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The Changing Face of Student Finance
Congress cut benefits; students and grads scramble to catch up.

by Charisse Dengler
 
In early February, Congress passed a bill that inspired outrage among students and educators across the nation. The Deficit Reduction Act, which was created to reduce the nation's deficit, has sliced billions of dollars in funding from major educational programs; but is it really as bad as it seems?

As it calls for the largest reduction in federal aid programs to date, the Deficit Reduction Act has been touted as a necessity by Republican supporters, who say the bill will help reduce the weight of Medicare payouts.

"My budget funds our priorities—starting with funding the United States military, promoting alternative sources of energy, investing in math and science education and basic research, and helping to care for the poor and the elderly," President Bush said in a February press release.

"At the same time, my budget tightens the belt on government spending," he said.

"Our economy leads the world, yet we cannot be complacent," he continued.

"Every American family has to set priorities and live within a budget—and the American people expect us to do the same right here in Washington, DC."
- George W. Bush

"To keep our economic momentum, we need to look at the challenges down the road and respond with wise policies now. And one of the most important policies we need to pursue is spending restraint in Washington, DC."

Bush went on to talk about the act's effect on federal aid.

"The Deficit Reduction Act makes important improvements to federal student loan programs," he said. "The bill cuts excess government subsidies to lenders and makes other reforms that will help us reduce overall student loan costs by about $22 billion. With that money, we will save taxpayers $12 billion—because we intend to increase student aid by 10 additional billion dollars. What I'm telling you is, the students are getting the money, and we're making the program a lot more efficient for the taxpayers."

But many students and educators disagree, saying the government's spending for the war on terrorism has stripped money from education, and they are quick to point out that a decrease in educational funding can have widespread negative effects on a society.

In a forum in Cleveland earlier this year, President Bush answered some tough questions.

When he was asked how he expected students to afford college while the war in Iraq was costing individual households an average of $19,600, he answered by saying, "We can do more than one thing at a time."

Many students don't believe him. In fact, numerous student organizations tried their best to kill the now infamous act, including the University of California Students Association. Members of the association united with students nationwide, calling their representatives and protesting the legislation.

Jeannie Biniek, External Vice President of the Undergraduate Students Association Council, told the Daily Bruin that the act will make it impossible for many students to attend college.

At a time when student fees have increased 79 percent in the last five years, [legislators] should be taking steps to make education more affordable, not less.
- Jean Biniek, VP Undergraduate
Student Association Council, UC

The United States Students Association (USSA) is another student organization voicing its opinion on the cuts to higher education programs and funding.

"The whole mantra is ‘inform, educate, organize, and mobilize,'" Tony Anderson, an organizer of the United States Students Association's Grant Aid Now! campaign, told Newhouse News Service.

However, even opponents of the act have to agree that changes to certain programs are beneficial to students and parents both.

One such program is the prepaid tuition plan. Prepaid tuition plans make it possible for students and their parents to lock in a tuition rate, protecting them from unforeseen tuition increases. In fact, parents can even lock in a rate that is less than the current tuition rate at a university simply because universities offer discounts to families who prepay.

Under the act, tuition that is prepaid no longer counts against financial aid as severely. Instead, prepaid plans are now considered parental assets, leaving many parents of students planning to attend private universities turning toward them.

One option in prepaid plans is the Independent 529 Plan (I529), a plan available at 255 private institutions across the country. More information on the I529 can be found at www.independent529plan.org.

The downside to the I529 is that parents have to bank on the hope that their child will still want to attend and be accepted to attend a private university. If a student is interested in attending a public university, state-sponsored 529 plans are also available.

"The goal is for this to be revenue-neutral. The member institutions aren't in this for the money. They're in it to make college affordable."
- Nancy Farmer, CEO, Independent 529 Plan

Nancy Farmer, President and CEO of the Independent 529 Plan, told the Minneapolis Star Tribune that she thinks the amount of money invested in prepaid tuition plans will definitely increase due to changes brought about by the Deficit Reduction Act.

Other changes implemented by the act include modifications to interest rates on Stafford and PLUS loans. The act not only raised Stafford loan interest rates from 4.7 to 6.8 percent and PLUS loan rates from 6.1 percent to 8.5 percent, but fixed the rates on these loans, as well.

The act changed the amount that first-year and second-year students can borrow in subsidized Stafford loans after July 1, 2007. First-year students will see an increase from $2,625 to $3,500. Second-year students will be able to borrow a maximum of $4,500, up from $3,500.

Graduate and professional students will see an increase in the amount they can borrow under unsubsidized Stafford loans, with the limit set at $12,000 instead of the previous $10,000. The act also makes it possible for graduate and professional students to take out PLUS loans.

Nancy Farmer, President and CEO of the Independent 529 Plan, told the Minneapolis Star Tribune that she thinks the amount of money invested in prepaid tuition plans will definitely increase due to changes brought about by the Deficit Reduction Act.

Other changes implemented by the act include modifications to interest rates on Stafford and PLUS loans. The act not only raised Stafford loan interest rates from 4.7 to 6.8 percent and PLUS loan rates from 6.1 percent to 8.5 percent, but fixed the rates on these loans, as well.

The act changed the amount that first-year and second-year students can borrow in subsidized Stafford loans after July 1, 2007. First-year students will see an increase from $2,625 to $3,500. Second-year students will be able to borrow a maximum of $4,500, up from $3,500.

Graduate and professional students will see an increase in the amount they can borrow under unsubsidized Stafford loans, with the limit set at $12,000 instead of the previous $10,000. The act also makes it possible for graduate and professional students to take out PLUS loans.

Also, since the Pell Grant maximum has been level-funded at $4,050 for the past four years, a new program has been created to enhance Pell Grants. The new grants, which will be available through 2010, require students to meet every specification for a Pell Grant, as well as be a citizen and full-time student.

Grants for first-year and second-year students under this Pell Grant program are referred to as Academic Competitiveness Grants and will make it possible for first-year students to receive $750 and second-year students to receive $1,300. Third-year and fourth-year students will be eligible for National Science and Mathematics Access to Retain Talent Grants (SMART). SMART grants will provide third-year and fourth-year students studying math, science, engineering, technology, or foreign languages having to do with national security with up to $4,000 for school.

The act also makes some changes in deferment policies regarding those in military service. Federal Family Education Loans, Direct Loans, and Perkins Loans taken out on or after July 1, 2001, by students who are serving in the military or National Guard can now be deferred for up to three years.

Sunsets on teacher loan forgiveness program benefits have been removed, and the act no longer requires students to have forbearance agreements approved in writing.

Overall, the act has some good points and some bad. For example, the act broadens the scope of those who will be able to qualify for loans by doing away with restrictions on distance learning and changing the way in which a student's need is calculated, both of which are beneficial to students and their families.

The changes made to the need-analysis requirements deal with student assets and student income protection. Dependent and independent student contribution assets were decreased from 35 percent to 20 percent, and both dependent and independent students will find that the student income protection allowance has increased.

Another advantage to students is the reduction of origination fees for subsidized and unsubsidized student loans. For students taking out Family Federal Education loans on or after July 1, 2006, origination fees will decrease to 2 percent. Origination fees for these loans will drop to 1.5 percent for loans taken out on or after July 1, 2007, and to 1 percent for loans taken out on or after July 1, 2008. The fees are set to keep dropping every year, and loans taken out on or after July 1, 2010, will have no origination fees.

Origination fees in connection with direct loans will also decrease. Direct loans taken out before July 1, 2007, will have an origination fee of 3 percent, and that fee is scheduled to drop to 1 percent by 2010.

Republican Senator Jon Kyl (R-AZ) supported the act in its infancy.

However, the act also makes it impossible for students to consolidate their loans while still in school and does away with spousal consolidation, changes that are not in borrowers favor.




 


Article Title : The Changing Face of Student Finance
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Education is one of the most basic right of any human, but with the increase in prices and the costs involved in education this has made these rights turn into a privilege which very few can enjoy. Any normal person today in the whole of United States has to take an education loan at one point of time to pay for their education fees.

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