How Will the Election Results Affect Student Financial Aid? - Fastweb

How Will the Election Results Affect Student Financial Aid?

Mark Kantrowitz

November 08, 2012

Under the President’s proposal, the Perkins loan program would be expanded from $1 billion a year to $8.5 billion, but the interest rate would be increased from 5 percent to 6.8 percent and subsidized interest benefits would be eliminated. This would save students money, despite the increase in the interest rate, because it would shift borrowing from private student loans to federal. The President’s proposal would also double the number of Federal Work-Study jobs over a five-year period. Colleges that have below-average increases in tuition and/or net price would get more of the extra campus-based aid funding. These proposals are likely to be considered as part of reauthorization.

Nevertheless, the President’s campus-based aid proposal is unlikely to have a big impact on reining in tuition increases because much of that is not under the college’s control. The primary driver of public college tuition inflation, for example, is cuts in state support of postsecondary education. There is, however, some positive news regarding state support. Proposition 30 passed in California, using temporary tax increases to avoid a 20.3 percent increase in public college tuition.

In the absence of Congressional action, President Obama is likely to continue exercising his regulatory and executive authority to make some improvements in federal student aid programs, as he did with the fast-tracking of the improvements in income-based repayment (which will become available later this year). But there are limits to the President’s authority. For example, only Congress can appropriate funding.

President Obama is also likely to continue his efforts to improve disclosures, such as the financial aid shopping sheet, to help families make more informed decisions about the tradeoffs between college affordability and quality. If enough colleges do not adopt the financial aid shopping sheet voluntarily, Congress might act to make the shopping sheet mandatory. Families also need information about the outcomes from their investment in higher education, such as data linking the average debt at graduation, average starting salaries and unemployment rates for specific colleges, degrees and majors. Improving disclosures is a bipartisan issue.

Despite all of this, maintaining the status quo will yield a decline in college affordability. Federal and state grants will fail to keep pace with increases in college costs on a constant-dollar per-student basis. This will continue a long-term trend that has shifted more of the cost of college from the federeal and state governments to families. Increases in the financial burden on families will force some students to graduate with thousands of dollars of additional debt. Others will try to save money by shifting their enrollment from higher-cost colleges to lower-cost colleges, such as from private non-profit colleges to public colleges and from 4-year colleges to 2-year colleges.

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