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Year in Review: Ups and Downs for Student Financial Aid in 2011

Mark Kantrowitz

January 05, 2012

President Obama announced a plan for cutting federal student loan payments by fast-tracking improvements in the income-based repayment plan and providing a discount for consolidation of split borrowers. These changes were part of a response to a petition to forgive student loan debt on the White House’s We the People web site. The new income-based repayment plan cuts the monthly loan payments by a third from 15% of discretionary income to 10% and forgives the remaining debt after 20 years in repayment instead of 25 years. These changes were originally enacted by Congress for new borrowers of federal student loans on or after July 1, 2014. President Obama is making the changes available two years earlier, to borrowers who do not have any loans prior to 2008 and who have at least one new loan in 2012 or a subsequent year. The consolidation of split borrowers provides a slight discount to encourage borrowers with loans in both the Direct Loan program and the federally-guaranteed student loan program to consolidate their loans into the Direct Loan program.

The US Department of Education and Consumer Financial Protection Bureau launched Know Before You Owe, a draft design of a proposal for standardizing college financial aid award letters.

All colleges are now required to provide net price calculators on their web sites to help prospective students estimate their bottom-line cost of college. The net price is the difference between the total cost of attendance and just grants. It is the amount of money the family will have to pay from savings, income and loans to cover college costs. The accuracy of the calculators varies significantly from college to college, making them less useful for comparing college costs. Families should treat the calculators as providing at best a ballpark estimate of college affordability. The US Department of Education also published new college cost and net price rankings.

The College Board reports that in-state tuition and fees at public 4-year colleges increased by 8.3% from 2010-11 to 2011-12, compared with 5.7% at out-of-state public 4-year colleges and 4.5% at non-profit 4-year colleges and a 3.6% increase in the Consumer Price Index. Public 4-year colleges experienced double-digit tuition inflation in ten states: California, Arizona, Georgia, Washington, Nevada, New Hampshire, Hawaii, Florida, Colorado and Tennessee.

The Consolidated Appropriations Act of 2012 (P.L. 112-74, December 23, 2011) maintained the maximum Pell Grant for 2012-13 unchanged at $5,550 by closing the funding shortfall left by the Budget Control Act of 2011. However, the legislation achieved the savings by narrowing eligibility for the Pell Grant program along with other cuts in federal student aid programs. The number of semesters of Pell Grant eligibility was cut from 18 to 12, the automatic zero EFC income threshold was reduced from $32,000 to $23,000, the minimum Pell Grant was increased from 5% of the maximum Pell Grant to 10% and students who don’t have a high school diploma or GED can no longer qualify for federal student aid by passing an Ability-to-Benefit Test. The federal government will no longer pay the interest during the 6-month grace period on new subsidized Stafford loans made to undergraduate students in 2012-13 and 2013-14. Finally, there will be an across-the-board 0.189% cut in funding for other federal student aid programs, such as Federal Work-Study and the SEOG Grant programs.


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