After strong opinions were debated between all sides of the government, the debt ceiling was finally reached with educational funding being significantly modified in the final agreement. In the final days of July 2011, the United States faced the threat of defaulting on its debts and thereby having serious repercussions on the already weak economy. All through July, President Barack Obama, along with several leaders of congress on both sides of the aisle, was in a bitter struggle trying to reach an agreement by the August 3 deadline. The final agreement was reached in the first days of August and finally signed by President Obama on August 2, as the Budget Control Act of 2011.
The Budget Control Act addressed many areas. One of the most significant to students of higher education, were the major adjustments made to Pell Grants and student loan programs. The bill newly amended the Higher Education Act of 1965 and is due to take effect on July 1, 2012. Douglas W. Elmendorf, Director of the Congressional Budget Office, analyzed the 2011 budget deal including the legislation regarding education loans. He specifically addressed the amount of funds that would be appropriated and to what effect. Pell Grants would see a reduction in funds and loan programs would also find new adjustments.
The Pell Grant will see a reduction in spending of $10 billion in 2012 and $7 billion in the 2013 fiscal years. Along with the Pell Grants, student loan programs will also feel the squeeze of the belt. Elmendorf stated that student loans will see two separate adjustments, the elimination of subsidized loan programs to graduate students and the elimination of loan payment incentives.
The subsidized loan program will see $125 million shift to an unsubsidized loan program where the student borrower will now be expected to payback any interest
which is accumulated during their time in school. The Congressional Budget Office estimates that through the years of 2012- 2016 there will be $8.2 billion in saving and $18.1 billion in the period between 2012- 2021.
When it comes to payment incentives, Elmendorf stated that the bill will take away the incentive payment program to encourage borrowers to make federal loan payments at one time. Also, the Secretary of Education will no longer be able to offer rebates unless repayment is done by electronic debating, the only way in which a borrower will be allowed an interest rate reduction. This part of the budget plan will reduce spending by $1.4 billion through the years of 2012-2016 and $3.6 billion between the years 2012- 2021.
Although there are significant amounts of funds being appropriated, those who are in more need of financial assistance will still receive it because of previous reforms, since student loan reforms passed in 2009 initiated income-based repayment. That is a system set up to make federal student loans easier to manage and pay back. Despite the sense of money being taken away from higher education, in the long run, funds are still going to be dispersed to students. Student loan programs will be hit the hardest but those same funds would help increase the amount of money being allotted in Pell Grants.
The financial adjustments being made are yet to be implemented. Exactly how the Budget Control Act of 2011 will directly affect the higher education community of the United States is yet to be seen, since so many students still depend on those programs. Students can only hope that the decisions made by congress were not significant enough to deny the majority financial assistance and that those adjustments made by legislators are for the good of the nation.