Deficit Deal Spares Pell Grants but Cuts Stafford Loans

The debt ceiling deal recently reached by the White House and Congress has some negative consequences for current and future college students who rely on some forms of federal financial aid to help pay educational costs. According to the non-partisan Congressional Budget Office, the debt deal cut overall financial aid funding by $4.6 billion through 2021. This will increase costs for students by nearly $7.4 billion from 2012 through 2016.

The act that president Obama signed into law to avert government default saved Pell Grants for the time being but it chopped the interest subsidy for graduate students enrolled in the Federal Stafford Loan Program. In addition, the act reduces the ability of the Department of Education to incentivize on-time loan repayments beginning July 2012.

As a result of the cut to the Stafford Loan Program, graduate and professional students will no longer be eligible to receive interest-free loans backed by the U.S. government while they are in school. Before the debt ceiling deal, interest was not charged on these loans until the student graduated (or if they fell below half-time enrollment). This means graduate students will start paying interest on their loans while they are still in school—an additional $9.6 billion over the next three years! Meanwhile overall funding for the loan program will be cut by $21.6 billion through 2021 so fewer loans will be available to fewer students. This change will not affect undergraduate Stafford Loan Programs.

The Pell Grant program will actually receive an increase of $17 billion through 2015. Pell Grants are awarded to undergraduate students from low-income families and do not need to be repaid. However, the debt ceiling deal requires that Congress make more deep cuts in federal spending and Pell Grants could be among the sacrificial programs.

These alterations are drastic and many students will be unable to respond to changes in federal financial aid programs. These programs are essential if we are to continue to have an educated workforce to fuel the U.S. economy and replace aging baby boomers as they retire. Financial aid for higher-education makes up a tiny fraction of the federal government’s budget (less than 3 percent according to this easy-to-read budget chart from the Center on Budget and Policy Priorities). What’s more, since workers with college educations earn significantly more than non-degreed workers, it’s an excellent bet that such programs do not add a dime to the national debt. Instead, they lead to higher tax revenues by increasing wages and employability and lower social welfare costs by decreasing the need for aid programs such as food stamps and unemployment insurance. (College graduates have much lower unemployment rates than those without college educations, no matter the state of the nation’s economy.)

Congress needs to protect our future leaders—tomorrow’s doctors, engineers, architects, professors, and researchers—instead of sacrificing today’s college students in the pursuit of fiscal “austerity.”

Kwaku Sraha is NM Voices’ Finance Manager.

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