President Obama’s budget alters student aid
By Kim Puckett | News Editor
President Barack Obama’s proposed budget includes several provisions affecting higher education financial aid. Increasing the maximum Pell Grant, changing the student loan system and making permanent the American Opportunity Tax Credit could change the way students get their college funding.
Arne Duncan, national education secretary, advocated Obama’s budget in a Department of Education news release.
“President Obama’s proposed budget calls for a historic investment to make college more affordable and accessible,” Duncan said.
The president proposes raising the Pell Grant maximum from the current $4,731 to $5,350 with a yearly adjustment for inflation, which does not currently exist. The increased funding would most directly benefit students who already receive the maximum Pell Grant, according to Linda Handy, University of Indianapolis director of financial aid.
“Students who have the highest financial need will have access to the extra $619, and the money will be scaled down from there,” Handy said. “So, it’s not an-across-the board increase, but it’s obviously positive for our students.”
UIndy has 1,150 students who currently receive Pell Grant funding.
“We have a significant population of students who use the grant,” Handy said.
Along with an increased Pell Grant, student funding also could be affected through proposed changes to the loan process. President Obama’s budget calls for a nationwide university change from the Federal Family Education Loan program to the Direct Loan program through the federal government. Instead of borrowing from private lenders, as in the FFEL program, all students will borrow directly from the program funded by the U.S. Treasury Department, according to the National Association of Student Financial Aid Administrators’ Web site (nasfaa.org).
Handy said this change in the loan system has three main problems for the country, students and universities. Federalizing the program would mean the federal government assumes more debt. Also, loan processes for students would be disrupted and university administrators would have to change systems and procedures.
“As long as student loans are in the private sector, there is competition and customer service,” Handy added. “The current lenders have default prevention activities and other features that the federal government won’t be able to provide.”
Also, Handy said that with the possible changes, 1.5 percent of every student loan goes toward a processing fee to the government. Currently, students pay a processing fee that is less than one percent of the loan.
“Although the loan system may need an overhaul, looking at other options over the long term may be a better solution than a sudden change,” Handy said. “If these changes go through, we are going to have to scramble to change our processes.”
Another proposed change for higher education in the federal budget is making permanent the $2,500 tax credit for families with children in college, which was part of the economic stimulus package.
The current credit is non-refundable, which means it has to be used toward tax obligations. But the new American Opportunity Tax Credit would be partially refundable for low-income families.
Handy said even if Congress approves all the president’s proposed changes, students will be able to receive comparable financial aid as in the past.
“The bottom line for us and students is that there is going to be a change,” Handy said. “The extent of that change will be seen when the political wrangling is over.”
