The end of 2012 apparently hasn’t heralded the end of the world, but it looks like it may bring some unwelcome woes to federal financial aid in the form of the much bandied-about “fiscal cliff.” The implications of this budgetary ultimatum are widespread. One thing that is particularly galling about the whole fiscal cliff thing is that it has dampened overall consumer confidence, according to a McClatchy News Service report, in spite of positive news in both housing and employment numbers. Congressional dithering and ineffectiveness continues to hold back an economy that is taking some forward steps in a general sense, while at the same time making it more difficult and expensive for those who need federal assistance to attend college.
To recap, the fiscal cliff fiasco is the result of the deficit reduction “super committee” that was formed in 2011, allegedly in response to the national deficit crisis we faced (and still do). It seems really, though, that the timing had more to do with presidential politics and the ramping up of campaigns for the 2012 elections. Indeed, all the Iron Men of Congress did, in fact, was agree to disagree, throw in their towels, and go home for the 2011 Thanksgiving break. According to the bipartisan committee’s own charter, they had until Nov. 23, 2011, to pare $1.2 trillion from the budget over the next 10 fiscal years. Their failure to do so, or to reach some kind of alternative with Congress, triggered a “fail safe” provision that will slice broad chunks off the 2013 fiscal budget. Unless Congress reaches some form of compromise by Jan. 2, 2013, to halt the impending crisis at cliff’s edge, the sweeping cuts will come into play. The destruction will include an 8% swath through existing financial aid programs.
Compounding the problem is the fact that the Higher Education Act, which is the main legislative vehicle for determining how much aid the government offers to students, is due for Congressional reauthorization in the next year. Certainly the impending crisis created by the flailing arms and gnashing teeth of the fiscal cliff bugaboo will not dispose anyone too positively toward tossing more money into legislation that actually results in an outflow of dollars. The climate, therefore, could not be much worse for a reauthorization scenario. This leaves students and their families looking at the automatic cuts to all student aid, including work study and loans, as well as the possibility of further reductions in the future if the Higher Education Act is not reauthorized to its current level of funding. One positive piece of news amidst the disasterspeak (which I myself am propagating in this post, I know) is that Pell Grant award levels are safe through 2013.
Now that we can be relatively certain that our interpretation of the Mayan calendar was a little bit off, and Congress can no longer dodge the issue with global destruction as an excuse, our elected representatives need to wipe their eggnog mustaches from their lips and get back to the bargaining table in order to avert what may looks to be a real disaster. In addition to the fiscal cliff, which affects direct aid sources to students, the January 2 effective date also brings the expiration of several tax breaks related to educational expenditures. The American Opportunity Tax Credit is up for renewal. Currently, the AOTC provides a credit as large as $2,500 per year over a period of four years during which a student pays college tuition. The $10,000 over four years will be rolled back to $4,000 over two years — a 60% reduction — if the credit is not renewed. Moreover, higher earners who have few options for financial aid apart from loans, will no longer be able to deduct the interest they pay on such loans. The annual limits for contributions to Coverdell Education Savings accounts will also be slashed by 75% ($2,000 to $500).
The question really comes down to how much Congress cares about funding student aid. Financial aid was a hot-button issue on both sides of the aisle during the last year’s campaigning as candidates scurried to curry favor with student voters. On the other hand, students tend to be an easy constituency to ignore in between elections as they have little clout in the way of contributions or voices backed with any kind of fiscal amplification. If Congress does swoop in and play hero to students looking to pay for their classes, the good news is that any deal made (even if it’s done past the Jan. 2 deadline) will likely be retroactive. So we’ve got that to look forward to. If it happens. Meanwhile, the time we spend being stressed out and distracted over the ridiculousness of this sandbox spat is time that we will never recover. Thank you elected officials.