Gridlock in DC Likely to Freeze Federal College Grants and Loans

Paying for College
1

<p>Consequences</a> for Student Financial Aid If Congress Doesn't Raise the Debt Ceiling - Fastweb</p>

<p>Next Tuesday, the Feds will have many more bills than they have cash, unless an agreement passes in DC. The Chinese debt-holders, service-persons and Social Security will be paid first. There will not be enough money in the Federal Government accounts to pay for the Federal Pell Grants and to release Federal student loan funds (which are all now directly provided by the Federal government). As described below, college grants and loans have been ranked by the Feds as a lower priority in case of limited funds. </p>

<p>Excerpts of the above article:</p>

<p>"Instead of defaulting on the debt, the White House would need to decide which among the other expenses must be cut. Social Security benefit payments account for about 20% of spending, Medicare and Medicaid for about 23%, other mandatory expenses for about 12%, the military for about 20% and discretionary spending for about 19%. (The interest on the national debt is about 6% of the budget.) Discretionary spending mostly includes spending through federal agencies and departments. The top seven department budgets (Health and Human Services, Veterans Administration, Education, Housing and Urban Development, Department of Homeland Security, State and Department of Justice) represent about half of the total, or about 10% of spending. The federal government cannot take the Social Security, Medicare/Medicaid and military budgets off the table and still cut spending by 40%. Cutting all discretionary spending just wouldn’t be enough.</p>

<p>In such an environment, spending on student financial aid would almost certainly be eliminated. Student financial aid is not one of the top spending priorities according to internal rankings by the Office of Management and Budget. It isn’t even in the top 10. Effectively this means that the Federal Pell Grant program and the federal education loan programs, which together represent more than $150 billion a year, would be suspended. This would force millions of students to drop out of college because they could not afford to pay for college without student aid. This, in turn, would force most colleges to lay off faculty and staff. Many colleges would have to close. The only alternative would involve doubling tuition rates, guaranteeing nationwide tuition riots.</p>

<p>But this is likely to be the least of many problems. A 40% cut in government spending would plunge the US into a long-term recession. Poverty would be widespread, especially among senior citizens, and mortality rates would increase significantly. Economic growth would stall and millions of jobs would be lost. Money market accounts would have to “break the buck”, causing significant losses for investors. If the Federal Reserve were forced to buy massive quantities of US Treasuries, it would lead to significant inflation. Defaulting on the debt would also hurt the world economy, since half of the US national debt is held by foreign investors."</p>

<p>Write or call your member of Congress and tell them we need a compromise to solve this crisis.</p>

2

<p>I think there is an inherent problem with this “article.” In the first place, “millions” of student are not in college today, and they will not be enrolled in college next Tuesday; they are on summer break. Most colleges don’t start until late August or September. Secondly, the feds don’t release money until the college reports back to that the student is actually enrolled for a course of study. In other words, there is no money being held up bcos it wouldn’t have been distributed new anyway. At my kid’s college, for example they don’t receive federal loan money until late September. </p>

<p>Perhaps the debt ceiling impact would be on students who just started a summer program. But “millions”? Hardly.</p>

<p>Other than that, it’s a fine piece of political spin.</p>

3

<p>I do think it is a bit early to know what a default/lack of debt ceiling lift could do to Federal student loans – but it IS a good idea to contact your Congressperson with your concerns and opinions. Things have got to get moving or everyone will hurt.</p>

4

<p>If the crisis is rnot esolved, many colleges are going to have cash flow problems. A large part of Pell grants are disbursed to colleges in early August. They count on that money to pay bills, particularly community colleges with high percentages of Pell recipients. </p>

<p>[News:</a> Anxiety and Uncertainty - Inside Higher Ed](<a href=“http://www.insidehighered.com/news/2011/07/27/what_will_happen_to_student_aid_if_debt_limit_is_reached]News:”>http://www.insidehighered.com/news/2011/07/27/what_will_happen_to_student_aid_if_debt_limit_is_reached)</p>

<p>Excerpt:</p>

<p>"The timing is especially difficult because the Aug. 2 deadline falls near the start of the fall semester for many colleges and universities. Several financial aid advisers at NASFAA’s recent conference said that their disbursement date, when they are scheduled to receive federal funds, falls on AUGUST 3RD, so even a short-term federal cash flow problem will be disruptive, Draeger said.</p>

<p>For institutions that depend on tuition for much of their operating budget, even a short-term delay could cause a ripple effect. The colleges would be unable to pay their bills once they have spent their cash reserves, and students who depend on loans for living expenses would probably not receive that money, he said.</p>

<p>Many community colleges, where budgets are tight and many students receive federal financial aid, might be most at risk. But so far, many administrators have hoped that a deal would be reached in time, said David Baime, vice president for government relations at the American Association of Community Colleges."</p>

5

<p>

</p>

<p>Sorry, but that is not even logical nor statistically possible. A large part of students are not taking classes in August. There is no distribution until fall for fall students. Obviously, any summer students could be impacted.</p>

<p>

</p>

<p>Kinda defeats the (political?) purpose of this thread, does it not></p>

6

<p>“A large part of Pell grants are disbursed to colleges in early August.”</p>

<p>Actually I think there is a fair amount of truth in this statement. My oldest will be graduating in August, her first two years were spent at a private 2 year college. It was very small and I visited with the FA office alot, as her father had a major stroke right before she started. The school posted Pell Grants to the student accounts before the fall bills became due which was in August, but after the student registered for classes. This prevented a kid from being dropped because they didn’t pay since they were waiting on financial aid. </p>

<p>Now difference checks (those checks a student got because there was some money left over after the bill was paid) were not disbursed until the 30th or whatever class day to make sure if a kid dropped out they weren’t getting paid. But the college had the money from the Pell Grants and Staffords before they cut the difference checks, so yes, I can see where this is making some schools very nervous. Especially those schools that do not have a large amount of cash to cover expenses.</p>

<p>Even the public university she finished at, applied the Pell Grant to the account, or other financial aid to the student account by the due date which is approx 1 week before the start of classes</p>

<p>“” Full payment of any previous balance plus a payment for the current term must be made by the payment due date established by the University. (Approximately one week before the start of the semester, students with prior balances will be dropped from all registered classes for the current term.)
Students who have not made a payment for the current term will be dropped from classes prior to the first class day of the term. (Payment includes any financial aid posted to students’ accounts.)
Current term tuition and fee amounts for students dropped prior to the first class day will be removed from students’ accounts"</p>

<p>Obviously in order to post financial aid to an account before classes start, the school has to have the money. Note this talking about financial aid, not merit scholarships (Which take forever to post to the account at daughter’s school). If her need-based aid had not posted before school started, I would have had to set up a payment plan, thus incurring that extra fee in order to keep her enrolled till the FA posted. </p>

<p>Son starts this fall at a private school where he is getting institutional aid in addition to merit and need-based federal aid. I’m assuming that the institutional aid will post, allowing him to start classes, but I am concerned about what will happen to the federal need-based aid. Son’s school has a no-loan tuition policy for families with under a certain amount of income, but that only covers tuition and fees. My son receives merit based scholarships too, but there are plenty of kids out there who don’t and without the federal aid, would not be able to attend. My son and I know several of these kids personally, and I, (unlike it seems many others on this board) am concerned about other kids and their families, not just my own. </p>

<p>Normally I would not express my thoughts on this type of matter online, but, IMO only, it’s a sad, sad, point we’ve gotten to, where the attitude in this country has changed to a “as long as me and mine have what we want, to heck with everyone else”. I can tell you, anyone’s world can be turned upside down in a moment, and let me assure you, sometimes those turning points can be so drastic, that it makes no difference what kind of plans you had in place, you can’t cover every possible scenario. I know there are those that say you should prepare and plan, but trust me, you can’t plan for every possible thing that could go wrong and if you think it can’t happen to you, well, I hope you never have to find out.</p>

7

<p>Student aid is “drawn down” in the government system by schools when it is disbursed to the student. Aid cannot be disbursed to the student more than 10 days in advance. So while schools may apply the aid to a student’s bill in early August, it is not actually disbursed to the student’s account until 10 days before the first day of class. Once the 10 day mark hits, schools will either send out the record daily or will send in batch every so many days. This means that the bulk of Pell money will not be requested until mid-to-late August.</p>

8

<p>Just my opinion, but I would be shocked if student aid programs were cut like this. It would be political suicide. Campus based funding (SEOG, CWS) was drastically cut this year, so I don’t know how much more that can be cut, although it’s a possibility. I just can’t see Pell being cut; I think the program will be preserved. I could see loans possibly all being unsub (that is, no more sub loans), as this would be a cost savings for the government … but I have not heard that this will be the case. It’s just my guess as to where a cut might shake out.</p>

9

<p>

</p>

<p>Yes, but that doesn’t mean that the college had obtained the money from the feds. The college just credited your child’s account for cash to be received later. </p>

<p>At my D’s college, the Stafford cash doesn’t arrive until after the student actually sets foot on campus. I assume that this is due to the fact that it is a loan – not a grant like Pell – and the student has to show up first. Obviously, colleges experience summer melt – not all who send in a deposit will show up in the fall. Some have family emergencies, some decide to attend a college closer to home.</p>

<p>But agree with kelsmom. The feds may eliminate the Stafford interest subsidy, but will not eliminate Pell Grants. And writing opinion pieces such as: “In such an environment, spending on student financial aid would almost certainly be eliminated.” is just scare tactics and political posturing. No one has even come close to making such a recommendation.</p>

10

<p>Unfortunately, higher education was by far the biggest loser in California’s cuts-only budget. We as college parents are of course outraged at such cuts, but politicians have to balance all of the outrage from all the various constituencies. Should we preserve federal education benefits at the expense of Social Security recipients? Poor people? Sick people? Prisons? Infrastructure? The military? With taxes apparently off the table, these are the difficult choices that Congress faces.</p>

11

<p>Will never happen. This is always a fight between a sitting president of the opposite party as the legislative branch. It has gone on since 1939 when the first debt ceiling was put into effect.</p>

<p>Move along there is nothing new here… been going on for over 70 years.</p>

12

<p>Regardless of the timing of the debt ceiling, there is a major fight underway in Congress that could result in the maximum Pell grant per year being reduced by $2,000. That is the net effect if the budget proposal would move forward that passed the US House earlier this summer.</p>

<p>The following cuts to Federal aid have ALREADY been approved:</p>

<ul>
<li><p>Stafford subsidized loans will go up to 6.8% interest rate after summer 2012 , which is the same interest rate as unsubsidized Staffords. The difference is whether the Feds pay the interest while in college.</p></li>
<li><p>The Perkins subsidized loan program ends this year, and the colleges are ordered to return all remaining funds to the US. Obama has a plan to partially replace it with a higher interest rate program, but there is no assurance it will be approved.</p></li>
<li><p>There will no longer be subsidies of loans to students in graduate and professional schools.</p></li>
<li><p>Pell grants were ended for summer school.</p></li>
<li><p>The Byrd and other Federal merit scholarship programs were eliminated.</p></li>
</ul>

13

<p>Just want to add … Pell grants are not actually eliminated for summer school. After two years of allowing students to receive up to two full Pell awards in a single financial aid award year, the Pell program is returning to the traditional single 100% of the scheduled Pell award in an aid year. Students who do not receive their full 100% of their first scheduled award in fall & spring would still be able to receive the remainder during the summer … so if a student misses a semester in the year or attends less than full time in one or more semesters during the year, that student will still have some Pell eligibility for summer.</p>