News > November 17, 2005

By LaToya Sawyer

Old Gold & Black Reporter

A proposal designed by Congress to cut spending on federal student aid by $14.5 billion over the next five years has caused alarm among education and student groups who fear that college will now become less affordable for students. 

According to Luke Swarthout, Higher Education Associate, the bill would increase interest rates and fees, and make student loans more expensive for millions of students and parents.

Students and advocates around the country have organized a “Stop the Raid on Aid” campaign to communicate to legislative officials the significant impact that financial aid cuts would have on students’ ability to pay for college.

“The initial response by legislators is that these cuts to education are being done for the sake of deficit reduction,” said Jasmine Harris, Legislative Director of the United States Student Association.

The proposed savings would come from cuts in government subsidies to private institutions that loan money to students.  This cut would work by reducing the margin between what students pay and what the government pays to private lenders.

In the past, education groups have supported this idea because the government savings could be recycled directly back into education.  However, now they are concerned that this money will be used to support the national deficit.

Reducing subsidies would also provide less incentive for smaller private lenders to stay in the student loan business. If some lenders bow out, it could mean less choice and available funding for students.

Part of the budget reconciliation includes charging students an origination fee on student loans to compensate for lack of government spending.  Higher education advocates say that this could cost the average student borrower up to an additional $5,800 during loan repayment.

“I’m very hesitant to speculate what reducing subsidies would do to the costs of our students,” said Bills Wells, director of financial aid. “It might not cost them anything.”

The university partners with The College Foundation, a non-profit organization that does not charge origination fees on common student loans such as the Stafford.

“Not every state has zero fees.  The College Foundation sets the playing field,” Wells said.

Because of this competing interest with The College Foundation, other big lenders do not charge students.

Therefore, students pay zero fees to all student loan companies that are in partnership with the university.

Wells explained that the real problem is that federal aid is not keeping up with the increasing need of the students. 

“Grants are not increasing relative to costs,” he said. 

All federal aid consists of loans, grants and work-study programs.  Each year, costs for college are rising, but the amount of federal aid spent on grants is decreasing which causes student loans to increase. 

Consequently, students must borrow more from outside private lenders. Institutions like the university that provide 100 percent, need-blind aid are left with the burden to spend more of their own money to pay the interest of the loan while students are still attending school.

Wells said that in place of decreasing grants, the compensation for the one percent origination costs that students will experience when taking out more loans is what is going to feel like a cut in federal funds if Congress passes the budget reconciliation bill.

“The real story for students is that they are not going to see the increase they need right now,” Wells said. “It seems to be a matter of families tightening their belts and having to borrow more.” If the proposal passes in Congress, financial aid cuts will be effective on student loans starting July 1, 2006.

The university is waiting on the release of the federal reauthorization that will spell out the main action to take concerning student aid and loans before any definite answer can be given on how to deal with potential federal cuts.