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Should College Students Care About the Deficit?

Mar 19, 2012 Jennifer Williamson, Distance Education.org Columnist | 0 Comments

College students aren’t the only ones in debt. Everyone’s talking about the national deficit these days. It’s currently in the trillions—and Republicans are aggressively pushing an agenda of reduced government spending in order to lessen the debt. However, some claim that the deficit is a distraction issue—and that a national debt in the trillions is not as dire as many fear it is.

So should students care about the deficit? The truth is that they should—we’re already seeing some cuts, both severe and mild, to government-administered programs and school tuition, and it’s students who pay the costs.

Here’s a look at how a rising deficit may affect students and recent grads:

Reduced government spending could mean fewer federal aid dollars.

Stressed Student

The truth is, the government doesn’t have to react to the deficit by cutting spending. It’s possible the government could decide to spend more in an attempt to jump-start the economy.

 

 

The federal government already reduced spending on student loans in 2011, after President Obama negotiated a debt deal that prevented a government shut-down over the country’s deficit. Under the new deal, graduate students can no longer get interest-subsidized student loans, meaning their interest accumulates while they’re in school. In addition, a bipartisan panel of 12 lawmakers has convened to seek out an additional $12 trillion in possible spending cuts—meaning more student loan programs could be sent to the chopping block.

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Possible reductions in unemployment benefits

With a large deficit, the federal government is in a less generous mood about unemployment benefits as well. Recent graduates have higher levels of unemployment than the average population, and some rely on unemployment to make ends meet between graduation and their first job. With a large deficit, it’s possible unemployment benefits will become more difficult to qualify for.

Possible tightening of student loan debt relief

Before President Obama’s debt deal, students who made their first 12 payments on time for a federal loan originated after July 1, 2010 were eligible for a .5% discount. That benefit will be eliminated in July 2012. It’s possible other student debt relief programs, like the Income-Based Repayment program, could follow suit as the deficit rises.

Possible higher taxes

Under the American Opportunity Credit Act, students can claim up to $2,500 in tax credits for college expenses. The HOPE Act allows an additional $1,800 per year more. These tax breaks have not yet been eliminated—and the political climate is not currently receptive to tax cuts of any kind. However, it’s possible that as the deficit rises, the government will have to raise taxes on many groups of people in order to offset it.

Possible reduced funding of state colleges—meaning higher tuition

We’ve already seen the effects of this on a state as well as a federal level. State college tuition has jumped more than private tuition in the past year to make up for budget shortfalls caused by reduced government funding. In addition, some states have stopped offering tuition reimbursement programs for certain groups of students—and others have cut those programs dramatically. It’s possible that with government deficits rising, this could become more of a problem in the future.

The truth is, the government doesn’t have to react to the deficit by cutting spending. It’s possible the government could decide to spend more in an attempt to jump-start the economy. However, in this political climate, cuts are more likely—and in many instances, it’s students and other taxpayers who will pay the cost of reduced government services. No matter which side of the political divide you’re on, the budget deficit issue can directly affect you—and your financial well-being.

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