National debt deal to impact major student aid sources

After months of tense negotiations, which at times seemed likely to make the U.S. Treasury run out of money, U.S. President Barack Obama signed the Budget Control Act on Tuesday, Aug. 2. The Act will raise the country’s debt ceiling, cap discretionary spending over the next ten years and alter various federal financial aid programs.

In order to maintain the Pell Grant Program for low-income students, the Act will end the interest subsidy for graduate students enrolled in the Federal Stafford Loan Program and take away the authority of the Department of Education to incentivize on-time loan repayments, starting July 2012.

Because of the cuts to the Stafford Loan Program, graduate students will no longer be able to receive a loan subsidized by the federal government and will begin to accrue interest from the moment the loan is taken. Previously, interest would not be charged until after the graduate student had graduated. Stafford Loans for undergraduate students will be unaffected.

The Act also removes the authority of the Department of Education to refund to students fees charged in the loan application process as an incentive for on-time repayment of loans. The Department will continue to be able to incentivize electronic payment of fees.

According to the non-partisan Congressional Budget Office, the Act will raise education funding by $7.4 billion through 2016, but cut funding overall by $4.6 billion through 2021. The Pell Grant program will receive an increase of $17 billion over the next three years, and the Stafford Loan Program will be cut by $21.6 billion over the next 10 years.

Tech does not have any specific plans in place to respond to the changes in the financial aid programs, but will “continue to monitor the situation,” according to Institute spokesperson Matt Nagel.

During the formation of the deficit deal, Tech officials worked with members of Congress to maintain the Pell Grant Program.

“Supporting programs that are designed to assist our students continues to be a high priority,” said Robert Knotts, Director of Federal Relations for the Institute, in an email. “We worked closely with Georgia’s Congressional delegation to support funding for the maximum award level for Pell Grants.”

Many of the cuts mandated by the Act have yet to be determined by Congress and could include broad cuts to discretionary spending across all levels of government over the next 10 years, possibly affecting the Institute.

“Tech receives the majority of its money from gifts and grants, and a smaller amount from state appropriations. The grants, or sponsored research, are heavily dependent on government funding sources, such as [National Science Foundation], Department of Energy, [National Institute of Health], Department of Defense and the separate armed services, which all have research interests and significant funding,” said Bill Cheesborough, Director of Academic and Research Finance, in an email. “We’re all still in the position of facing cuts because the country has to do something to address our overall level of debt.”

Despite the possibility of cuts, Cheesborough emphasized that there is still much uncertainty moving forward.

“We could come out of this very well. It all depends on when and where the cuts are applied—if ever—and how the [departments that are cut] distribute their reductions,” Cheesborough said.

Georgia’s Congressional delegation was split in their votes for the Budget Control Act. Two House Republicans and four House Democrats voted for the Act, along with Republican Sen. Johnny Isakson.

Meanwhile, Republican Sen. Saxby Chambliss voted against the bill, saying it did not go far enough in reducing the deficit. He was joined by Rep. John Lewis, a Democrat who said the cuts were too stringent, and six House Republicans.

The Act allowed the federal government to borrow up to $2.4 billion more over the next year, subject to several Presidential authorizations. That increase to the debt ceiling would finance the United States through 2013.
As one of several conditions for raising the debt ceiling, Congress must approve an additional combination of $1.2 to $1.5 trillion in cuts and revenues by Dec. 2011 to be proposed by a 12-member bipartisan committee. The committee would be made of six Representatives and six Senators.
Their plan would go directly to both the House and Senate for an up or down vote. Should Congress fail to pass the committee’s plan or should the committee fail to come to an agreement, then automatic cuts to defense and entitlement expenditures will take place.