Fiscal cliff, debt ceiling, and college funding

If you’ve been listening to the news over the past several months, chances are you’ve heard plenty about fiscal cliffs and debt ceilings.  What you may or may not know, however, is that how these issues are resolved may directly affect the pocketbooks of those of you paying for college.

The U.S. News and World Report noted several changes that may go into effect depending on whether or not Congress decides to raise the debt ceiling on March 1st.  Here’s a breakdown of the findings:

What’s staying the same:

  • American Opportunity Tax Credit (AOTC) will continue through 2017.
    • This means families can receive up to $2,500 tax credit for college expenses (including tuition and textbooks).
    • Tuition and Fees Deduction will apply through 2013.
      • Families can get up to $4,000 deduction on income tax returns for qualifying education expenses.

What could be changing (pending March 1 decision):

  • Financial aid programs such as federal work-study and Federal Supplemental Education Opportunity Grants (FSEOG) could receive less funding.
  • Financial aid awards that depend on federal funding could become smaller and harder to find.
  • Subsidized student loan interest rates could rise from 3.4% to 6.8% after June 30.

What does this mean for me?

It depends.  If you’re a high school freshman, sophomore, or junior, there isn’t much that you can do.  Funding comes and goes.  Just because funding may decrease now doesn’t mean that it won’t be made available later.

Similarly, if you’re in college, there are few options.  You could transfer if tuition costs are too great, but that’s an extreme case.  Keep track of your college expenses and make sure you’re maximizing the scholarships and grants you have received.

If you’re a high school senior currently deciding where to enroll in college, you may want to consider some questions.  If we assume the worst — that the federal budget for work-study programs gets slashed, government-funded grants tank, and interest rates rise — will this affect your ability to attend your dream school?  Now may be the time to compare your first-choice school with the school that offers the most financial incentives.  Fill out a FAFSA.  Open your financial aid packages when they arrive.  Compare them.  Even try to shop from one school to the next.

If your first-choice college is the one offering the most bang for your buck, perfect.  If not, you’ll want to evaluate your priorities.  Could you go to a less expensive school and still feel good about your college experience?  While you’re thinking about this, you may want to check out this article by InsideHigherEd which looks critically at expensive colleges and asks whether they actually provide higher-quality education.

What can I do in the meantime?

Here are some other suggestions for what you can do during this time of waiting:

  • Keep in touch with your college’s financial aid office.
  • Read the fine print of scholarships to see if they depend on government funding.
  • If you plan on taking out a loan, work out the difference between paying off a loan at 3.4% and 6.8% interest.
  • Call us at Applerouth; we work with an extensive network of education consultants and would be happy to refer you to someone who can work with you individually to achieve your college goals.
  • Talk with your college counselor about merit-based aid opportunities.
  • Create a free profile at websites like FastWeb or MeritAid to find scholarships that match your criteria.
  • Check with your college regarding scholarship opportunities and work-study programs about their dependence on federal funding.
The bottom line is, none of us knows what will happen in March; however, the decisions made could have real impacts on the cost of your college education.  Keep your ears to the ground so that you’re not caught by surprise when tuition bills hit, and we’ll continue to keep you updated about the latest developments.

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