RegisterSign In

The "Fiscal Cliff" Deal - What it Could Mean for College Students

Jan 4, 2013 Jennifer Williamson, Distance Columnist | 0 Comments

The “fiscal cliff” referred to the challenges that would have come about when the Budget Control Act of 2011 expired. Several tax breaks were set to expire, and cuts to some specific programs were expected to go into effect as well unless the government could  come to a compromise that would alleviate the issues.

While some were calling for President Obama to allow the country to go over the “cliff” as a bargaining tactic, congress did come to an agreement two hours after midnight on Jan.1, 2013. And while technically we did go over the “Fiscal Cliff,” the senate was able to come to an agreement that kept us from hitting the ground - in a manner of speaking.  And while many details of the agreement are still working their way out, you can be
certain that the changes that go into effect could
indeed have an influence college students and
their families. Many of those, however, are also
changes that affect non-students. These include:

A raise in taxes

With the end of the payroll tax holiday, the elimination of the Bush-era tax cuts, the reinstatement of the Alternative Minimum Tax, and the erasure of other tax cuts and incentives—such as the child tax credit, which could be cut in half—families could wind up sending a lot more to the IRS this coming tax season.  The payroll tax cut alone could increase up to 6.2% from its current rate of 4.2%--which could hurt students’ wallets as well as everyone else’s.

See Also: Online Accounting and Finance Degrees

The end of the American Opportunity Tax Credit

Under current rules, families earning $100,000 or less in income can claim a tax credit that lets them deduct as much as $2,500 in school-related expenses for every child they have in college for a period of up to four years per child. This benefit is set to expire by January 1 of next year. There is another tax credit set to take its place—the Hope Credit—but this is less generous, providing a maximum of $1,800 per child for a period of only two years.

See Also: Online Business Degrees

A reduction in public college funding

The Department of Education is facing possible budget cuts if we go over the cliff—which means it will potentially have less money to fund pubic universities. While the cuts are not expected to be drastically large, this could increase tuition at public schools as they try to make up the difference in funding—and possible cutbacks in school programs and services.

A reduction in funding for federal student loans

Automatic budget cuts that could go into effect by January 1 include spending cuts to federal aid programs that could be as high as 8.2%. The spending cuts could affect several programs geared specifically to low-income students, including TRIO and GEAR UP—both of which offer challenge grants, funds, and federal work-study funding to students based on financial need.

See Also: Online Political Science Degrees

Reductions in Federal Work-Study funding

The Federal Work-Study program allows students to earn additional tuition dollars through part-time work.  Most likely, these cuts would reduce the number of jobs available through the program rather than reducing the hours of students already in the program.

An end to subsidized Stafford loan interest

If the government doesn’t reach a deal by January 1, it’s possible the subsidized interest on the federal Stafford loan would be eliminated. If that occurs, interest would continue to accumulate while students are in school—rather than kicking in only after graduation. This could add considerably to student loan debt.

A raise in federal student loan interest rates

Currently, the interest undergraduate rates on Stafford loans is at 3.4%--for students at traditional and accredited online schools []. However, this rate is this low because the administration negotiated a one-year extension on those rates in 2012—without that negotiation, the interest would have risen to 6.8% in July. If Congress doesn’t reach a deal, that rise could happen again—in July of 2013.

If a deal isn’t reached by January 1, 2013, it’s possible many cuts will go into effect that could affect college students—both directly, as with cuts in federal student aid and reductions in tax breaks for students, and indirectly, through increases in tuition at public schools. Hopefully, the government will be able to negotiate a deal that doesn’t wind up costing students and their families more.



blog comments powered by Disqus