Federal Student Aid May Be on the Chopping Block

The Higher Education Act, a law that has been on the books for several years and is the primary piece of legislation in determining how much aid the federal government will provide college students, is up for reauthorization in the coming year. While in another climate this may not be such a big deal, the Act has run its course right up to the precipice of the recently coined (and, more importantly, passed by Congress) “fiscal cliff”: automatic cuts to government spending that could slash 8% of the feds’ total allocation for student aid in all forms, including grants, loans and tax credits.

Once it hits the cliff, government spending on financial aid for college students may be in for an even harder landing. As early as next fall, just as the 2013-2014 academic year gets under way, the Higher Education Act will expire. Unless it is reauthorized by Congress, the amounts of and relevant interest rates for the grants and loans available under the act will start to move in directions opposite those of college tuition and personal income.

Pell Grants, subsidized Stafford loans and the American Opportunity Tax Credit are the three types of federal aid most likely to see the effects of Congressional cost cutting in 2013, unless there is an upswelling of bipartisan support for reauthorization of the Higher education Act. Pell Grants will likely be the first type of aid affected. Last December’s Consolidated Appropriations Act, which set the budgets for most federal agencies during fiscal 2012, pared spending for the Pell Grant program. The scope of the Act was later extended until March of 2013. If the Consolidated Appropriations Act is reauthorized or brought back in another form, the cuts to Pell Grants could be made longer lasting or even become permanent.

As far as subsidized Stafford loans are concerned, the current 3.4% fixed interest rate is currently authorized through June of 2013. Students applying for (or renewing) aid for the 2013-2014 academic year will see interest rates double on federally subsidized loans without Congressional action early in the year. With the deficit still at nearly a trillion and had half dollars and Congress failing to agree on where to cut, the likelihood of an extension of the favorable interest rates is pretty slim.

Finally, the American Opportunity Tax Credit is due to expire at the end of the year, meaning that without congressional renewal, the $2,500 per year (for up to four years) credit will be scaled back to $1,900 over a maximum of two years. Without some advocacy on the part of President Obama on behalf of his large student constituency, along with bipartisan cooperation from the legislature, college is going to be a much tougher financial road to walk.

Much of this bad news stems from the fact that the so-called Congressional “super” committee on deficit reduction, formed last year in a desperate response to a burgeoning deficit and an impending election, disbanded before their deadline without reaching any decisions. The committee members had been tasked with finding $1.2 trillion dollars in budget savings over the next 10 years by midnight on November 23. Instead, they went home in time for Thanksgiving 2011, announcing that the bipartisan committee could not reach any agreement on how the deficit could be shaved. Under the Budget Control Act, which created the committee, the group’s failure to achieve any agreement automatically triggers sweeping cuts to several government agencies and programs during the 2013 fiscal year.

The committee’s wheel spinning waste of time created a diversion while Congress failed to act in any way that might have been seen as jeopardizing members’ own, or their parties’ chances, in the then-upcoming election year. Now that their wide fannies are comfortably ensconced in their overstuffed, taxpayer purchased chairs, Congress can continue to sit on their hands while college students and their parents spend the next year or two (or four or 30) paying for their elected representatives’ lack of backbone. Okay, so I had an opinion. This is a blog, after all.

Comments

  1. It is time for common sense, accountability, and responsibility to govern our decisions as a country. While it might seem wonderful for every college student to have their education paid for by taxpayers, that does not encourage responsibility and does not hold students accountable to pursue degrees that are financial prudent or benefit the public good. Better policies would include requiring colleges that accept federal financial aid to price their degree programs based on the expected annual salary of the graduates of each program and to provide interest free loans for students that maintain an average grade of C or better while making appropriate progress toward their degree while in college and making the minimum required payments on their loans after graduating (as long as they are employed or the unemployment rate is less than 8%).

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