The Raid On Financial Aid

Congress raises student loan interest rates and freezes Pell Grants

While Republicans tout the whittling down of the national deficit by a potential $50 billion to $70 billion, minority congressional members argue it is being done at the expense of educational grants, which African Americans are more likely to rely upon than other races.

The single largest source of cuts, some 70%, comes from raised interest in student loan programs and the elimination of government subsidies to private lenders. “Had Congress wanted to make education more affordable for students, they wouldn’t have made student loans more expensive,” says Luke Swarthout, a higher education associate with the State Public Interest Research Group’s Higher Education Project. “Although Congress added $3.7 billion worth of grants, they cut $12.6 billion by raising federal student loan interest rates for students and parents.”

The bill stipulates a 6.8% fixed interest rate for students and an 8.5% fixed interest rate for PLUS parent loans, which will be available July 1. “The bill did nothing to advance need-based financial aid,” surmises Swarthout, noting in particular a 1% fee paid by borrowers to guarantors.

In the budget appropriations bill for fiscal year 2006, Congress froze the maximum Pell Grant award at $4,050 for the third year in a row despite inflation and nationwide tuition increases. By comparison, the average cost of tuition at a four-year public institution rose 5.33% per year over the same three-year period. For private institutions, tuition rose an average of 8% per year. When combined with rising inflation — which averaged 2.77% for each of the last three years — this could have potentially dire consequences for many African American students who rely on the grants. Experts point out that 48% of black students rely on federal grants to finance their education. This is 10% more than all other races and 26% more than white students.

Pointing to new developments in the bill, Republicans attest that considering the circumstances, President Bush’s instructions to trim $40 billion from federal spending and expenses accumulated by several hurricanes including Katrina is actually a fair deal for students. They also tout two new, albeit temporary, grant programs. Over the next five years, the bill will allocate $3.7 billion to the programs, which benefit high-achieving students who are eligible for Pell Grant assistance.

The Academic Competitiveness Grant will provide first- and second-year students who maintain a 3.0 grade point average with $750 and $1,300, and SMART (Science and Mathematics Access to Retain Talent) grants provide $4,000 for juniors and seniors who major in mathematics, science, and certain foreign languages critical to national security. “Encouraging U.S. students to pursue these fields is not only a matter of competitiveness, it is a matter of national security,” says Sen. Lamar Alexander (D-Tenn.), subcommittee chairman on education and early childhood development. “Higher education is America’s secret weapon for its future success. We wrote a bill that accomplishes deficit reduction, as well as benefits for borrowers and greater access to higher education. This bill … [demonstrates our] commitment to higher education.”

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