From a political perspective, little looks changed in Washington, D.C., in the wake of President Barack Obama’s re-election as president. Congress remains divided and divisive, which means that new initiatives by one party or the other will likely fail unless they derive from a bipartisan platform. As it happens, financial aid policy, particularly when it comes to loans and interest rates, typically garners interest on both sides of the aisle in Congress. Or, in cases where a multi-year appropriation or mandate has already passed, the Education Department is already authorized to create policy without further Congressional permission. In spite of the apparent status quo on Capitol Hill, there are a few areas to which college students and parents will want to pay attention for the 2013-2014 academic year.
Under existing Department of Education Policy and in the absence of further action on the part of Congress, students who take out subsidized Stafford loans could be subjected to a hike in interest rates for money borrowed after July 1, 2013. The current interest rate is 3.4 percent, a rate that under current law was scheduled to double on July 1, 2012, increasing to a rate of 6.8 percent per year.
The delay until next July in the rate hike was passed by Congress after both presidential candidates, President Obama and Massachusetts governor Mitt Romney, became vocal supporters of maintaining the current 3.4 percent interest rate on the federally subsidized loans. While we can all continue to remain hopeful for another extension of the current favorable rates, keeping the interest rate at 3.4 percent for another year cost around $6 billion, according to government estimates. Given that he’s already won the election, President Obama, as well as Congress, are unlikely to keep the interest rates low in a non-election year, especially as the Feds remain strapped for cash and continue to squabble over budget line items.
Students eligible for Pell Grants, however, may see some good news – albeit just a little good news. As part of his budget request for the 2013 fiscal year, President Obama added a line item for an increase in the maximum award for a Pell Grant. If his request goes through, which is likely, the maximum award under the Pell Grant program, which is designed to help lower-income student spay for college, will increase from $5,550 per term to $5,635. The increase would go in to effect for the 2013-2014 academic year; which, despite its small amount, will be welcome news as the maximum grant amount has remained at $5,550 for the last two years. It appears likely that President Obama’s request will be granted as the Pell Grant program is already funded for fiscal year 2013 pursuant to the Budget Control Act of 2011. Unfortunately, the program could see a shortfall in subsequent years.
Another negative note for higher education financing in the near future is that the American Opportunity Tax Credit may no longer be available for the 2013 to 2014 academic year. Earmarked to reduce tax bills by up to $2,500 for families who have paid allowable college expenses like tuition, books and student fees, the tax credit is scheduled to expire after the 2012 tax year. As part of his current budget request, President Obama has asked that the American Opportunity Tax Credit be extended permanently but legislative action is necessary on the part of Congress to make the extension permanent.
At the beginning of November, 2012, the U.S. Department of Education issued its final version of its “Pay as You Earn” loan repayment plan, after the required notice and comment period. Under the plan, eligible borrowers of federally guaranteed student loans will be permitted to adjust the amount of their monthly loan payments according to the amount that they earn after graduating from college. Under the plan, students who make timely payments over a period of 20 years will have the unpaid portions of their student loan debts forgiven. Currently the debt forgiveness limit is 25 years. The Pay as You Earn program will be another repayment option, available to borrowers, which is based on or contingent upon a graduate’s income level.
College Cost Information
One area in which President Obama and his administration has been particularly vocal is in transparency for the actual cost of college. Many colleges are quick to point out tuition, but are a little murkier when it comes to other costs such as student fees, books, and room and board. One such result of the President’s initiatives in this area is the Financial Aid Shopping Sheet which several hundred colleges and universities have committed to providing their students beginning with the 2013 to 2014 academic year.