Tag Archives: Pell grants

Pell Grants Under Threat of Being Cut

In this age of fiscal uncertainty, few are immune from the government’s growing commitment to fiscal restraint. USF students could be hit next if Pell grants get cut. The federal debt-reduction committee tasked with locating $1.2 trillion in cuts and possible revenue increases to the federal budget over the next decade may shrink the government assistance program that has served as a vital source of financial aid for many at USF. The need based grants can total up to $5,550 per semester, and in assisting almost 30% of USF students with their tuition costs, it is the largest source of financial assistance for USF students.
To inform students of the potential danger to the program, Provost and Vice President of Academic affairs Jennifer Turpin sent an email out two weeks ago asking supporters to sign a petition to block any cuts to the program. The petition is being supported by lobbying organizations such as the Student Aid Alliance, the Association of Jesuit Colleges and Universities and 61 other higher education associations. The petition has drawn 48,661 supporters as of Saturday.
Asked what he thought of the possible cuts, USF Junior Raffi Bezdikian said it was unfortunate that the U.S. government would “rather drop bombs on people … than invest in our future by educating the public.”
It is unclear how much of an effect such efforts will have in swaying the committee in favor of a particular outcome. Various advocacy organizations have undertaken assiduous campaigns to influence the committee’s outcome with little success. From its conception, the committee’s proceedings have held behind closed doors and away from public scrutiny.
Legislators have attempted to exert their influence as well. Last month, Minnesota Representative John Kline made his case for cuts to Pell grants, which he described as “on a path to bankruptcy.” Kline then went on to back the Labor, Health and Human Services budget cutting bill passed by House Republicans.
That bill would decrease the Pell Grant eligibility period from 9 to 6 years. It would also eliminate eligibility for students who attend school part-time. The changes are projected to produce almost $3.6 billion in savings to the national budget.
In last year’s debt-ceiling budget agreement, the federal government promised $7 billion in additional appropriations for the program, an amount that according to the National Association of Student Financial Aid administrators still won’t make up for a $1.3 billion shortfall in 2012-13.
Democrats have long protected the program instituted under President Lyndon Johnson’s as part of his Great Society initiative, but their priority may now be focused on protecting costly entitlement programs that have come under increasing attack from Republicans.
Many have predicted that the negotiations will end in a deadlock, as most recent budget battles have. More than a few of the committee’s members are staunch advocates of their party’s most recalcitrant positions, making meaningful compromise unlikely. Any such deal would require substantial concessions on either side of the aisle.
Financial aid is available to USF students in other forms besides Pell grants, including school funded scholarships and grants from the state.
Even so, “student aid has already lost $30 billion paying down the deficit in prior Reconciliation bills and the Budget Control Act,” cited Ms. Turpin in her letter.
The fiscal solvency of the state is also in question, imperiling some of the state’s programs like Cal Grants.
If the super committee fails to find $1.2 trillion on cuts, automatic cuts of $600 billion to both defense and entitlement spending would kick in, possibly exempting the financial aid program.

Students Benefit From Loan Reform

Last week Congress voted to reform the program the federal government uses to allocate funding for student loans. Since 1965, the federal government has offered subsidies to large banks that provide loan programs for needy students. It was never entirely clear where the money from the subsidies provided went, but allegations have been made by many congressional democrats that the subsidies were, as the New York Times suggests, fattening the banks’ bottom line. Conservative supporters of the subsidy program view the reform as another government take over by Barack Obama’s administration.

The reform bill has one specific goal: to remove the middleman (the banks) from the student loan business. Banks will no longer be subsidized by the government and cannot make a profit on student loans. This bill takes banks out of the equation. The movement for student loan reform has been fueled in part by the recession and the economic criticism of large student lenders like Sallie Mae. Excessive increases in tuition rates, as well as inflation, specifically in the cost of higher education, have also played a role in the development of the bill. Now that the reform has passed, students will see several actions takes place. Firast, all subsidized student loans will be facilitated by the government without commercial bank involvement. The projected $61 billion saved from not subsidizing banks will be poured back into the education system over the next ten years. The bill calls for $40 billion to go directly to higher education,  $2 billion for job training at community colleges, $2.5 billion for historically black colleges, and an undetermined amount for elementary education. A small portion of the savings will also fund parts of the healthcare overhaul.

Regardless of whether this invasion of the free market is ideologically or politically correct, the Foghorn contends that this reform will have definite positive effects on the USF student body. The largest impact the reform will have is on Pell Grants, a form of financial aid the government offers low-income students.  The New York Times and Washington Post report approximately $36 billion dedicated to supporting Pell Grants. Many students at USF are able to afford the cost of tuition at a private, Jesuit institution because of government sponsored financial aid. Every year students fill out their FAFSA, hoping to receive enough money to afford tuition without having to go into serious debt. Without this reform, the Pell Grant program could have been severely reduced, or possibly even dismantled. The current stagflation, specifically in California, has resulted in the price of tuition for higher education drastically increasing and the average household income decreasing. More students are in need of more student aid. The reform bill will give more USF students the opportunity to apply for Pell Grants and increase financial aid.

Pell grants are not the only way that students will benefit from loan reform. Because banks will no longer be allowed to distribute subsidized student loans, students and parents will work directly with their college’s financial aid office. This will cause more work for individual financial aid offices, but will allow students to get individualized help from their respective institution. The bill also reduces interest rates on direct PLUS loans, which are similar to Pell grants and are awarded to parents who demonstrate financial need in sending their child to college. The reduced interest rates will save USF students and parents money and keep them from gathering more debt as they pay off their loans.

Opponents of the bill site the need for market freedom in order to supply students with quality loans. For more than forty years, however, commercial banks have been given free market capability. In that time, banks and lenders have not demonstrated the ability to control market inflation, avoid corruption, or provide a reasonable loan program for students. If higher education is not made more affordable, then the student population will decrease and graduation rates will suffer a serious blow. Although this bill does give the government significantly more control over student loans, it is a necessary measure in saving higher education in the United States.

Changes in the Way We Pay For College: Who to Believe

In the last year, USF students have found available funds for college dwindling and sometimes nonexistent.  At the same time, incomes and job opportunities are decreasing at alarming rates. While the media concerns itself with the public health care program, the government’s quiet but determined attempts to reform the student loan system have escaped the press. In such turbulent times, what new hurdles should USF students expect when it comes to financing their education in the coming years?

The student loan market operates outside the conventional loan framework.  The government plays a large role in guaranteeing money to students by offering fixed, below-market-rate loans that are not dependent on the complicated structure used by private lenders.  These private lenders directly compete with the government loan program enticing students with superior customer service and competitive rates.

But due to the increased number of loan defaults in 2008 and the resulting bank failures, private lenders have been less inclined to loan funds to students, especially considering the depleted job market available to expected graduates.

As banks find it harder and harder to release credit to potential students, government loans become a larger source of student financing.  In 2008, a temporary restructuring of the student loan market occurred wherein the government started buying up student loans from private lenders. The current student loan bill intends to make the government the sole financer of student loans, totally wiping out competition from the private lenders.

USF students can expect to see a more inefficient, harder to navigate student loan system in the coming years, according to many analysts. Government programs are implicitly inefficient and the current popular bill designing a student loan system entirely run by the government would be no exception.  The disintegration of the private student loan market would wipe out all competition, allowing the government to monopolize the market for student loans.

But the government claims a simplified financial aid process will result from the student loan overhaul, which means that USF students will spend fewer hours struggling with endless FAFSA forms.  Due to the streamlining of the system, the government reports it will save $87 billion over 10 years, half of which is intended to go to the Pell Grant program for low-income students.

Jessica Zuzik, a graduate student in economics at USF, has had many problems garnering financial aid from the school, despite her excellent academic record.  “I feel that USF has forsaken financial aid because they are a private institution.  They have not made it a priority because they feel that students can afford the excessive tuitions.”  Frustrations such as these leave students relying primarily on the government for financial aid, and soon they will add student loans to this list.

Michelle Schaeffer is a graduate student in the economics department at USF.  She writes on economic issues in her blog at http://economicinquiries.blogspot.com.

Dons Dollars and Cents: Economic Stimulus Package

Hated by Republican congress members, and business owners , and loved by Democrats and the unemployed, the American Recovery and Reinvestment Act of 2009 seems to have polarized the American public, and even economists, who cannot agree on whether the bill will pull the economy out of tailspin or just greatly increase the size of government, as well as government debt, for years to come.

For college students, who would have hoped for the Democrat-controlled government to aim stimulus money at making college more affordable, there is disappointingly little in the enormous package to get excited about.

Less than four percent of the $787 billion economic relief effort will be spent on college students, in the form of expanded Pell Grants and Federal Work Study and increased tax credits for education spending.

The bill calls for $15.6 billion to increase Pell grants from $4,731 currently to $5,350 in 2009 and to $5,550 in 2010. Pell grants do not have to be repaid and students who qualify will receive anywhere from $400 up to the maximum amount depending on their level of need as determined by their FAFSA.

However, these grants go to only the poorest college students; 90 percent of Pell grants awarded in 2008 went to students whose families made less than $40,000 per year, according to a report by the New York Times.

The stimulus package also calls for about a 17 percent, or $200 million, increase in funding for the Federal Work Study program which subsidizes the cost of hiring student workers by chipping in part of their wages. Work study allows employers, especially campus departments and non-profits, to hire more workers, or workers they otherwise wouldn’t be able to afford.

This is important at USF, where campus departments are facing tighter funding and some are reducing student hours or laying student workers off all together. Non-work study student workers are also seeing their hours cut more dramatically than those with work study, as was reported in the Feb. 19 issue of the Foghorn.

In the bill, Congress also increased tax credits for education spending, up to a maximum of $2,500, made the credits refundable, meaning tax payers who owe less in taxes than their education credit will get a refund, and increased eligibility to families making less than $180,000, up from $116,000 last year. The credit will go either to students or to their parents if the student is claimed as a dependent and is up from a similar $2,000 credit last year.

Total spending on college funding in the bill comes to just $29.8 billion, a small fraction of what has been set aside for other programs including Medicaid spending and tax cuts.
While students should support efforts to increase economic activity in hopes of securing well-paying jobs upon graduation, there is little in this bill that increases federal support for higher education or reduces the incredible cost of obtaining a degree.

However, the Obama administration plans to include further support for college students in its fiscal year 2010 budget, including making some of the programs mentioned above permanent.
The impact of Obama’s budget changes on college students will be profiled in a forthcoming Dons Dollars and Cents column.