Federal budget affects loans

Danielle Carter ’08 is lucky, she says. Thanks to a lucrative internship last summer at Morgan Stanley and jobs filing papers at the Registrar’s Office as well as tutoring through America Reads, she hopes to start paying off her federal loans before she graduates. And the sooner she can start paying, the better, because she plans to attend medical school upon graduation.

As the Undergraduate Organizing Committee’s monthlong financial aid campaign draws to a close today, some say the impetus behind financial aid reform at Yale is greater than ever. The recently passed House Deficit Reduction Act cuts discretionary spending, including student aid programs, by 1 percent, but it is the changes to the rules of the program — such as fixing interest rates above their current level — that promise to make a difference for Yale students paying for their college education.

In theory, the Bush budget should not actually affect anyone’s ability to attend Yale. Yale’s financial aid office is “committed to meeting 100 percent of a student’s demonstrated financial need for all four years of study,” according to the Student Financial Services Web site. As Phoebe Rounds ’07, a coordinator of the UOC, points out, any changes to federal student aid should mean that Yale picks up the slack, meaning no net change for students.

“In an ideal world, the reductions in student aid and raising the bar for who qualifies should not be things that impact the reality of Yale students,” Rounds said.

Still, students like Elijah Barrett ’09 sometimes question their decision to come to Yale over other schools where their undergraduate educations may have imposed less of a financial burden. In Barrett’s case, he wonders whether or not he should have gone to Princeton, where a guaranteed debt-free graduation and a reputation for generous financial aid packages made declining admission tough.

But Sudipta Bandyopadhyay ’08, treasurer of the Yale College Republicans, said Yale differs from Princeton in that it depends on student tuition for close to 25 percent of its annual budget, whereas Princeton needs student dollars for only 11 percent of its budget. The problem, Bandyopadhyay said, is not with the federal government, but with colleges’ overspending, budgets that are not streamlined and endowment interest that is underutilized.

“Basically, Princeton could give everyone in their school full financial aid,” Bandyopadhyay said. “Compare that to Yale or Harvard, which would be in debt and would have to shut down if they did that.”

Truth be told, Yalies’ reliance on federal aid tends to be minimal compared to their reliance on Yale. Director of Financial Aid Caesar Storlazzi said Yale has budgeted $55 million in undergraduate scholarships for the 2005-2006 academic year, whereas federal funding supported under $3.5 million in undergraduate grants during the same period. For Barrett, federal grants amount to $8,400 of a total financial aid package of $33,000.

Here’s how it works: aside from the roughly 10 percent of Yalies who receive a federal grant like the Pell grant — reserved for families below the federal poverty line — undergraduates at Yale finance their education through some combination of tuition gifts from Yale, family contributions and “self-help” packages. But the self-help packages — the students’ expected monetary contribution to their education — entail part-time work during the school year, and students who do not think their grades can afford the divided attention often choose to use federal loans, rather than part-time jobs, to pay this portion of their tuition.

Changes to student aid in the House Deficit Reduction Act, designed to help pull the federal government from the red, fall into three major categories, said Mark Kantrowitz, founder of the nonprofit FinAid.org. First, many federal student loan programs will move from variable interest rates, which fluctuate with the national economy, to fixed interest rates set by Congress. For example, this means Stafford loan rates will jump to 6.8 percent, from a 5.2 percent interest rate, and Parent Loan for Undergraduate Students rates will jump to 8.5 percent from 6.1 percent.

The dramatic jump in part reflects historically low interest rates, but Kantrowitz said that since the Federal Reserve Bank generally intervenes when national interest rates hit 6.5 percent, the new fixed rates will still cost students and their parents thousands of dollars more than they would have spent otherwise, recovering economy or not.

Becky Timmons, the government relations director for the American Council on Education, said the interest rate changes are anomalous, to put it mildly.

“This is one of the very, very few programs where Congress picks an interest rate itself, which is ludicrous on its face,” she said. “The chances that they’re going to guess well about what the economy is going to do over a four- to five- year period is remote.”

Yale has never changed students’ financial aid packages in response to interest rate changes, Storlazzi said.

“The federal loan programs are essential building blocks of Yale’s financial aid program,” he said. “When interest rates were reduced, financial aid was not reduced; when interest rates increase, financial aid is not increased.”

Another much-debated provision in the Deficit Reduction Act keeps the size of Pell grants stagnant, meaning that, accounting for inflation, they are worth about 75 percent of their value when they were first implemented.

There are silver linings for students, Kantrowitz said. Science and Mathematics Access to Retain Talent grants will give more money to students studying math and science, about 10 percent of Pell grant recipients. Storlazzi argued that, given the budget constraints this year, students were relatively unharmed.

“While there is concern about decreasing federal support of financial aid, the bill is not as detrimental to our students as it could have been,” Storlazzi said.

But U.S. Rep. Rosa DeLauro, a Democrat who represents New Haven, said she thinks the amount this Republican Congress eked from the financial aid budget, pushing a Deficit Reduction Act through the House of Representatives with Vice President Dick Cheney making an appearance to cast a tie-breaking vote, is inappropriate.

“I voted against the reconciliation bill and will fight the Bush budget so that any student that gains admittance to Yale will have the financial resources necessary to attend,” DeLauro wrote in an e-mail.

The bill also phases out the 3 percent “origination fees” some banks charge students when they first solicit loans, though Kantrowitz said competition between lenders had already eliminated most such fees. It also allows graduate students to borrow under the PLUS program, which does not have the stringent credit checks of non-federal lenders. The program was previously reserved only for parents of college-bound students. Finally, the Act increases the amount of money that freshmen and sophomores can borrow, though it does not increase the total debt an undergraduate can incur.

“The Democrats had a mantra saying, ‘We haven’t increased loan limits since 1992,'” Kantrowitz said. “So in an election year, representatives increased the annual loan amount without increasing the cumulative loan limit. So you can’t borrow more money, but you can borrow it sooner.”

The net result, Timmons said, is bad for students across the board, more pointedly for students at cash-strapped public institutions, but bad for students at Yale as well.

“The bottom line is that when you take almost $13 billion out of a program, you are causing real harm,” Timmons said. “You have to look at this budget and say that student aid is just not a sacred cow any more. You’re looking at a great deal of harm to college students, tempered by these little spots of hope.”

But so far, students say, they are greeting the student aid changes with equanimity. Deciding to go Yale almost inevitably meant turning down a cheaper education, so students are willing to figure out their finances as they go along. Ben Stark DRA ’07 is financing his graduate education with a combination of federal loans and grants. He says he will graduate “about 60 grand in debt,” despite decent interest rates on federal loans, but he hopes that by consolidating his payments and getting a decent job in a commercial costume shop, he will be able to make ends meet.

“No regrets,” he said. “If the drama program felt I was ready to be at this level, I thought, ‘That’s it.’ This is where I fit in, and finances were not so much as a question.”

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