From the screaming headlines over the past few days, it would seem that the president’s new budget on higher education will be devastating to American families who are already struggling to pay for college.
So, it’s time to be objective and look at the facts. The president’s budget, if implemented, is really not going to have that much impact on MCPT families.
Here’s a brief overview:
Pell Grant Funding
Though the talk about reducing the Pell Grant surplus has been getting all the attention lately, this reduction will have no effect on families. Actually, there are two pieces of good news for students eligible for Pell grants.
First, overall funding for the Pell grant program is expected to remain intact, going forward. So, there is nothing to worry about there.
Second, instead of being limited to just two semesters of college, the Pell grant may also be used to help pay for a third “semester” or summer school, essentially making them available for year-round study. This would prompt an increase in available funds for the program by $16.3 billion over the next 10 years.
Finally, the maximum proposed award of $5,920 for 2017-2018 academic year, remains about the same as before.
Federal Work Study
While it is true that federal work study funds may be cut in half (cuts could add up to $490 million dollars), it’s also true that this will have no impact on families. There are still plenty of jobs to go around on and off campus for students who want to work. The only difference is that less jobs will be funded with government money. This may hurt the college’s budget but will not have any impact at all on the family budget for students.
Students who do receive this kind of financial aid next year may be receiving work study offers of $1,000 to $1,500, versus the previous year’s awards, which ranged from $2,000 to $2,500. Again, there is no need for concern because your student can still work 15 hours per week on or off campus and still earn the same amount of money as before.
Low income families who may have been hoping for a Perkins loan may be disappointed with this change. The Perkins loan program for disadvantaged students is slated to be reduced by around $700 million dollars.
As of 2016-2017 school year, undergraduate students were eligible for up to $5,500/year, up to a maximum of $27,500. These loans are based on student need, the amount of any aid already awarded to the student, and funds available at the schools that participate in the loan program.
Again, it’s not known yet whether cuts would affect the number of students receiving awards, the amount of aid received by students, or a combination of both.
The End of Public Service Loan Forgiveness
The press is also making a lot of noise over the elimination of the Public Service Loan Forgiveness Program. While it’s true the education budget proposes the elimination of 10-year loan forgiveness for students working in the non-profit sector, it also shows that President Trump will keep his campaign promise to sweeten student loan forgiveness to include all students after 15 years.
Proposed changes, however, affect undergraduate and graduate student borrowers differently. They are primarily related to the consolidation of several federal income-driven repayment plans.
The most significant change for undergraduate borrowers is that instead of 10% of income payment for 25 years before becoming eligible for forgiveness, the revised repayment program will require 12.5% of income repayment for 15 years.
Graduate borrowers enrolled in federal repayment programs currently pay 10% of their income for 25 years before becoming eligible for forgiveness, but under the proposed changes, will pay 12.5% for 30 years before loan forgiveness is possible.
Things to Remember
The proposed Department of Education budget for 2017-2018 is still in the early stages. It’s possible that some modifications to it will be made by Congress, whose role it is to actually pass appropriations bills.
Since the education budget may not be approved as-is, whatever changes don’t go through this year may still show up in next year’s budget in one form or another. It is critical that families watch for changes occurring in Washington that may affect their college budget. Planning for these, or other changes is a wise move.
Client families and students should contact us with questions about how these proposed changes will specifically affect their own financial planning and budgeting for college. We are always here to help you through it all. Our financial team also offers complimentary consultations to new families seeking help with college funding. Click here to schedule now.