Cutting Back Education
Student loans left behind

By Stephanie Mostaccio

Student debt is about to increase.

The average college student owes between $17,000 and $20,000 in loans upon graduation, according to “Good Morning America” financial analyst Mellody Hobson.

However, 68 percent of Rider students will have an average debt of $30,519 after graduation, according to a study in the Sept. 5 issue of U.S. News and WorldReport.

President Bush approved a $39 billion budget-cutting bill on Wednesday, Feb. 8, that will reduce the amount of federal student loans by $12.7 billion over a five-year period, the largest cut to student financial aid in history.

“The challenge is that, as tuitions increase, we will need to meet our overall obligations to our students,” said Vice President of Enrollment Management James O’Hara. “The percentage of overall aid that is given by the federal government is less and less because it doesn’t increase at the rate it should.”

According to the Associated Press, the bill was created as concerns increased about the rising deficit and the costs of the Iraq war and Hurricane Katrina. The aim is to reduce the federal deficit, restore discipline on spending and lower taxes.
Bush was excited to sign the bill into law.

“The House today passed a significant spending reduction package that will curb the growth of entitlement spending for the first time in years to help us stay on track to cut the deficit in half by 2009,” he said after the House passed the bill on Wednesday, Feb. 1, in a 216-214 vote.

But to reduce the deficit and lower taxes, government subsidies to private lenders, such as banks, will be reduced, borrowers will need to pay a fee of 1 percent to guarantee their loans, and interest rates for student and parent loans will increase, according to The Chronicle of Higher Education.

“When we’re in the midst of major national priorities — disaster, war, and so on — it’s only prudent that the government tighten its belt elsewhere,” White House budget director Joshua B. Bolten said.

The bill created considerable controversy between the political parties.
Republicans said the bill is the necessary first step to reducing mandatory spending programs like student lending.

“The Deficit Reduction Act seeks to curb the unsustainable growth rate of mandatory programs that are set to consume 62 percent of our total federal budget in the next decade if left unchecked,” said Rep. Adam Putnam, R-Fla.

Democrats attacked the bill, saying it is an assault on college students and that powerful Washington lobbyists had too much influence on it.

“As the Republican ax fell on the poor and students, powerful special interests were cutting special deals in the conference committee,” said Minority Whip StenyHoyer, D-Md.

According to O’Hara, the bill is more about raising interest rates than cutting student loans.

“Higher interest rates are really the direct way in which our students are going to be impacted,” he said.

As a result of the bill, the interest rate on Stafford Loans will increase to 6.8 percent, up from 5.3 percent.

More specifically, said Drew Aromando, associate director of Student Financial Services, the Stafford Loan will move from a variable to a fixed interest rate.

“The silver lining here is that they are going to be locked in at 6.8 percent,” he said.

Aromando added that a fixed interest rate will be favorable to students.

“A lot of people in the financial aid profession see this benefiting the students in the long run as opposed to the students being stuck with a variable climbing up and down,” he said.

Variable interest rates usually change every year based on market value, as opposed to fixed interest rates, which are set at the time the loan is originated and remain the same for the life of the loan.

The interest rate of parent PLUS Loans will also increase from a currently variable 6.1 percent to a fixed 8.5 percent.

Stafford Loans will also increase from $2,625 to $3,500 for freshmen and from $3,500 to $4,500 for sophomores. These increases are possible, at least in part, because of a reduction in the Perkins Loan Program, Aromando said.

Aromando added that the change in the Perkins Loan Program will not have a significant effect on Rider.

“For Rider, we are looking at a small decrease on one side and a small increase on the other side, so it will be a minor impact,” he said.

The Stafford, PLUS and Perkins Loans are currently guaranteed loans, and according to Aromando, there is no indication that this will change.

Aromando also said the changes made to the loans will not make it harder to qualify for them.

A portion of the money saved from this bill, approximately $3.75 billion, will be used to finance a program that will provide grants to high-achieving Pell Grant recipients, according to The Chronicle of Higher Education.

However, according to further reports from The Chronicle of Higher Education, in order for freshmen to receive a Pell Grant for $700 and sophomores to receive one for $1,300, they need to maintain a 3.0 GPA. For juniors and seniors to receive a $4,000 Pell Grant, they need to major in mathematics, science or a foreign language.

O’Hara said the Pell Grant requirements are too restricted.

“I would have loved to have seen an overall grant program that would have been more flexible and would be able to impact more students,” he said.

Aromando added that there is a lot the government has not yet defined about the Pell Grant ­— such as whether it will only apply to new students.

The bill will also provide the ability for freshmen and sophomores to borrow more money.

O’Hara said there has not been an increase in the ability of freshmen and sophomores to borrow for quite some time and that it has not kept up with the pace of what students need.

“You want students to have that flexibility of being able to borrow more if they need to,” O’Hara said. “A piece of the increased ability to borrow more [during the] freshman and sophomore year is probably the key benefit for students.”

Most of the bill’s provisions, like the Stafford Loan annual borrowing limits increase, will not go into effect until July 1, 2007. However, the interest rate and Pell Grant increases will go into effect July 1, 2006.

Despite the bill’s potential benefits, students will end up paying more for loans and competing for fewer federal dollars.

Larry Zaglaniczny, director of congressional relations for the National Association of Student Financial Aid Administrators, said the toll taken by the cutbacks will outweigh the benefits.

“While there are some positive aspects to the bill, the negative provisions overwhelm the positive ones,” he said.

Many students agree with Zaglaniczny.

O’Hara pointed out that many students have already responded to the bill by lobbying in Trenton, in capitals everywhere and in Washington, D.C.

“The piece that people respond to more than anything is the potential for higher interest rates,” he said. “I don’t think a lot of people understand what the overall program entails.”

Freshman Ashley Baum is opposed to the change in student loans.
“It means I have to pay more money, and I don’t like paying money, especially large amounts of it,” she said.

Members of Rider’s Student Government Association (SGA) are also opposed to the higher interest rate on student loans.

SGA President Perry Whiteley sent a resolution opposing the higher interest rates on Wednesday, Feb. 8, to Sen. Robert Menendez, D-N.J., and Frank R. Lautenberg, D-N.J.

“We felt it was important to take a stance on this because most students have no idea this is happening,” Whiteley said. “We felt that as representatives of the students that we take a stance on this issue to make the student voice heard.”

According to Lautenberg’s official Web site, both he and Menendez are opposed to the president’s new budget.

“For years, we have warned that the Bush Budget Deficits were a threat to our children and grandchildren. Now we’re seeing the tragic results of President Bush’s reckless fiscal policies — he has proposed the largest education cuts in our nation’s history,” said Lautenberg. “This budget gets an ‘F’ - or maybe an ‘I’ for incomplete. But the bottom line is that it fails New Jersey’s kids and we are going to fight it.”

Menendez, who will be speaking at Rider on Thursday, Feb. 23, added that budgets are “moral documents that reflect our values as a country.” The president’s budget shows that he does not share the same values as New Jerseyans, he said.
Whiteley added that education should be one of the government’s major concerns.

“Education should be one of our top priorities as a nation,” he said. “The fact that interest rates on student loans are going up and not down sends up a huge red flag.”