The “fiscal cliff,” a set of automatic spending cuts and expiring tax benefits that could occur at the end of the 2012, will affect student financial aid if lawmakers fail to reach a deal by the year-end deadline, experts say.
White House spokesman Joshua Earnest told USA TODAY Monday that President Obama and Speaker of the House John Boehner discussed “efforts to resolve the fiscal cliff” at the White House Sunday during the first in-person meeting between the two leaders in nearly a month.
Many White House and congressional leaders have said they wish to reach an agreement before Christmas, which would require Obama and Boehner to establish a proposal in the next few days, USA TODAY also reported.
If lawmakers fail to reach a deal, however, the automatic budget cuts — referred to as sequestration — will cut spending on student financial aid by 8.2% with the exception of the Pell Grant program, said Mark Kantrowitz, publisher of FinAid.org and a financial-aid and college-planning author.
Fog obscures the Capitol dome in Washington, D.C., Monday, Dec. 10.
In an editorial in The Kansas Star published last week, University of Kansas Chancellor Bernadette Gray-Little and University of Missouri Chancellor Brady Deaton wrote that the automatic federal spending cuts potentially could hurt students’ futures in higher education.
“Without [federal financial aid], many … students will take longer to graduate, will have to take out more loans and will simply drop out,” they wrote. “For these students, their future prosperity will be dimmed, and with it, the hopes of a nation that is facing serious workforce shortages in a range of fields.”
These spending cuts would affect a range of financial-aid programs, Kantrowitz said, including but not limited to the TRIO and GEAR UP programs, which provide low-income and minority students with education funds, as well as college-access challenge grants and Federal Work-Study.
Cuts to the Federal Work-Study program, which provides students with funds earned through part-time jobs, would likely result in a reduction in the number of Work-Study jobs available rather than fewer required hours, Kantrowitz said. Likewise, the U.S. government would reduce the number of available Supplemental Educational Opportunity Grants (SEOG) rather than decreasing the amount of money the grant provides.
Kris Wright, director of the Office of Student Finance at the University of Minnesota, said these changes in particular would affect students at the school greatly.
“We have thousands of students who receive work-study and SEOG in Minnesota and the loss of funds will affect them by reducing money for work-study and SEOG,” Wright said.
The Federal Pell Grant program — which provides funds to undergraduate students based on financial need, school costs and their status as a part-time or full-time student — would be exempt from the tax cuts because the Budget Control Act of 2011 has already determined specific funding levels for the program for Fiscal Year 2013.
In addition, should negotiations fail, subsidized interest on the Stafford loan would be eliminated. Kantrowitz noted that the 3.4% interest rate on subsidized Stafford loans to undergraduates is the result of a one-year extension that costs the government about $6 billion. The “fiscal cliff” would likely put new loans made after July 1, 2013 back to the original 6.8% interest rate.
Still, Michelle Brown-Nevers, associate vice president for student services at the University of Pennsylvania, said sequestration would more directly impact students enrolled at schools that don’t have a “no-loan policy,” which eliminates loans from low-income students’ financial aid, or the ability to cover the cuts with aid.
“Although the fiscal cliff … will affect several aid programs, Penn’s traditional undergraduate students may not directly feel the impact as the university will make up the difference with university resources in support of our no-loan policy,” she said.
The fiscal cliff would also affect government research grants, Kantrowitz said. Gray-Little and Deaton wrote that the fiscal cliff could reduce funding for research that “not only creates jobs directly and through the commercialization of discoveries but that also saves lives.”
In terms of tuition, Kantrowitz specified that the fiscal cliff would “increase some college costs, which might result in tuition increases at some colleges.”
Wright said he doesn’t expect that the University of Minnesota’s tuition would rise as a result.
“If, however, the state has to make up for lost federal funds, it could impact the support the university receives from the state government and that could impact tuition,” he added.
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