The Cavalier Daily
Serving the University Community Since 1890

From Washington to campus

How will budget cuts affect student loans programs?

This August, the nation watched as a bitter battle took place in the Capitol about the nation's fiscal trajectory. Republicans and Democrats made a concession and the debt ceiling was raised before the Aug. 2 deadline set by Treasury Secretary Timothy F. Geithner. Still, the compromise was just the beginning of a serious political firestorm which could have serious implications for students.

The changes\nIn addition to raising the debt ceiling, the government outlined plans to trim spending starting in July 2012. Two key pieces of legislation passed this year were aimed at achieving significant budget cuts.

The year-round Pell Grant, which allowed students to collect two grants in one year for summer classes, will no longer be available in fall 2012, said Haley Chitty, director of communications at the National Association of Student Financial Aid Administrators. The Pell Grant is a need-based government grant, which more than nine million undergraduate students received last year, each student receiving a maximum of $5,500. An estimated 9.4 million students will benefit from the Pell Grant program this year. Evidence suggests that the year-round program has been an ineffective use of government funds. "It ended up being a lot more expensive than the government had first expected," Chitty said.

In addition, starting in July 2012 the government will no longer fund Byrd merit-based honors scholarships or the Leveraging Educational Assistance Program, which aimed to match state funding to college students' financial aid packages.

There will also be changes to the fees graduate students pay on their loans, which will come into effect July 1, 2012. The Budget Control Act of 2011 removed the 0.5 percent rebate on the 1 percent origination fee on student loans, said Scott Miller, senior associate director at University Financial Services. The origination fee is paid when a student takes out a loan. If that same student makes the first 12 months worth of payments on time, he is eligible for a 0.5 percent rebate of his origination fee.

The aftermath\nUniversity students are already feeling the effects of policy changes to government-funded student loans. "I am taking out government loans," first-year College student Danielle Psimas said. "It doesn't cover the full costs of my needs, so I'm going to need to take out private loans."

Not all students share Psimas' concern about government cuts to student loan programs. "We have the biggest endowment of every public university in the country, so it shouldn't affect us that much," second-year College student Peter Lizza said. "I think we have the resources to work through it."

Graduate students might not be so lucky. They will bear the brunt of the fall-out of the debt crisis, Miller said.

Before the debt ceiling debate, graduate students were eligible for up to $8,500 in subsidized loans, which meant that the government paid interest on up to $8,500 of their student loans. Starting July 1, 2012, however, graduate students will be responsible for paying back interest on their loans during their graduate school careers or after they have completed their course, Miller explained.

What universities can do\nHigher education is usually among the first expenditures to face spending cuts when states look to streamline their budgets, Chitty said. This means that universities are "seeing funding cut at the state level and now they're seeing spending cut on the federal level," Chitty said.

This has forced the University to increase tuition fees and privatize funding for the Darden School and Law School to increase their revenue, Education School Prof. David Breneman said. "The basic trend is: We're shifting the cost from the general taxpayer to the student," he said. This trend, Breneman said, is happening worldwide and not just at the University. AccessUVa, the University's financial aid program, uses private funds, government funding and University funding to provide financial aid packages for University students. "This does not mean that we are impervious to changes," warned Allen Groves, associate vice president and dean of students,. "AccessUVa isn't a bottomless pit, and that's the challenge."

As government-funded student loans are becoming increasingly difficult to secure, the University may be forced to turn to other sources of capital to fund financial aid programs, including tuition and private donations.

Some students are keen to take ownership of their own student loans and work to repay them on their own terms. Psimas did not qualify for the University's work-study program, which allows students to earn financial aid through employment with the University. She said she would have liked to have the opportunity to work to pay off her student loans herself. "I think that increasing the number of students that qualify for work-study programs would be great," she said. "A lot of the jobs that I've looked at getting to try to put towards my loans were work-study programs."

The current system needs to transition toward a loan repayment system similar to those in the United Kingdom and Australia, Breneman said. The Australian Higher Education Contribution Scheme allows students to defer payment on their loans until they start work and are able to repay their loans through the tax system. Currently, however, "We're sort of stranded between an old way of doing it and we're beginning to move toward that," Breneman said.

As students are confronted by increased tuition and decreased government funding, some fear that the changes could impact the socioeconomic makeup of the University.

"It will scare some people away," Breneman said. "There are individuals who won't be comfortable taking on that kind of debt."

But despite the increasing cost of higher education, Psimas noted the importance of a university degree in today's economic climate.

"It's so necessary to have a degree," Psimas said. "I feel students will still have to have it."

On the brink\nThe true breaking point may not come during this current debt crisis, but it may not be as far away as some believe. "I don't think we're at a crisis level yet, but with the states removing their funding we could be getting there," Breneman said.

Perhaps the ongoing crisis resonates most with students, who are faced with a troubling uncertainty and long-term implications. "I'm not concerned about the future of my own education," second-year College student Vittoria Capria said. "But my kids - yes"


Latest Podcast

Today, we sit down with both the president and treasurer of the Virginia women's club basketball team to discuss everything from making free throws to recent increased viewership in women's basketball.