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Sunday, December 4, 2016

Why Is The Government Saving Money By Driving Students Into Debt?

The latest budget deal cuts Pell Grants, one more blow to the old system that helped students pay for college directly.

It’s no secret that college graduates are struggling under huge debt loads. The overall debt owed is set to hit $1 trillion this year.

Rising debt loads are fueled by two simultaneous trends: soaring tuition and falling assistance. As James Surowiecki writes, “Since the late nineteen-seventies, annual costs at four-year colleges have risen three times as fast as inflation.” And the days when a college education could be financed through government assistance like the GI Bill or Pell Grants are quickly disappearing. Grants used to cover two-thirds of financing an education. Now two-thirds of college financing comes from loans.

In the face of these pressures facing graduates, the government might be expected to offer more assistance. And Obama announced an executive order in October that tries to ease burdens. It allows grads to cap repayments on their federal loans at 10 percent of their discretionary income come January (which is two years before it was already set to happen). After 20 years, all the remaining debt on those loans would be forgiven — five years earlier than it would have been without his order. On top of this, some borrowers with more than one federal loan can consolidate them, which could reduce their interest rates (slightly). But even that most immediate impact, consolidating loans, is only likely to save the average borrower between $4.50 and $7.75 a month, a barely noticeable sum.

Now news came out this week that the last-minute budget deal to fund the government and avert a shut down included cuts to Pell Grants. The maximum grant will be preserved at $5,550, but changes to the eligibility criteria will make as many as 100,000 recipients ineligible. The maximum amount a family can earn without contributing anything toward tuition will drop from $30,000 to $23,000. It also retroactively limits the number of semesters that a student can use grants, from 18 to 12. In sum, these changes will mean less money for fewer people to pay for a college education.

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