Budget Picture FY08
As I reported earlier this week, President Bush released his FY08 Budget on Monday, Feb. 5, 2007. And although it promises to increase the maximum Pell Grant to $4,600 this year up to $5,400 by 2012, he will use funds from other grants for low-income students to support the increase. However, how much value do presidential budget requests really hold, and what do lenders thing about Bush’s budget?
According to a Feb. 6, 2007 article by Doug Lederman titled “The Bush Budget, 2008” that appeared in Inside Higher Ed, “Even in the best years, presidential budget requests are of uncertain value, because they mark only the starting point for a long and often tortured process of deliberation, negotiation and, sometimes, outright war. The value of the White House’s 2008 budget is diminished further because Congress has yet to finish its work on the final budget for the 2007 fiscal year. That reality renders the numbers in the Bush budget for 2008, if not meaningless, at least hazier and fuzzier than usual.”
Changing the Budget Could Mean Complications for Legislators
By earmarking funds that would go to other low-income grants to help solve the Pell Grant initiative, Bush seems to complicate the college funding crisis even further. Lederman reported, “The budget picture is complicated even further by the fact that the administration would seek to pay for some of its new initiatives with changes in mandatory spending programs that would require the kinds of major alterations in federal student aid law that legislators are loathe to make in the budget-setting process.
“The more than $2 billion that the department would try to squeeze from lender profits to pay for the 2008 Pell Grant increase, for instance, would be possible only if Congress were to include such changes in legislation to renew the Higher Education Act, or pass a complicated budget reconciliation measure, in conjunction with the annual appropriations bills. Those prospects are dicey, casting further doubt on the likelihood that the Bush budget numbers will come to pass.”
What the Lenders Say
The new budget also proposes to “cut the interest rate subsidiary” that private lenders receive for funding federal student loans “by 0.5 percentage points” in a bid to raise the additional 12.4 billion needed to increase the Pell Grant to $5,400 by 2012, the article said.
In the article, Lederman quoted Joe Belew, president of the Consumer Bankers Association, as saying “Student lenders cannot sustain cuts of this magnitude, which would cut margins by about 20 percent. Driving away banks from this program will leave students with either a government monopoly or an oligopoly of loan providers and few if any of the benefits currently provided by competition. These include lender-paid origination fees, financial literacy and default prevention counseling, rate reductions for timely repayments, and quality customer service. Without banks in the student loan program, graduates can look forward to IRS-style quality of service.”
It is important to keep up to date on the effects of legislation and news on student loans and education. What goes on in government and in your state can have a great impact on your student loans and your college education.
For all the information you need about student loans, go to www.nextstudent.com.
Be sure to tune in next Wednesday for my next blog on student loan legislation in the news.
Student Loan Girl