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Automatic spending cuts threaten college financial aid

By Masao Suzuki

Federal Financial Aid to be cut 8.4% starting March 1

San José, CA – On March 1, the automatic spending cuts demanded by the 2011 Budget Control Act are scheduled to go into effect. These cuts were originally scheduled to go into effect Jan. 2, but were delayed as part of the solution to the so-called ‘fiscal cliff.’ Included in the spending cuts is an 8.4% reduction in federal financial aid. While the large Pell Grant program is exempted, other federal financial aid, including the Stafford Loans, Work-Study, Perkins Loans and others would be all reduced by 8.4%. This would lead to less aid to students receiving financial aid, and some would be cut off entirely.

Over the years, the costs of college, in particular tuition and books and supplies, have soared in price, rising much faster than the general rate of inflation. For example in 2012, the overall Consumer Price Index, or CPI, rose 1.7%, while college tuition went up 4.0% on average and the prices of college textbooks rose almost five times as much as the general rate of inflation, or 7.9%. With financial aid lagging behind, more and more students have had to borrow more and more. Today, total student loan balances come to about $1 trillion, more than total credit card debt and more than total auto loans.

While it is possible that the automatic spending cuts will be put off again, it is also possible that a new budget cutting agreement might cut federal financial aid more by including cuts in the Pell Grant program, which provides an average of $3000 in aid to almost 9.5 million students. College students are facing not only a lack of financial aid, but also a lack of jobs. A recent survey showed that about half of all recent college graduates are either unemployed, or working jobs that don’t need a college degree. The recent increase in the payroll tax combined with these automatic spending cuts will further reduce the number of jobs this year.

While politicians of both parties talk about the importance of education, they dance to the tune of big businesses, who are calling for austerity (tax increases and spending cuts). During the debate leading up to the 2011 Budget Control Act, over 100 business groups, including the U.S. Chamber of Commerce, the Business Roundtable, and the National Association of Manufacturers called on congress to come up with more than $4 trillion in deficit reduction, or more than three times the $1.2 trillion in the cuts in Budget Control Act.

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