Cuts to Student Loans and Financial Aid: What Students Can Expect ...

Posted by Shannon Rasberry

It?s getting harder to pay for college. Not only is the economy in bad shape and unemployment high, but now previously reliable sources of federal financial aid, including federal student loans and federal grants, are being cut or altered as part of ongoing budget negotiations in Washington. And more changes are likely on the way.

First, the 11th hour deal to approve the Budget Control Act of 2011, which raised the U.S. borrowing limit to avoid a debt default, resulted in a compromise to maintain the maximum Pell grant award of $5,500 by ending subsidies on federal student loans that paid the interest on loans for graduate students while they were in school. The compromise provided only $17?billion of the $18.3?billion shortfall faced by the Pell grant program, leaving a $1.3?billion shortfall for next year.

Now, the Senate is in the process of approving a U.S. Department of Education budget for fiscal year 2012 that would close the remaining Pell grant shortfall by ending interest subsidies for federal student loans during the six-month grace period after undergraduate students graduate or leave school. The proposed change is part of an effort to trim $1.5?trillion from the federal budget deficit over the next 10 years.

But those aren?t the only big-time changes to federal financial aid that are going to result in less money for college. Under the 2011 budget, the Academic Competitiveness Grant and National Smart grant, which were part of the federal Pell program, were allowed to expire at the end of the 2010?2011 academic year. The Pell grant program that provided financial aid for summer study was also eliminated.

And students at public state colleges and universities are dealing with a one-two punch as state financial aid falls alongside federal aid, resulting in cuts to state grant and scholarship programs at the same time schools institute double-digit tuition rate hikes.

?It?s not a pretty picture,? said Mark Kantrowitz, an expert on student loans and financial aid and publisher of FinAid.org and FastWeb.com.

According to Kantrowitz, things are likely going to get worse.

Further Cuts to Student Loans and Grants are Possible

Although federal student loans are still available and the amount you can borrow will remain unchanged, the cost of borrowing federal student loans will probably go up, forced north by a possible end to undergraduate interest subsidies for students who are still in school and a likely interest rate increase. Currently, subsidized student loans have a fixed 3.4?percent interest rate, but the rate is set to revert to 6.8?percent?? the same rate as unsubsidized loans?? for loans borrowed after July?1, 2012 unless Congress passes legislation to extend the lower rate, something Kantrowitz said is unlikely to happen.

Federal and state grant money is also drying up at an alarming rate. Even though Pell grant maximums were maintained this year, they can?t keep up with rising tuition costs and cost of living increases. The University of Texas at Austin, for example, has already lost 18?percent funding, or $17.8?million, from federal and state grant and scholarship programs this year (?Students Should Prepare for Continued Education Cuts,? Chicago Tribune, Sept.?23, 2011).

Students Can Help Offset Drops in Financial Aid by Being Proactive in Other Areas

To help fight falling financial aid, officials from UT and the University of North Carolina at Chapel Hill?? another university hit hard by drops in federal and state funding?? recommend that students start preparing now:

• Make sure to complete the Free Application for Federal Student Aid, which qualifies you for federal grants and federal student loans.
• Trim costs by buying used textbooks or getting a hold on discretionary spending so that you end up borrowing for needs, not wants.
• Get help with budgeting from personal finance classes offered by your school. UT, for example, has a personal money-management course for students called Bevonomics.
• Consider a part-time job, especially on campus, where there are typically lots of positions that are reserved for college students.

Read more http://studentloansblog.nextstudent.com/2011/09/26/cuts-to-student-loans-and-financial-aid-what-students-can-expect-in-the-future/

Source: http://timesoftexas.com/2011/09/29/cuts-to-student-loans-and-financial-aid-what-students-can-expect-in-the-future/

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