Experts split: Are FY11 student aid increases enough?

One financial aid expert said Pell Grants would have to be doubled to increase the number of degree-holding Americans.
One financial aid expert said Pell Grant amounts would have to be doubled to increase the number of degree-holding Americans.

President Obama’s fiscal year 2011 budget includes $156 billion in student aid, a second consecutive increase in Pell Grant funds, and a lower cap for student loan repayments—but financial aid officials said the proposals fall short of policy changes that would make college universally accessible.

The president’s budget, released Feb. 1, raises Pell Grants from $5,500 to $5,710. The Pell Grant program would see a $17 billion increase under the administration’s plan; Obama boosted Pell Grants by 13 percent in his fiscal 2010 budget. The budget calls for linking Pell Grant increases to the annual inflation rate plus 1 percent, making the maximum Pell Grant nearly $7,000 in 10 years.

The administration’s student aid package marks a 60-percent increase since 2008.

The budget’s student aid section reinforces support for legislation that would have all student loans come from the federal government, and some university admissions officers were satisfied with a commitment to increasing federal aid during the country’s economic downturn.

“I think the recession has put the focus on what we needed to ensure [education] doesn’t fall off the table during this time period,” said Lynne Myers, director of financial aid at College of the Holy Cross in Worcester, Mass. “Education became one of those priorities that was put right up front, and there was recognition that we wanted to stay true to those commitments to financial aid.”

Admissions officers interviewed by eCampus News said the government should make Pell Grants—used by about 9 million college students—an entitlement that keeps up with inflation. Funding for the Pell Grant program is currently subject to the unpredictable appropriations process in Congress every year.

Mark Kantrowitz, publisher of the student loan web site and author of two books about student financial aid, said the fiscal 2011 Pell Grant increase was “better than staying flat,” adding that lawmakers would have to double Pell Grant amounts to $10,000 per student to increase the number of college graduates.

“That would have a dramatic impact,” he said. “Keeping [Pell Grant amounts relatively] the same won’t do that much good.”

Increasing the already unprecedented amount of federal student aid, Kantrowitz said, is unlikely while legislators are handicapped by a soaring budget deficit.

“I was hoping for more, but the reality is that this budget includes a record deficit,” he said. “There’s a limit to what the president and Congress can do right now. … But this provides a good safety net.”

Myers said the diminishing availability of credit during the recession has pushed college students to federal loans—a shift many campus officials supported well before tumultuous markets made private loans scarce.

“It’s a very positive trend,” she said, adding that Holy Cross’s Pell Grants have increased by 39 percent from 2009 to 2010. “We saw that the terms and conditions for [private loans] were not favorable to students … so that was a trend that we very much tried to redirect.”

In an interview with eCampus News last June, Education Secretary Arne Duncan said federal officials would push lawmakers to pass a bill that would eliminate private-sector loans with high interest rates that are sometimes half of a student’s monthly income.

“I just think we should be in the business of investing in students and not in subsidizing banks,” said Duncan, adding that the government underwrites 97 percent of student loans every year, with most of that money coming from private lenders.

Kate Taylor, director of financial aid at Illinois College in Jacksonville, Ill., a private school with 1,000 students, said admissions workers have encouraged students to use loans signed for by their parents. These federal loans, known as Parent PLUS Loans, include a 7.9 percent fixed interest rate and more flexible payment options, such as deferments—options students with little or no income might not be eligible for.

Parent PLUS Loans have become more popular in recent years, but a national unemployment rate of about 10 percent has complicated loan repayment, Taylor said.

Parents use their prior year’s tax information when applying for their child’s loan, but for suddenly unemployed parents, that reported income is inflated and outdated. This forces financial aid officers to calculate a projected income for the coming year, which brings loan payments back to a reasonable level.

“We’re seeing parents who would appear on paper to have the resources to pay for education, but so many families don’t have anything available to make monthly payments right now,” she said.

Myers said Holy Cross’s admissions officials are reviewing parents’ loan appeals at a faster clip during the recession.

“Most families are feeling an immediate impact, so we are looking at those appeals a lot quicker,” she said, adding that loan repayment calculations have changed: the Holy Cross admissions officer now projects for six months of unemployment when projecting annual income. The college used to project for three months of unemployment.

Obama’s budget proposes a new cap of 10 percent of a student’s income—down from the current 15 percent—and loan forgiveness after 20 years of payments instead of the current 25 years. In his Jan. 27 State of the Union address, Obama proposed loan forgiveness after 10 years for students who enter public service.

Kantrowitz said capping payments at 10 percent of a student’s discretionary income would slash monthly payments for college graduates coping with major financial commitments for the first time.

A student who owes $40,000 and makes $30,000 annually would see his or her payments fall from $172 a month to $115, Kantrowitz wrote in a recent article on, a site that helps students find scholarship opportunities.

“The acceleration of the loan forgiveness will ensure that borrowers are not still paying back their own federal student loans when their children enroll in college,” he wrote.


Fiscal Year 2011 Budget – Student Aid



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