Obama Promises: Increase Federal Aid?

0
Obama Promises

Source: web

By now, we know President Obama was re-elected for a second term. The president, who gained the support of younger Americans and especially college kids, promised again to increase federal financial aid. Unfortunately, a growing number of experts say this could divide Congress further say this first, shouldn’t be top priority, and second, it could lead to big increases in how much takes to attend and graduate from college.

Most in Congress say the top priority should be the automatic spending cuts that are set to kick in at the end of the year, also known as the fiscal cliff. Not only that, but they say they still have to find a way to prevent, if possible, the 8% cut that would allow Obama to keep his promise and there simply isn’t time right now. Still, aides from the Obama camp insist he’s planning on moving quickly and says he’s committed to working with Republicans, if he can, but that he will deal with the more than $1.2 trillion in overall cuts regardless.

There’s another interesting – and puzzling – dynamic at play, though. A new government report, released on Wednesday, shows Americans aren’t looking for federal grants, but instead, are taking out more student loans. In fact, September represented a record breaking month. Consumer borrowing rose in September to more than $11 billion and while some of it was credit card debt, the lion’s share was in student loans. That brings the total consumer debt amount to $2.74 trillion according to the Federal Reserve.

The question is, what’s the hurry? After all, if these efforts begin now, they would come at a time when federal financial aid is already on the decline. A report released by the College Board shows that federal grants are down to $49 billion during last year’s economic period, which represents a 5% drop – and also the first one in five years. Not only that, but federal work studies, which provide the opportunity for colleges to create on campus jobs for students, also fell. They’re down 4% to $972 million. This is the first time that number has not hit a $1 billion threshold in ten years.

Further complicating things are concerns that even more cuts, from colleges around the nation, could come as early as the spring. There’s a law that’s up for renewal, the Higher Education Act, which lets lawmakers know how much money is needed for these programs. If the numbers are down, then those lawmakers are going to adjust accordingly, making this a complicated scenario if it proves to be a temporary drop.

What no one knows for sure is why student loans are on the rise as these grants are declining. It makes little sense; why borrow – especially in this poor job market – when you can apply for government grants? The grants also affect families that don’t even have ties to any college – meaning they don’t have kids enrolled in higher education. Tuitions are rising, of course, but tax dollars pay for those grants – and higher tuitions mean higher taxes no matter how you slice it.

Now, though, colleges are warning students and their families to prepare for the reality of higher costs and fewer financial programs if this plays out. Financial aid, even at its best, can’t keep up with rising tuition costs anyway and then, back to the original question – if fewer are applying for student aid but instead are applying for student loans, it introduces long term problems for those carrying that student loan debt. The interest, higher costs and a poor job market will come together in extraordinary ways. This doesn’t bode well for Obama’s second term.

Students and parents are being encouraged to contact the colleges they’re attending in order to get a head start on seeking out scholarships and alternative methods of financial aid. Not only that, but there will likely be new pushes that encourage college students to avoid credit card debt. The CARD Act could help in that it no longer allows credit card companies to market students on campus and getting a credit card became a lot more difficult for those under the age of 21 and in college. Still, though that leaves a lot of vulnerability due to another curious fact: student credit card debt is actually on the rise.

There’s a lot of open questions that boggle the common sense mindsets of economists. These current figures associated with student loan debt, grant totals and other dynamics are just the tip of the iceberg. President Obama’s focus on this issue instead of the looming fiscal cliff is another one of those questions that seem to have no common sense answers.

What are your thoughts? Do you think the priorities are straight for the president’s second term and why do you think student loans are up as college grants are down? Share your thoughts with us.

Share.

About Author

David is a CPA and has spent the past decade as a financial adviser helping clients meet their fiscal objectives. With an appreciation for journalism, he has spent the past few years overseeing several financial columns as well as writing two previous finance blogs. He resides on the East Coast with his wife and two sons and has guided many through the recent recession while providing a no-nonsense approach to spending and saving.

Leave A Reply

Advertiser Disclosure

CREDIT DAD is an independent, advertising-supported website. Many debit cards, credit cards and other financial offers that appear here are from companies from which CREDIT DAD Websites receive compensation. This compensation may impact how and where products appear on this website (including, for example, the order in which they appear). CREDIT DAD Websites do not include all card offers in the marketplace.

Advertiser Disclosure

CREDIT DAD is an independent, advertising-supported website. Many debit cards, credit cards and other financial offers that appear here are from companies from which CREDIT DAD Websites receive compensation. This compensation may impact how and where products appear on this website (including, for example, the order in which they appear). CREDIT DAD Websites do not include all card offers in the marketplace.