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Congress Approves Cuts to Student Loan Programs

Congress Approves Cuts to Student Loan Programs
TRIO programs, minority-serving institutions lose funding with automatic 1 percent cut
By Charles Dervarics

College students and their families will face higher student loan costs as the result of multiple recent congressional moves. The moves will also spell small cuts for other core financial aid programs.

Before adjourning for the winter holiday break, the House of Representatives and the Senate approved $12.7 billion in long-term reductions to student loan programs (see Diverse, Jan. 12). Part of a $40 billion deficit reduction bill, lawmakers agreed to raise interest rates on parent loans from 7.8 percent to 8.5 percent and set an interest rate of 6.8 percent on Stafford Loans. The Stafford Loans currently cost less than other loans because they follow market rates.

Some of the lenders under the Stafford program have interest rates below 5 percent, says Jasmine Harris, legislative director of the United States Student Association.

The reaction to the bill from education advocates was immediate and angry. Noting that costs at many public colleges are increasing at double-digit annual rates, National Education Association President Reginald Weaver says the move sends a negative signal about the value of higher education.

“Congress cannot ask students to strive for college without the funding they need to attend college,” he says.

Students and their parents are bearing one-third of all the cuts in the budget package, says Rep. Eddie Bernice Johnson, D-Texas, a Congressional Black Caucus member. “Some here in Congress have gone out of their way to make college less obtainable for millions of students,” she says.

The budget package would use a small percentage of the student loan savings for new financial aid spending. Congress has authorized $3.75 billion for a new program with grants to students who have high GPAs and have studied a rigorous high school curriculum. However, critics such as the USSA question whether such a merit-based program would actually improve college access for at-risk students.

Both the House and Senate approved the student loan cuts in a close vote. Due to a procedural matter, however, the House must re-vote on the issue in late January before it can become law.

In its flurry of December activity, however, Congress approved and President Bush signed into law two bills that will result in a net loss of funds for many financial aid programs in 2006.

Congress approved a U.S. Department of Education funding bill that instituted funding freezes for work/study, supplemental grants, TRIO programs and other services. Later, lawmakers voted for a separate Pentagon spending bill that slices 1 percent from all discretionary programs, whether they are defense-related or not. That move means the funding freezes actually translate into small cuts.

Work/study will lose about $9 million, while the budget for supplemental grants would decline by about $7 million. The 1 percent cut also would cancel out a small planned increase in the federal program for historically Black colleges and universities. Under the education bill, HBCUs would receive an extra $2.5 million, but that amount is lost to the across-the-board reduction.

After the cut, HBCUs would receive $238 million this year, slightly below their total funding for fiscal year 2005. Tribal colleges and Hispanic-serving institutions also would lose some funds as a result of the reduction.

Federal TRIO programs would lose about $8 million as a result of the cut. Congress already had agreed not to grant an increase for the $836 million program during the regular appropriations process.

The measure would not reduce the maximum Pell Grant, which would stay at $4,050 for the fourth consecutive year. It also contains $4.3 billion to cover the Pell Grant shortfall caused by heavier-than-expected student use during recent economic slowdowns.

While approving program cuts, Congress also is proposing to extend tax breaks that some believe will benefit primarily high-income Americans.

“The cuts to student aid are unconscionable not only because they are the biggest in 12 years, but also because they take excessive fees from low-income students and give these proceeds, in the form of tax cuts, to the wealthiest Americans,” NEA’s Weaver says.

Many K-12 education programs also would see net losses with the across-the-board cuts, including Title I aid to local schools, a cornerstone of the No Child Left Behind Act. Title I had been slated for a $100 million increase, something that would be wiped out by the 1 percent reduction in the $13 billion program.

“We have witnessed the worst assault on public education in American history, with record-setting cuts to student aid, cuts to the
so-called No Child Left Behind Act,” Weaver says.

But congressional sponsors say the new legislation will help control runaway federal spending.

“For the first time in nearly a decade, we’re initiating critical reforms in the federal government’s largest programs and achieving savings for American taxpayers,” says Rep. Jim Nussle, R-Iowa, chairman of the House Budget Committee. “More importantly, we’re laying the groundwork to ensure that these programs can survive, operate more efficiently and continue to provide vital services to the millions of Americans in need.”

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