Budget bill draws savings from student aid
Date 2/23/2006 12:00 AM | Topic: NewsOn Feb. 8th, the House of Representatives narrowly passed the Deficit Reduction Act of 2005. The $39 billion budget-cutting bill seeks to curb the unsustainable growth rate of mandatory programs that are set to consume 62 percent of the total federal budget in the next decade if left unchecked.
The objective of the act is to cut federal spending on mandatory programs such as Title IV Programs, which administer grants and financial aid to college students and their families.
According to the National Association of Financial Aid Administrators, it is estimated that the bill will cut $12.7 billion from student loan programs over five years. The cuts will reduce federal spending on loan programs, forcing some students to find expensive private lenders to finance their college costs.
Current and prospective college students may wonder about the impact the bill will have on a Luther education.
"There are many things in the reduction act that will actually benefit Luther students," said Janice Cordell, director of Financial Aid.
Cordell explained the act increases the percentage of students' income and assets that are protected when calculating what they will be expected to contribute through the federal need analysis calculation.Â
"This can actually make some students eligible for more need-based financial aid," Cordell said. "It also allows students to borrow a little more through the federal student loan programs, which will reduce the need for students to borrow from the more costly private educational loan programs."
The office of Iowa Senator Chuck Grassley provided some clarification to officials at higher education institutions in the state, detailing the changes made to the student loan program and the benefits it affords students.
The bill increases grant aid to 5.3 million low-income students by up to 99 percent. Specifically, the bill creates a new $3.7 billion grant program for Pell Grant-eligible students in an undergraduate program of study.
College juniors and seniors may also receive up to $4,000 in "SMART" grant aid if they make progress toward a degree in a math or science subject, or foreign language determined to be critical for national security. These awards are in addition to the current Pell Grants for which students are eligible up to a $4,050 maximum.
"The reality is that most students will experience little to no change in their aid eligibility. In addition, although the rates for the Stafford Loan are increasing, the cap is being reduced and in the long run, this may benefit students who will be protected from the variability of interest rates," said Jon Lund, vice president for enrollment and marketing.
Lund also indicated that some of the changes would affect loan consolidation options. The act will eliminate the option for students to combine several loans into one loan at a fixed rate while in college.
"For most current Luther students, it would be wise to consolidate your existing Stafford Loans, if you have any, during Spring Semester 2006 to lock in a lower rate," said Lund.
The Luther College Financial Aid Office has plans to help students with this process.
In addition, the bill increases student loan limits for first and second year students to $3,500 and $4,500 respectively. Raising these limits will help ensure that students can take advantage of the federal loans' favorable lending terms and conditions, and reduce reliance on loans from more expensive, alternative sources. These increases take effect on July 1, 2007.
Kendra Harrisville ('06), who has a federal Perkins loan, says she isn't fully aware how the bill will affect the financial aid she receives.
"I only hope all of these changes will be for the well-being of students, once we graduate," said Harrisville
Among groups most likely to be negatively affected by the budget bill are low-income students. The bill makes cuts in Title IV programs such as the Student Support Services (SSS) program at Luther.
SSS is a project funded by the U.S. Department of Education under the Title IV Higher Education Act. The purpose of the project is to increase the retention and graduation rates of eligible students, particularly low-income, first generation and disabled college students.
Currently, Luther SSS provides services for 160 students. Janice Halsne, director of Student Support Services expressed concerns about the challenges the cuts will create for the program, especially for the students.
"Unfortunately, we are always put on the chopping block when federal programs are changed for budgeting reasons," said Halsne. "It is important to understand the critical role and benefits our services provide for these 160 students and how these deficit cuts will impact them."
Steve Bennett ('08) wondered what the effects of the changes would be.
"In the event of the project being under-funded or eliminated completely, what will be the fate of these 160 students?" Bennett said.
In light of Luther's recent tuition increase, there have been fears that an already increasing college tuition will grow more as financial aid and student loans are impacted.
"We have been committed to trying to make a Luther education affordable for a wide range of students from all socioeconomic backgrounds," Lund said. "In fact, one of the biggest components of our budget at Luther is financial aid; this current year we anticipate spending approximately $22.9 million on financial aid."
Lund referred to a Dec. 2005 article in the Des Moines Register that compared student debt at public and private educational institutions in Iowa. According to the article, Luther students graduated with a lower level of debt than students at all three public universities in Iowa and almost all private colleges.
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Godson Sowah
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