Financial Aid in the News
The Debt Ceiling Debate
President Obama signed the Budget Control Act into law on August 2, 2011. This legislation on August 2, 2011 increased the federal debt ceiling and prevented the United States from defaulting on current financial obligations.
The House passed the bill Monday with a 269-to161 vote, and teh Senate voted 74-26 Tuesday to pass the $2.4 trillion debt-ceiling bill. This packaged contains three main provisions related to student aid:
- Additional mandatory funding for the Pell Grant program for fiscal years (FY) 2012 and 2013
- Elimination of Direct Loan repayment incentives
Impact of Student Aid Funding
The Pell Grant program faces an $11 billion shortfall for award year 2012-13, making it a key budget target during deficit reduction talks. In his Fiscal Year 2012 budget request, President Obama proposed plugging part of that shortfall through the Pell Grant Protection Act (PPA). The plan would lower the cost of the Pell program and other student aid programs to maintain the maximum Pell award and pay down the program deficit. (NOTE: As of August 3, 2011, 3088 Cincinnati State students had been awarded Pell Grant funds for the 2011-2012 year ).
Direct Loan Repayment Incentives: Repayment incentives were also eliminated in the final package. The incentive for using automatic debit repayment provided borrowers with a 0.25 interest rate reduction and the up-front interest rebate incentive was equal to 0.5 percent of the loan amount and applied toward the 1 percent loan origination fee. For PLUS loans, the up-front interest rebate was 1.5 percent applied toward the 4 percent origination fee. Borrowers were able to keep the rebate if they made their first 12 payments on time. The language prohibits the Department of Education from authorizing or providing repayment incentives on new loans disbursed on or after July 1, 2012, except that an interest rate reduction may be provided to a borrower who agrees to automatically debited electronic payments. The CBO projects the elimination of the origination fee rebates would yield $3.6 billion from FY 2012-21.
