The administration spent its first four years in office making a surplus of about $230 billion created under the Clinton administration disappear. In its place, it created a deficit that is now estimated to reach $423 billion, the largest in U.S. history. Much of the money, about $70 billion, went directly into the pockets of the wealthiest Americans, and the Bush administration’s budget would make permanent the tax cuts for the rich while making cuts to programs like Medicaid, Medicare and welfare programs like food stamps, child support enforcement, child care programs and affordable housing grants.
But for college students without health insurance (other than the meager coverage of student health), no cut will hurt as much as the one being made to the student loan program that takes effect July 1.
The Budget Reconciliation Bill approved by Congress cuts $39 billion in spending over the next five years—and of that, $12.7 billion is coming from funding for student loans. That means private lenders will have to pay expenses that the government had previously absorbed. For students, it means increased interest on their loans. The interest on student loans was recently at a variable 4.7 percent, but with the budget cut, interest will rise to a fixed rate of 6.8 percent. The interest on parent loans was already expected to rise from a variable rate to a fixed rate of 7.9 percent, but will now rise to a fixed rate of 8.5 percent.
Under the federal student loan program, called Stafford Loans, if a student borrows the maximum amount of $23,000 per year for four years as an undergraduate, the current interest of 5.3 percent would cost $1,219 a year. But with the new interest of 6.8 percent, the cost would be $1,564 a year—$345 more a year, or an increase of 28.3 percent.
The Plus Federal Loan Program for parents is at a low variable rate, soon to be a set rate of 8.5 percent. So a parent who planned to borrow $8,000 per year for four years will go from paying $248 in interest per year at a previous interest rate of 3.1 percent to $680, or a 174.2 percent increase.
The average graduate student borrows anywhere from $27,000 to $114,000 in addition to their undergraduate loans. Graduate students tend to borrow more because they don’t have as many government grant opportunities. At $27,000, they’ll pay $1,836 per year in interest, an increase of $405. If they borrow $114,000, the interest increases from $6,042 to $7,752, or $1,710 a year.
Low-income students won’t suffer the loss of government grants. In fact, the new cut to student loans will free up some money, about $11 billion over the next five years, according to N.C. Sen. Richard Burr, for new grants to be awarded out of merit for students who already qualify for Pell grants. And the maximum loans for first- and second-year undergraduates, and for graduate students, have been increased slightly.
However, the middle class will feel the weight of the budget cuts, as most don’t qualify for these grants and pay for college predominantly through student loans.
“They’re abusing the students, because we’re in a vulnerable position,” says Matt Marriott, an undergraduate at UNC-Chapel Hill. “They’re taking advantage of us because, if you’re gonna go to college, the only way to pay for it is to get a loan if you don’t have the money.… I’m sure there’s something better they could be doing.”
James A. Belvin Jr., director of financial aid at Duke University, remained optimistic that the fixed interest rates on loans would stabilize the program and ensure its health in the future. “I think students should have the lowest possible rate,” he says, but he thinks the situation is not hopeless. Most students will continue to take out loans undaunted by the higher interest rates, he says, and this new legislation won’t be keeping anyone out of college.
Many college counselors are advising students to look into consolidating their loans at the lower rate before July 1.
Many think the government is going back on their pledge that no one will be kept out of college because he or she cannot afford it. The student loan program allows students to borrow whatever they cannot afford to pay or don’t have scholarships and/or grant money to cover. It’s easy to qualify for the program as long as the student has someone, like a parent or guardian, with approved credit history to cosign, at least before he or she establishes his or her own credit history.
And while low-income students won’t suffer the loss of student grants, the deficit reduction bill will still hit them hard. Many high school kids find their Medicaid suddenly revoked when they graduate and head off to college. That leaves them with the meager coverage of student health for at least a year, before they can try to qualify for Medicaid again when they turn 19. The government was already leaving students behind with this system, but with the new budget cuts it will be even harder for them to qualify for Medicaid. That program is taking a cut of $4.7 billion. The cut increases the costs of Medicaid for about 13 million poor people at the higher end of the eligible income scale, and will end coverage for about 65,000. Many college students who depend on Medicaid may find themselves with no health insurance.
Meanwhile, tax cuts that took effect Jan. 1 will provide a small break for people making around $180,000 a year, but most of the tax cuts will benefit the two-tenths of 1 percent of households making more than one million dollars a year. That tax reduction will add up to about $27 billion over the next five years.
North Carolina Sens. Burr and Elizabeth Dole were in support of this bill. Students who inquired about the proposed cuts received a letter from Burr that said: “I am very supportive of federal government programs that help our neediest citizens. I would oppose any changes to those programs that might negatively affect the ability to provide these important services.… When Congress reforms government programs, we often look for changes in areas where waste is occurring and where savings can be gained. That is the case with the current attempts to slightly reduce future spending.”
However, the budget cuts to Medicaid will result in higher premiums and co-pays for about 13 million people, including around 3.5 million children, while about 65,000 people may lose their health care altogether.
The bill met with more praise from Dole. “I am particularly pleased the President’s budget … holds the line on spending while including critical pro-growth policies,” she wrote on her Web site.
However, on the Senate floor while debating this new legislation, New York Sen. Hillary Clinton had a different take on the “pro-growth” policies: “What they say is that, you know, these spending and tax cuts are pro-growth. Well they’re right about that. They’re pro-growth for the oil companies. They’re pro-growth for the tax-haven companies. But they’re sure not pro-growth for somebody trying to get through college or some working mom who needs to collect child support from her ex-husband. I don’t see any pro-growth about that for them.”
Clinton also accuses Republicans of having backward priorities, such as “loopholes for oil companies instead of student loans for middle-class families. Irresponsible tax breaks instead of affordable health care for the working poor.”
California Sen. Dianne Feinstein said: “Cuts to federal student loan programs—$12.7 billion over the next five years—will push college out of reach for many middle- and low-income families.… The bottom line is that this irresponsible spending-cut bill represents relief for the wealthy in exchange for greater burdens on our nation’s poorest and most vulnerable citizens.”
The bill passed Feb. 1 by a 216-214 vote. Just in North Carolina, this cut will affect almost 140,000 students. Nationwide it affects about six million. The most we can do about it at this point is let our representatives know we’re against the government’s latest attack on lower-class and middle-class citizens, but it’s not too late to call your representatives about Bush’s budget proposal; which, on top of making more cuts to education, will make permanent the tax cuts for the rich he passed at the beginning of his time in office.
As Hillary Clinton said, “Never has so much been done for so few who needed so little.”