Financial aid on federal chopping block
February 23, 2006
The federal government and the average college student have something in common: debt.
However, cutting federal debt may increase student debt. The Federal Budget Reconsolidation Act, recently passed in Congress, may mean higher fees for students and higher interest rates on the Federal Parent Loan for Undergraduate Students.
“This bill will cause a lot of changes for students as far as loans are concerned,” said Carolyn Small, a policy analyst for the Iowa College Student Aid Commission.
This act means Congress has cut about $12 billion dollars for financial aid programs over the next five years. The average student in the U.S. borrows $18,000 for college, with a 15-year repayment plan. According to the Winona Daily News, this act’s increase in interest would mean the average student would have to repay $2,630 more than before.
“The bill is very new and because it just passed last week, it’s very cut and dry,” said Tracie Pavon, assistant vice president and director for financial assistance. “Higher education is taking a 40 percent hit, most of the cut is happening on the back-end of loans.”
The increased interest rates begin July 1, 2006. Stafford Loans will go to a fixed rate of 6.8 percent and PLUS will rise to 8.5 percent.
Students will also no longer be able to consolidate their loans while they are still in school.
“The Federal Budget Reconsolidation Act is going to make it even harder for lower income families to put their kids through school,” senior Matt Ernst said. “Also the changes that the bill made are going to make it that much more expensive for students to pay back their student loans.”
The bill does have a couple of positive changes that students can look forward to – specifically, an increase on the Federal Stafford Loan for first and second year students.
The amount of money available for first-year students will rise from $26,250 to $35,000. Second-year students will be able to borrow up to $45,000 as opposed to $35,000 in the past.
This bill would also allow students in graduate school the opportunity apply for PLUS loans, which wasn’t an option before.
However there is still a great deal of debate over the Federal Budget Reconsolidation Act. The bill itself only was passed into law by one vote. Now, due to a clerical error, this bill may be appealed. The appeal would mean a re-vote on the bill, which may or may not retain its one-vote margin in the second vote.