education Act (NDEA).
This was an indication that the ______.
a. Congress finally recognized the need for space exploration
b. United States was about to enter the Cold War
c. Soviet space program was more advanced
d. Department of Defense department was understaffed
6. After the introduction of the 1965 Higher Education Act (HEA), the Guaranteed
Student Loan (GSL) program made it possible for ______.
a. low- and middle-income families to receive federally subsidized and guaranteed
commercial loans
b. educational institutions to utilize third-party contracts to manage fund disbursement
c. college work study programs to be included in federal financial aid packages
d. federally-approved accrediting agencies to certify qualifying institutions
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7. Current student loan servicers operate as autonomous entities because the ______.
a. Student Aid and Fiscal Responsibility Act (SAFRA) provisions forbid federal
interference
b. Department of Education services all student loan disbursements internally
c. Office of Federal Student Aid is not permitted full access to their proprietary systems
d. United States approved accrediting agencies require different origination and
disbursement providers
8. If a student receives a subsidized Stafford loan, they can expect ______.
a. to attend the graduate program of their choice free of charge
b. the interest accruing on the loan to be paid by the government while they are in
school
c. the interest on the loan to begin accruing once they graduate or leave school
d. to attend the undergraduate program of their choice free of charge
9. As of September 30, 2017, federal law removed all authority of colleges and
universities to make ______.
a. TEACH Grants
b. Perkins Loans
c. FSEOG Grants
d. direct loans
10. A student participating in the Federal Work-Study Program is compensated ______.
Collins, Business Ethics 3e
SAGE Publishing, 2021
a. at least equal to the current federal minimum wage
b. through credits, which decrease their tuition balance
c. as long as the student maintains full-time status
d. directly as long as the student is over 18-years of age
11. As a condition of approval, a parent seeking a Direct PLUS Loan must ______.
a. prove their student has no other options to pay tuition
b. demonstrate a financial need
c. have a solid credit history and a clean credit check
d. sign a lien agreement as collateral
12. Before becoming a Graduate PLUS borrower, it is important to understand that
interest rates for this type of loan ______.
a. are not eligible for deferment
b. must be paid once funds are disbursed
c. varies according to the standard APR
d. are fixed throughout the life of the loan
13. Students entering college immediately after high school have a difficult time
securing private student loans unless ______.
a. they have a co-signer
b. they agree to make monthly payments while in school
c. they have paid off a prior private loan
d. they secure the loan with collateral
Collins, Business Ethics 3e
SAGE Publishing, 2021
14. Imagine that you have just graduated and are looking for a new job. You are not
sure how much you will be able to earn at first. Since you have all subsidized federal
student loans, you’d like a plan that is based on your annual income and calculated to
be paid in full within 15 years. Which repayment plan best fits your needs?
a. the Income-Contingent Repayment Plan (ICR)
b. the Income-Sensitive Repayment Plan (ISR)
c. the Income-Based Repayment Plan (IBR)
d. the Pay-as-You-Earn Repayment Plan (PAYE)
15. Which of the following borrowers is eligible for the extended repayment plan?
a. a borrower with subsidized Stafford loans and Pell grants totaling $26,400
b. a borrower with direct subsidized and unsubsidized loans totaling $19,289
c. a borrower with direct subsidized, unsubsidized and a PLUS loans totaling $41,970
d. a borrower with subsidized, unsubsidized and parent PLUS loans totaling $8,000
16. The National Association for College Admission Counseling reports that some for–
profit institutions generate up to ______ of their revenue from federal student aid.
a. 50 percent
b. 65 percent
c. 75 percent
d. 90 percent
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SAGE Publishing, 2021
17. Rebecca graduated from high school roughly 10 years ago, but has decided to go
back to school to learn a vocation and earn a professional certificate. She will be the
first person in her family to attend college. Given her current income, online research
tells her she will likely qualify for a Pell grant to help pay for school. As she is
researching, she finds that one school in particular has sent her many advertisements
that seem directly tailored to her needs and interests, including notes that they heavily
recruit first-generation college students like herself. What is likely true about the school
recruiting Rebecca?
a. It is a nonprofit university.
b. It operates under the direction of a board of governors.
c. It is a for-profit educational institution.
d. It offers traditional academic programming.
18. What did the National Vocational School Loan Insurance Act (NVSLI) of 1965
authorize?
a. federal loan forgiveness in case a borrower is unable to work due to their own or a
dependent’s disability
b. a requirement of for-profit educational institutions to earn a minimum of 15% of
revenue from non-Title IV sources
c. contractual relationships between the Office of Federal Student Aid and private
collection agencies
d. direct lending and federal loans to students enrolled in postsecondary trade and
technical career programs
19. For-profit colleges and universities are privately-owned and therefore ______.
a. must provide annual reports to all students
b. seek to maximize financial gain for shareholders
c. restrict enrollment of students requiring financial aid to 50%
Collins, Business Ethics 3e
SAGE Publishing, 2021
d. are required to be accredited before students can be enrolled
20. What is true about nonprofit institutions?
a. The first nonprofit institutions emerged in the late 1700s.
b. The target market is nontraditional, underserved students.
c. The shareholders serve as the governing body.
d. The board of directors must approve any sale agreement.
True/False
1. Subsidized federal student loans are only offered to students with a demonstrated
financial need.
2. Federal Student Aid is the second largest consumer loan portfolio, just behind those
held by the largest commercial banks.
3. The preferred lender list is required for all for-profit higher educational institutions to
ensure students are borrowing from federally vetted lenders.
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SAGE Publishing, 2021
4. Interest accrues on an unsubsidized federal student loan while it is in deferment.
5. Nonprofit institutions are mission-driven, noncommercial entities and do not have
shareholders.
Essay
1. Briefly explain why the steady increase in student borrowing is drawing the attention
of lawmakers due to economic concerns.
Collins, Business Ethics 3e
SAGE Publishing, 2021
2. A for-profit school financial aid department falsely certified a financial aid package for
a student who paid tuition in full. Six months after the student graduated, the student
receives notices about student loan repayment and immediately calls the number
provided in the information. After a brief phone call, the loan servicer emails a copy of
the student signature on a financial aid form. Should the student be held responsible for
the loan? Why or why not?
3. The 2010 Student Aid and Fiscal Responsibility Act (SAFRA) eliminated the
guarantee offered to private financial institutions in an effort to decrease taxpayer
obligations. Briefly explain why this Act has spurred efforts to introduce a major
overhaul of the Department of Education’s student financial aid program.
4. George and Chris met and began dating in graduate school. Recently, they
graduated and got married are trying to decide which repayment plan is best for their
situation. While both George and Chris anticipate their income will increase in the next
few years, right now, their discretionary income is about $6,000 and they plan on buying
a house together soon. For now, Chris is hoping to keep the payments around $600 per
month, but might be comfortable increasing the payment to $800 per month once they
Collins, Business Ethics 3e
SAGE Publishing, 2021
buy a house. Other than student loan debt, the couple does not have any other debt.
Which repayment plan meets the couple’s requirements, based on the information
provided?
5. Why should you take careful consideration before cosigning a student loan for
someone else? What steps should you take prior to cosigning a loan?