Federal Student Aid Funding Department

Federal Student Aid Funding

Department of Education makes available more than $67 billion worth of loans, grants and campus-based aid each year to students and their families to help them pay for postsecondary education (Longley 2007). These are federal student loan programs, federal Pell grants, and campus-based aid programs. Their basic requirement is financial need. The Stafford/Ford Program and the Direct PLUS Program are examples of federal student loan programs. The amounts, repayment options and interest rates vary greatly and can be changed during the term of the loans. Pell grants are different from federal student loans in that they do not have to be repaid. Congress determines the maximum amounts available. As of 2000-2001, the maximum Pell grant was $3,300. Besides financial need, the student's status and plans are the criteria for a Pell grant. Pell funds are paid directly to the student. And campus-based programs are administered directly by the financial aid office of every participating school. Funds for these type of programs are given the participating schools and then distributed to the students at the schools' discretion. Examples are the Federal Supplemental Educational Opportunity Grant, the Federal Work-Study and Federal Perkins Loan programs. Financial need is determined by the administrator of the school where the student wants to enroll. Requirements besides financial need are a high school diploma, a certification from the U.S. Department of Education, proof of working toward a degree or certificate, enrollment in an eligible program, U.S. citizenship or non-citizen eligibility, a valid Social Security number, registration and satisfactory academic progress in school. Students who have been convicted by the federal or state law of the sale or possession of drugs are ineligible (Longley).

The 2005 resolution signed by President George W. Bush stalled immediate increases in student aid, such as the Fund for the Improvement of Postsecondary Education of the maximum Pell grant (Pekow 2005). The following year, Congress approved cuts to student loan programs at an automatic 1% (Dervarics 2006). The House of Representatives and the Senate approved $12.7 billion in long-term reductions to student loan programs. The two houses agreed to raise interest rates on parent loan from 7.8 to 8.5% and established a 6.8% interest rate on Stafford loans. The loan cut immediately elicited angry responses from education advocates, who described the cut as sending a negative signal on the value of higher education among lawmakers. A third of the cuts was said to be borne by students and their parents. The perceived consequence was that college education would be less obtainable to millions of affected students. The two bills from the Senate and the House of Representatives resulted in a net loss of funds for many financial aid programs last year. The cut took away $9 million from work/study loan program and $7 million from supplemental grants. It also stalled small planned increases for traditionally Black colleges and universities and canceled some funds for tribal colleges and Hispanic institutions. The share of loss for federal TRIO programs was $8 million. The cuts were perceived as the biggest in 12 years and taking away excessive fees from low-income students and turned them over to the wealthiest Americans. Net losses would also affect many K-12 education programs, including Title I aid to local schools. Critics considered these cuts the worst assault on public education, specially the cuts on Title I, the cornerstone of No Child Left Behind Act. Congressional sponsors of the cuts, however, said that these cuts would help control extreme federal spending as critical reforms and as savings for taxpayers. They also said that their move would test how far the programs could survive, how efficiently they could operate and if they could continue to serve millions of Americans in need (Desvarics). The Congressional sponsors of the cuts also said that their decision was to spend education money more wisely and that they could not continue funding programs, which were not helping students achieve (Desvarics 2003).

State legislatures responded to decreasing tax revenues and increased demands for state funds by cutting education funding (Clinton 2002). As a result, there was less money for increased student need. In response, colleges and universities were compelled to increase tuition, often sharply. The gap between the price of education and what families could afford increased overwhelmingly. School asset value dropped radically. School trustees had to resort to even tighter spending formulas. A weak job market could also force workers back to school and increased enrollments in community colleges could further deplete already scarce financial resources (Clinton).

Salem Governor Ted Kulongoski called on Congress to reject these cuts to education and other critical programs (Hokkin and Taylor 2006). He stressed all citizens deserve the opportunity to get ahead through education, which he described as the great equalizer of the country. He believed that the President's budget would deny Americans the helping hand and the opportunity to get ahead. It would create hindrances rather than bridges in the achievement of the American dream. He noted that those serious cuts accrued as tax cuts for the wealthy, turning the rich into richer, while working Americans took on the burden of ever-rising tuition and other public service costs. The high price of education and skills training only closed the door of opportunity to working families and their children and jeopardized the country's capability to compete in the global market, he added. In Oregon alone, the President's budget cut away $12 to %15 million from its public schools and K-12 funding (Hokkin and Taylor).

Student activists also protested against federal cuts to education. The 35th District Assembly with representatives from Upward Bound, California Interest Research Group, Associated Students and the University of California Students Association raised their voice to oppose the $12-million cut to financial aid programs and the increase in student loan interest rates (Tidwell 2006). They investigated the reauthorization of the Higher Education Act and found that it eliminated diversity in the campus. The Upward Bound director said that they helped low-income and first-generation students but the cuts would cancel their assistance to financially disadvantaged students. The UCSB financial aid office representative said that the government was taking funding from student programs and redistributing some of the money into entirely new grant programs, focusing on science and math. One of the programs was the National Science and Mathematics Access to Retain Talent or SMART. They interpreted the new trend as the government's struggle to adapt with world changes in math and sciences with new programs, such as SMART. They identified recent immigration and national security concerns as propelling the changes and the subsequent cuts. Smart students got financial aid for majoring in math, science or a critical foreign language, such as Chinese and Arabic. The main eligibility requirement was U.S. citizenship but not non-U.S. citizenship eligibility. But these protesters claimed that eliminating tried and true methods would be wasteful and cost a lot of people to lose their jobs (Tidwell).

Critics also saw that lawmakers failed to prevent the way financial need was calculated (Guerard 2005). The failure would deprive 80,000 to 90,000 Pell grant recipients and more than a million more experiencing reduced eligibility. This was gleaned from an update on state and other tax tables used in the federal need analysis methodology and published by the Department of Education on December 23. The formula determines the eligibility to federal aid, how much the aid would be and the contribution required of the students of their family. Members of the higher education community believed that the changes in Pell grants would increase the contribution required of the family of the student and correspondingly decrease the student's eligibility for need-based financial aid. They argued that the tax tables update showed a pre-downturn of the U.S. economy and an unjust deprivation of needy students of federal funds for higher education. In a letter to the then Secretary of Education Rod Paige, they said that it was not the time to reduce federal commitment to financially needy student citizens (Guerard).

The academic quality and competitiveness of a university or learning institution, student access and affordability are linked to the university's financial health (Darling 2005). In the past 20 years, state spending have given lower priority on higher education than on other state programs. Statistics from 1984 to 2004 showed that state spending on higher education had decreased by 9% while state spending on health and human service went up by 31%. State spending on K-12 education went up by only 37% as compared to state spending on prisons at 165%. This much lower priority on higher education has appeared to be the trend in the past 20 years in comparing with the 1964-84 spending trends. As exemplified by these trends, the state moved the responsibility of paying for college education to the student in the form of higher tuition and other school fees. From 1984 to 2004, financial support for a student at the University of California, for example, dropped by 40% although the University's enrollment rose significantly. This reduction of state funding support led to increased student fees undertaken in order to balance the state budget cuts. Despite increased student fees, the UC still encountered a $500 million shortfall or $2,500 per student. It has been undergoing severe pressure from the impact of the cuts. The quality of education at the U.S. has remained high, but there have been disturbing signs of erosion, nevertheless. The widening gap between the UC and the best private university has been alarming because the UC competes for the top teachers and students with these private universities. This widening gap should be a critical concern to the state and the federal governments because even excellent private universities are too small to meet California's or the nation's needs for a well-educated workforce in the future, to come up with innovations needed to fuel the economy and to generate jobs, and to introduce medical advances for the use and care of the sick and disabled. In the past decade, California's private research universities, Stanford, University of South California and California Tech, had a combined enrollment of only 1,500. In comparison in the same period, UC had a 42,000 enrollment. The California population was projected to grow to 50 million in the year 2025 and California public universities will need to respond to a swelling population in pursuing and achieving more critical social educational, health and economic objectives (Darling). This is the challenge.

One area, which accounts for the widening gap between public and private universities, is that of faculty salaries (Darling 2005). UC faculty salaries have been falling behind those of competitive private universities. The gap at only 3% in 1980 is now 22% below these private institutions. UC is now driven to spend more of its already limited resources in maintaining its faculty by making salary counter-offers. Another consequence was a fall in its student-faculty ratio, which was also way behind that of competing universities. It is not difficult to conclude that this condition adversely affects the student's learning experience and the teacher's teaching experience. Moreover, fewer public universities land among the top 10 in national rankings than they used to two or three decades ago. The federal budget necessarily reflects the state's situation. Federal funding is critical to a public university like the UC. It is the primary source funding for faculty research, for Medicare and Medicaid to support UC's teaching hospitals, for student grants, work-study, and loans and for its three Department of Energy national laboratories. In 2004, the UC received more than $8 billion of federal funding. From this total, $4.1 was given to the three Department of Energy national laboratories, $4 billion to its educational programs, $2.6 billion for research, $1.4 billion for Medicare and Medicaid revenue, and $242 million for student grants and work-study. UC students and their families also obtained $714 worth of student loans. That spending trend expired on November 18, 2005. The President's Budget Request for the fiscal year sought funding for the programs, which fund the University. But the same budget did not include the funds for the wars in Afghanistan and Iraq or recovery efforts from the ravages of hurricanes Katrina and Rita. Emergency funding for these events took away from that of University programs. As a result, the Senate and the House signed spending reductions at $39 billion and %50 billion, respectively, in the next five years. These cuts translated into $8 to $15 billion worth of student loan programs, and close to $6 billion for Medicare, $4 o $9.5 billion for Medicaid. These acts of Congress represented the biggest net cuts to federal need-based student aid since the beginning of these programs.The cuts have not only entailed higher average loan costs to college students by several thousand dollars but also an across-the-board cut of up to 2% on all domestic discretionary federal spending in the past year. This across-the-board cut would further injure the University and its students (Darling).