VIDEO: Student Loan Debt is Growing

May 6, 2011 by · Comments Off 

By Sydney Giesey

Student loan debt continues to exceed credit card debt, after surpassing it for the first time last June. At the same time, the federal government has large budget deficits and is cutting state support of higher education to help balance the budget.

This year, Pell Grant Funding is being cut by eight billion dollars. In addition to the cuts in Pell Grants, the federal government will no longer fund the Academic Competitiveness Grant or the Smart Grant. In Texas, state equalization grants will be cut by 30 percent. With all these cuts, loans become a necessity for students. Leaving many in debt right out of college.

Health Care Reform Changes the Student Loan Program

April 23, 2010 by · 1 Comment 

By David Crawford

Now that the president has signed the Health Care Reconciliation Bill into law, it’s clear the current administration is making good on the “change” promise that Obama campaigned for a year and a half ago.

One of the many aspects of the health care bill that continue to have Democrats and Republicans polarized is the overhaul to the provisions of the student loan program and how much control the government has on the direct lending of loans. The student loan revisions have been central to Obama’s education agenda, but many conservatives are skeptical that if the government has too much control of student lending, then a monopoly will occur, leaving students and parents without very many options or flexibility.

The Meaning of a Loan

Unlike scholarships and grants, a higher education loan must be paid back. The bill will eliminate federally subsidized private lending to students and replace it with direct government lending, essentially removing banks as an intermediary to loans. Kevin Womack, a medieval studies major at SMU, said his main concern is his ability to borrow money to pay for college in an economic climate that makes it difficult to not only receive a loan, but also pay any loan back before accumulating debt.

“For me, it’s all about the interest rates and will the change in student loans affect how much I can borrow and how much I have to give back and when,” Womack said. “Private businesses usually seem to be pretty efficient, so I don’t really see why they would change the system, but maybe it will be beneficial for everyone involved in the long run.”

The Effects of the Bill

The change in the legislation is supposed to save $61 million over 10 years, $36 billion of which will go to Pell Grants. Pell Grants are a type of federal grant that does not require repayment and that goes to students whose families demonstrate “financial need” through the criteria of the Free Application for Federal Student Aid (FAFSA). Beginning July 1, 2010, the maximum award for a Pell Grant recipient will be $5,550 and will remain steady until July 1, 2013 when the maximum Pell Grant value will increase according to the previous year’s consumer price index rate for the next five years. After that five year period, funding for Pell Grants will plateau and eventually decrease.

In addition, students who borrow money starting in July of 2014 will have the cap on loan repayments lowered to 10 percent of their income from the current 15 and their loan balances will be eliminated after 20 years, up from the current 15 years.

Even with all the changes to the student loan measure, not everyone is worried about a government takeover of lending policies. Aida Ahmed, an SMU journalism major said the change to the legislation seems more organized and would prefer a fixed loan system over deciding on a private institution to borrow from.

“As long as the interest rates stay fixed and will be lower than what we’d have to pay with competing banks, then the changes work for me,” Ahmed said. “The student college loan debt upon graduation is getting ridiculous. It’s silly you have to pay back thousands of dollars just because you went to school.”

The Outcome for SMU

Marc Peterson, director of financial aid at SMU, said the policy change may allow the financial aid department a better chance to determine its budgeting when offering scholarships to incoming students. According to Peterson, about 72 percent of students at SMU receive some sort of financial aid and that number is now volatile depending on how much lending the federal government does each year.

“Federal loans are offered and don’t need to be paid back until after graduation and the student usually has 10 years to pay it back, which is a great source of financing,” Peterson said. “Knowing how much other aid is available from the federal government and outside scholarships will help us budget to determine how much to offer institutionally. The business is still the same; it’s just a different way of doing it. We’re capable of adjusting and learning new things.”

The two main goals behind the budget reconciliation rules are to reduce future federal deficits and to provide more underprivileged students with a college education. But only time will tell if the new legislation is really an act to benefit students who require financial aid to attend college or another attempt by the government for recession relief.

“What Congress believes is that the private lending program was too costly and the overall savings from the new legislation will contribute to Pell Grants which will help more students in need,” Peterson said. “It’s different, but I think it will work. The bottom line is that students receive some help and more sensitivity if they’re in financial trouble.”