On Friday, Feb. 27, President Obama announced the most extensive changes to the Federal Student Aid system since the Higher Education Act was first passed in 1965. Could this be seen as the cavalry charge that saves the day? Proposed changes include raising the Pell Grant awards and indexing them to inflation, dumping the Federal Family Education Loan (FFEL), as well as vastly increasing Perkins Loan entitlements. The news would be a welcome sign of hope for both students and universities, who are all struggling in the current recession.
For students, it is becoming harder and harder to go to school. Rising prices, stagnant salaries, spiraling tuitions costs and a tight lending market is forcing many students and families to cut back, delay or even cancel college plans altogether. Many students are also forced to stay at home and attend whatever local options are available to them. This is hurting small, rural and private schools the most, who are worried that they might soon be facing serious budget crises due to sharp decreases in new enrollment.
Indeed, community colleges and second tier public universities all over the country are seeing an increase in applications as students shy away from the higher priced institutions. Online courses are also quickly increasing in popularity, due to the high price of gas and student housing. The chaos in the lending market also means that banks are being very choosy in whom they loan money to, which especially impacts students who desire to attend the betters schools.
Meanwhile, the universities, both public and private, are also feeling the economic pinch. They are ending contracts with faculty, laying off staff, cutting departmental budgets and in some cases even financial aid programs. Confronted by ever increasing budget shortfalls, they are faced with the dual challenge of keeping their colleges affordable for an increasingly impoverished student body while at the same time keeping their doors open for business. Many schools have compensated by increasing financial aid incentives while they cut everything else in sight. This is because for many of them, the only way to bring in enough funding is to keep their enrollment numbers as high as possible.
Enter the Obama administration, which on Friday announced the details of their extensive proposals. What amounts to a complete overhaul of the Federal Financial Aid system starts with Pell Grant funding. To summarize the White House’s Web site information, extending funding from the federal general fund which would allow the Federal government to increase yearly Pell Grant awards and erase the ongoing shortfall within the Pell system budget.
Tying the yearly allotment into inflation would also help students keep up with the yearly increases in their costs. Indeed, student aid activists maintain that 30 years ago the Pell Grants covered over 75 percent of a student’s total non-housing costs on average, while today the figure is down to about 35 percent. Scrapping the FFEL system would also help fund these proposed changes.
As for FFEL itself, this privately backed, federally regulated system dwarfs the Direct Loan program by four to one, in terms of both money lent and students serviced; according to the New York Times, $56 billion loaned out to about 6 million student families last year, . With the private banks quickly running out of capitol, they are tied into the system with the debt they currently hold, yet unable to handle new loans without a government bailout. To the Obama administration, it is seen as a “dead weight.” Their plan is to shed the system altogether and allow transfer of future federal funds directly into the Pell and Perkins programs.
The administration also announced a plan to increase Perkins Loan entitlements by six fold, eliminate the preferential system of distribution currently in place and remove the program’s current in-school interest subsidies. They also proposed vast increases in university research funding, as well as a new $2.5 billion “Access and Completion Incentive Fund,” which would give aid to states that demonstrate successful plans for improving college graduation rates among low-income students.
All of these plans, as well as other proposed changes, would fall in line with the promise that President Obama gave during his recent State of the Union Address. That is, by 2020 America would, “[once] again have the highest proportion of college graduates in the world.” When presenting the budget on the previous Thursday, Secretary of Education Arne Duncan emphasized that aid and access for students are one of the administration’s key policy concerns. As he said, “There are too many students who are unprepared for college and too many who cannot afford it.”
Truly we are talking about a large amount of money, but isn’t the education of our young people important? How do you place a dollar value on a door to a better life? It also seems to me that if America has any hope of staying competitive in the 21st century, then the president is right. This is money that will be very well spent in the long run, and I’m pretty sure that all the federal grant recipients reading this article could use the extra cash!