12/6/2012 7:45 PM ET|
Fear the fiscal cliff, college savers
With most government spending potentially on the chopping block, parents should expect to see major changes to federal financial aid.
President Barack Obama, whom college students overwhelmingly favored in last month’s election, vowed on the campaign trail to increase federal financial aid. But experts say a divided Congress could put those changes on hold -- and lead to higher college costs for many families.
Automatic spending cuts that are set to kick in at year's end -- as part of the so-called fiscal cliff -- could result in an 8% cut in federal aid. Obama's aides have said the president plans to move quickly to find common ground with Republicans over the $1.2 trillion in overall cuts.
If they do begin as scheduled, however, the cuts would come at a time when federal financial aid is already on the decline. According to a report released in October by the College Board, federal grants totaled $49 billion during the last academic year, down 5% from a year prior, after adjusting for inflation -- the first drop after rising for five consecutive years. Federal work study, which allows colleges to create campus-based jobs for students, fell 4% to $972 million, after adjusting for inflation, the first time it's dropped below the $1 billion mark in at least a decade.
And college experts caution that even more cuts could kick in starting next fall. Next year, the Higher Education Act, a major piece of legislation that for decades has helped determine how much college aid -- including grants and loans -- the federal government provides, is up for reauthorization. If it isn't renewed next year, there's an automatic one-year extension of the current rules, giving students one more academic year of breathing room before changes kick in.
But some experts say even the best-case scenario will leave families worse off than this year. That's largely because no matter what happens to financial aid -- even if it stays the same or increases -- it won't keep up with the rate at which tuition is rising, says Mark Kantrowitz, the publisher of the FinAid website, which tracks financial aid issues.
While there's still time before any of these decisions are made, college advisers say families should prepare for the possibility of less aid now by broadening their financial aid search. That includes contacting colleges' financial aid offices for school grants and searching for scholarships in their community and on sites such as Fastweb (Kantrowitz also publishes this site) and CollegeBoard. High school seniors might also want to consider applying to public in-state colleges, since their tuition costs are significantly lower than those of private colleges.
In the meantime, here are three types of financial aid that could see changes in 2013:
About 9 million undergraduates received federal Pell grants to help cover tuition costs in 2010-11, according to the latest data from FinAid. The latest Consolidated Appropriations Act, which was signed into law last December and set most federal agencies' budgets for 2012 (later extended to March 2013), scaled back spending for this grant program.
Those cuts could be made permanent (or at least longer-lasting) when the Higher Education Act is reauthorized, says Kantrowitz. They include reducing the number of semesters students can receive a Pell grant from 18 to 12. And while it used to be that families with $32,000 or less in income could qualify for the full Pell grant amount -- $5,500 this year -- that eligibility threshold has been lowered to families with $23,000 or less in income.
Federal student loans
In late June, Congress voted to extend the 3.4% fixed rate on subsidized Stafford loans -- for which the federal government covers the loan interest while a student is in college -- for one more year through June 2013.
Without intervention, the rate would have doubled to 6.8%. Families shouldn't bet on another extension this summer. Kantrowitz says all sorts of plans are on the table for this loan, including possibly eliminating the subsidized interest program entirely. The one-year freeze on the interest rate for this loan will cost the federal government $6 billion, according to the Congressional Budget Office.
Also on the table is a proposal to change the way rates on federal loans are determined, to move away from fixed rates to so-called fixed variable rates. Under this proposal, loan rates would be determined by the "constant maturity Treasury rate" plus 3 percentage points when borrowers sign up. The interest rates on a borrower's loans would be fixed, but new loans each year would be at a different fixed rate based on prevailing interest rates, says Kantrowitz. Critics of the current system say that federal loan rates don't reflect the low-rate environment, costing borrowers thousands of extra dollars in interest payments. This proposed model, if enacted, would lead to savings as long as market rates remain low. But once they rise, the proposed new loans could become more expensive than they are now.
College tax credits
Tax credits for college expenses, though not determined by the Higher Education Act, are caught up in the fiscal cliff negotiations. Provisions for the American Opportunity Tax Credit, which allows families to get a tax credit of up to $2,500 per year for up to four years, are scheduled to expire at the end of the year. Unless Congress acts, savings for taxpayers will be scaled back to a maximum of $1,900 per year for two years.
Obama has said he wants to make the American Opportunity Tax Credit permanent, though he could face resistance from Republicans. Since the higher limits went into effect for the 2008-2009 academic year, tax credit funding for families has increased 151% through 2011-12, according to the College Board.
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Trust Yourself, Not the Government
Too many people have for too long placed too much confidence and trust in government and not enough in themselves. Fortunately, many are now becoming aware of the seriousness of the gross mistakes of the past several decades. The blame is shared by both political parties. Many Americans now are demanding to hear the plain truth of things and want the demagoguing to stop. Without this first step, solutions are impossible.
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Supporters of all government edicts use humanitarian arguments to justify them.
Humanitarian arguments are always used to justify government mandates related to the economy, monetary policy, foreign policy, and personal liberty. This is on purpose to make it more difficult to challenge. But, initiating violence for humanitarian reasons is still violence. Good intentions are no excuse and are just as harmful as when people use force with bad intentions. The results are always negative.
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This is the same fundamental reason our government uses force for invading other countries at will, central economic planning at home, and the regulation of personal liberty and habits of our citizens.
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Dr Ron Paul
Add to your debt these nubers
QE3 and Operation twist by the Fed, Res. is giving out $85 billion per month to central banks...
Where is your outrage?
That comes close to $450 + or - per person a month
the banks are getting it tax free
YOU WANT TO KNOW HOW OBAMA GOT REELECTED
QE3 @ $85 BILLION PER MONTH TO THE BANKS AND THEY LOVE ALL THE OBAMA MONEY that you're on the hook for all those 1's and 0's as interest to be paid LMAO slaves to the Feds
Cover up of Sandusky
was to ensure money did not stop flowing in for the modern day gladiators "FOOTBALL" so that children can be balled...
Your a very sick Society, for allowing this to happen for money and to protect money and they are all the same. They will do anything to make money...
More scholarships are being given for athletics than any other reason or discipline
Your tuition is paying for the football programs to solicit corporate sponsors and TV...
Colleges are no longer about getting you ready for the work force... your money
The more the Gov gives in tax breaks to families the more tuition goes up
So who is most responsible for bringing us to the fiscal cliff and the inaction congress can not and will not address or solve. Withhold salary payment to congress should be the result for going over the fiscal cliff. The best information around is that these two men did the most damage in just eight years:
George W. Bush. No one is more responsible for racking up our debt than Bush. He campaigned in 2000 promising to cut taxes in order to avoid paying down the national debt. And when the recession of 2001 arrived, he said tax cuts would revive the economy. And when the economy didn’t revive, he cut taxes some more. Tax cuts for all occasions. And it was all guilt-free.
Dick Cheney. While Bush was busy cutting taxes, Cheney was busy planning the war on terror. For the first time in our history, we sent our military into battle without raising taxes at home to help pay for it. It added trillions to the debt.
Other folks helped:
David Lereah. Lereah was the chief economist for the National Association of Realtors and was perhaps the most enthusiastic and public cheerleader for the housing bubble. Even after the bubble began to deflate, Lereah still insisted that real-estate investments would never lose money.
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