Outlook for Federal Money for College is Good and Bad

Due to the record budget deficits the United States has been experiencing, it’s hard to imagine that Congress will be increasing funding for student aid extensively over the next decade. It’s more likely that there will be a greater need to use funding that’s already in place in a more effective manner. However, there are some new programs in the works.

The United States Department of Education is intending to expand the Perkins Loan program from 1$ billion to $8.5 billion a year. The new Perkins loans will be unsubsidized. Interest rates will be 6.8%. There won’t be much difference between Perkins Loans and unsubsidized Stafford Loans. Loan amounts for Perkins loans will be decided by the financial aid administrator at individual colleges.

Colleges will be allocated money for Perkins Loans and the amount allocated will depend upon the college’s retention and goal completion rates. Therefore, schools that once could lend larger Perkins loans, or larger numbers of Perkins Loans, may have their “hands tied” by their own statistics. Other schools may have more money to lend then they did in the past. The Department of Education’s hope is that these new Perkins Loans will provide an alternative to students who might otherwise have to seek higher interest private loans or use credit cards to pay their tuition bills.

At this point it looks like the amount of Perkins money available may be almost as much as the annual amount of money borrowed through private loans. While these new loans are good news for students, they’re not particularly good news for private lenders, some of whom may be forced out of the private student loan business.

In other good news for students, the new Presidential Teaching Fellows Program will give students $10,000 grants to students who will commit to teaching for at least three years after graduation.

Besides the fact that government college funding amounts are not likely to increase significantly over the next ten years, education tax benefits may be replaced with grant funding for students with documented need. The current tax benefits programs include the Hope Scholarship tax credit, Tuition and Fees Deduction, and the Lifetime Learning tax credit. It’s also possible that there may be some changes made to the interest benefits of the subsidized Stafford Loans for undergraduate students.

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Outlook for Federal Money for College is Good and Bad

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