Schools across the country are sending out financial aid packages contingent on what happens at the end of February in Washington. This year, the need to get aid applications in early comes with the uncertainty surrounding the impending fiscal showdown — Fisccal Cliff Reduz — related to the deal Congress jammed through on New Year’s Eve in order to avoid sequestration the first time around.
As regular Frugal Dad readers, as well as just about anyone still on the grid, know the more than 8 percent of spending cuts to financial aid (as well as just about every other unprotected program in the federal budget) were due to kick in automatically on January 1. In the deal that brought the cuts to a halt, skittering gravel-sized bits of budget over the edge of the fiscal cliff, spared some financial aid programs. However, if a new deal is not reached by March 1, students stand to lose as much as $350 million in federal aid.
Those early-bird students and parents who followed the advice on this site, or that of other outlets offering financial aid opinons, will likely be receiving aid award letters from their schools in the coming weeks — I know I’m still waiting for mine. Yet, the hangover we’re all still feeling from the first fiscal cliff showdown won’t go away and take the uncertainity over the amount and type of financial aid we’ll be offered with it.
The automatic spending cuts that had been scheduled to kick in on Jan. 1 included a reduction of 8.2% in federal financial aid, amounting to about $350 million. The “fiscal cliff” compromise reached by Congress postponed those cuts until March 1. With many schools sending out award letters in coming weeks, experts say that will leave many parents and college-bound students uncertain about the size of their financial-aid packages—and whether the promised aid will material
Financial advisers have traditionally recommended that parents compare packages from different schools to determine which one had the lowest out-of-pocket costs. But experts say that makes little sense in this environment, since some colleges are assuming the spending cuts will happen, while others aren’t. If cuts are taken, some students may find their aid is scaled back after they have picked a school.
Experts say colleges with larger endowments or bigger tuition revenues are more likely to use those funds to make up for federal cuts. But most colleges and universities depend on the federal government for financial aid. “If Congress doesn’t come through, students and parents are going to be left in the lurch,” says Justin Draeger, president of the National Association of Student Financial Aid Administrators.
Several colleges already have calculated that cuts would cost some students. Pennsylvania State University, for example, says roughly 375 of its students will completely lose work study—mostly on-campus paid positions largely funded by the government—or the need-based Federal Supplemental Educational Opportunity Grant if the cuts go through. Ohio State University says federal aid cuts could reduce funding for those two programs for 500 of its students, though the school says it is looking at ways to fill the gap. The University of Texas at Austin says its students could lose roughly 65 work-study positions.
Congress also may make cuts in the Pell grant, the most popular federal college grant, says Mark Kantrowitz, publisher of FinAid.org, which tracks financial aid and student-loan debt. The Pell grant reached about nine million students in 2011-12, according to FinAid.org.
For now, parents should review financial-aid letters and look for contingency statements or discrepancies in awards (for example, if one school claims the student will receive a federal grant but another doesn’t). If discrepancies appear, parents should contact financial-aid offices to find out what assumptions they are making about aid, and what to expect if those assumptions don’t pan out.