Lisa Yamada
Staff Writer
“Congress has just enacted the largest raid on student aid in history.”
So said George Miller, D-Calif., in response to the Deficit Reduction Act recently signed into law by President Bush. The new law will slice billions of dollars in student financial assistance from the U.S. budget, in hopes of curbing government spending and reducing the nation’s debt.
The new law cuts $12.7 billion from student loan programs, increases interest rates on loan repayments, and eliminates loan consolidation options. As a result, 75 percent of Pepperdine undergraduates who receive or will receive financial aid in the future stand to be affected.
The biggest cut will take $12.7 billion from excessive subsidy payments made from students and parents to lenders, and will redirect the flow of money right into the pockets of the federal government. Instead of cycling excess subsidy payments back to students in the form of much-needed grants or lower interest rates, money from excess payments will produce tax cuts for some of the wealthiest Americans.
And at a time when college tuition is increasing rapidly and financial aid is decreasingly steadily, Pepperdine students could benefit immensely from additional grants or loans.
Undergraduate tuition at Pepperdine is rising. In just 10 years, undergraduate tuition has increased by nearly 26 percent. It’s hard to imagine that tuition was only $19,200 in 1995-96, when today, students face yet another tuition increase. Next year, tuition will increase by 6 percent, costing students a staggering $32,620.
After spending four years at Pepperdine, a typical undergraduate will graduate $40,000 in debt. So when that graduate is ready to dive in, fresh-faced into the workforce, to jump behind the wheel of a brand-new car, to cut the ribbon off a new home, the burden of student loans will force them to a screeching halt.
Graduates will have only begun the long affair of paying off loans. It is not uncommon for Pepperdine students to take ten, twenty or even thirty years to become debt free.
While tuition at Pepperdine continues to skyrocket, federal aid simultaneously, continues its slow and steady decline, making the process of becoming debt free an even longer, uphill battle. The average maximum Pell Grant has been cut in half, and federal aid has been reduced by 20 percent.
According to Janet Lockhart, the director of financial assistance for Seaver College, “funds provided by the federal government […] have not increased in years to keep up with the current level of educational costs.”
Now, because of the new law, students will have an even harder time paying their way through college. Although advocates of the Act claim that lenders will bear the brunt of the cuts, cuts to lenders inevitably create a rippling-effect to students. Because the amount of money lenders are able to retain from payments is being cut, lenders, in turn, are giving less money to students.
“Overall students are not losing access to loans or federal grants,” reasoned Lockhart, “they are still available. However, the amounts that we are able to award students are decreasing due to reductions in budgets provided by the Federal government,” she said.
Many lenders share this sentiment. In a letter written to Republican Congressional leaders, a coalition of bankers and other parties in the student loan industry — which include the Education Finance Council, the National Council of Higher Education Loan Programs, Nelnet, Sallie Mae, and the Student Loan Servicing Alliance – stressed the far-reaching effects to students of such an Act.
“Cuts this deep will hurt borrowers and lenders alike,” the letter stated. “Lenders will be forced to curtail borrower benefits, will have trouble maintaining high-level service, and will have more difficulty financing student lending.”
It indeed seems a dire future for college students, but things are only about to get worse.
In addition to the rising tuition and decreasing financial aid, borrowers will see their interest rates on federal loans jump to a fixed rate of 6.8 percent, up from 4.7 percent this year. The Act will do away with loan consolidation, which enables borrowers to combine all eligible student loans into one new loan. This helps to reduce the amount of monthly payments, extends the repayment term, and allows students to lock in lower interest rates for the life of their loan.
Students will not be the only ones affected. Parents will see interest rates for Parent Loans to Undergraduate Students increase from 7.9 percent to 8.5 percent. Parents who forego early retirement or cancel vacation plans in order to pay the price of, and privilege their children with the high-quality education that Pepperdine provides, will pay an additional $2 billion dollars as a result of increasing interest rates.
Despite all this, the Act does provide a small beacon of light at the end of this dark tunnel. Benefits as a result of the Act include the following: students will see origination fees decreasing from 3 percent to 2 percent, and eventually phased out by 2010; the law will provide $3.7 billion in grant-aid to students majoring in math, science and foreign language; supporters of the new law assert that the 6.8 percent fixed interest rate will, in the long run, benefit students if interest rates continue to increase. The Act caps interest rates, preventing students from paying rates over 6.8 percent.
Despite these benefits, students still stand to lose. The $12.7 billion cuts shovel a hole into the pockets of students much too deep for any kind of benefit offered to fill. A high-quality education that schools like Pepperdine provide gives students the edge needed to survive in today’s increasingly competitive job market, and students can certainly use all the help they can get.
06-12-2006