Although the election results brought back the same president and a still-divided Congress, upcoming changes to the federal budget may affect the way college students finance their education.
The American Opportunity Tax Credit, which gives families with college students up to $2,500 of tax credits, may not be available in the 2013 fiscal year. The tax credit is set to expire, but President Barack Obama has requested a permanent extension.
According to Brent Shock, the director of Student Financial Assistance at Miami University, if this tax credit is not extended, many Miami students, especially those from middle class families, will feel direct effects. Shock said he does not fully understand how cutting the tax credit might benefit the economy.
“I don’t see much value in losing the Opportunity Tax Credit,” Shock said.
George Davis, the chair of the economics department at Miami, also said the expiration would have a bigger effect on family finances than the economy as a whole.
“If the Opportunity Tax Credit didn’t pass, I’m not convinced it would have a huge effect on the economy, but it could have a large impact for families,” Davis said. “If many middle class families have $2,500 less to spend that could affect their spending habits and end up impacting the economy.”
Another potential change for the 2013 budget is the small but notable increase to the maximum Pell Grant award from $5,550 to $5,635. Obama has called for the increase, but the Pell Grant Program, which helps low-income students pay for college, could face funding shortfalls after 2013.
Roughly 16 percent of Miami students receive Pell Grant funds, according to Shock.
Junior Brenton Richardson is one of the many students who receive Pell Grant funding.
“I couldn’t go to college if it wasn’t for financial aid,” Richardson said. “I take out some personal school loans but most of my school is paid for by scholarships and grants, especially the Pell Grant.”
Davis said the increase in Pell Grant funds was most likely proposed to account for rising costs of college and to account for inflation.
“[The Pell grant] increase doesn’t seem like a huge change, but it would probably help students out a lot,” Davis said. “I’d assume that rising prices from inflation would pretty much eat up any increase made by Congress.”
Another financial aid program that has the potential to change is the federal subsidized loan plan. The federal subsidized loan option is granted to students in need by the U.S. Department of Education and is repaid with interest after the student’s graduation. Currently these loans are repaid at an interest rate of 3.4 percent. The rate was kept low as a result of a one-year delay on the increase which Congress passed after President Obama and Governor Mitt Romney both publicly supported the decision. After July 1, 2013 the rate is set to jump to 6.8 percent unless Congress takes further action.
According to Shock, Congress chose to extend the low interest rate for only one year because they are not sure how to pay for the estimated $6 billion decision.
“The decision was so close last year that I thought it wasn’t going to pass,” Shock said. “I have no way of knowing if it will pass for next year or not.”
According to Davis, the interest increase might cause fewer students to take out loans and in turn could reduce overall enrollment across the board.
Richardson said the interest rate jump is an issue college students should pay more attention to.
“They tried to pass the loan interest rates increase a while ago and it was handled pretty poorly,” Richardson said. “I felt like the administration was being sneaky about it. I feel like they think they could raise the interest rates without too much fuss because our age group is less likely to notice.”
The most recent development in the realm of federal financial aid is the Pay As You Earn plan, which was introduced by the Department of Education last week. This plan allows federal borrowers to make loan payments based on their postgraduate income and promises to forgive the debts after 20 years if the student has made consistent, timely payments.
Shock said traditional student loans are set to be paid off after 10 years, and most students are able to pay off their college debt in full within that timeframe.
“The first plan was 25 years but they shortened it according to calculations; [the decision] is pretty favorable to students,” Shock said.
Davis said reducing the costs for college will raise the demand for a more educated workforce.
“The issue involved in that an individual is investing in themselves by getting a college education and is setting themselves up to obtain a higher income over their life time in order to be able to pay for that investment,” Davis said. “The question for students will be whether or not the jobs they get will provide them with the means to pay back their loans and the economy will reflect that.”
The Obama administration has also called for more transparency on college costs in general. One effort is to implement a uniform document that all colleges would use to inform students of college costs and the grants, scholarships and loans available to them.
Shock said most universities, including Miami, have their own version of this form and he sees little value in requiring a uniform document.
Congress has six more weeks to make decisions on the 2013 federal budget including the plans for federal financial aid for education.