A survey shows that young Americans fear the fiscal cliff as much as their parents do. This is because the budget cuts are expected to affect the education sector, particularly the student loans and financial aids programs. Apparently, these are the sectors that most students coming from low wage families rely on to get post-secondary education.
Education Secretary Appeals to Congress
In a letter sent by the Education Secretary, Arne Duncan, to Congress, he appealed that the budget cuts on education be reviewed. This is because the plan will put an end to programs like the no-cost applications for Federal Student Aid. The Federal Student Aid acts as the bridge between millions of students and a college degree.
In addition, if the fiscal cliff pushes through on March, it will also force the Department to end its contracts with the private entities that fund federal student loans. Hence, for existing borrowers, this could potentially mean a change in the interest rate; thereby hurting them all the more once they’re done with school.
Even the Pell Grants may not be safe in 2014 because they too, may be affected by the sequester. This is additional information coming from the Center on Budget and Policy Priorities.
The Education Department estimates that if the budget cuts on education pushes through, then millions of students would opt for the bad credit loans that are offered by nontraditional lenders. These loans are usually served without requiring for a number of requirements. However, they come with higher interest rates and students may have a difficult time paying them off when they come due.
Government Saves American Opportunity Tax Credit
Congress, on the other hand, saves the American Opportunity Tax Credit and the Child Tax Credit from the budget cuts. The American Opportunity Tax Credit is the leading institution that helps minimize the cost of higher education for low-income individuals. Meanwhile, the Child Tax Credit is a program that helps low-income parents seek support for their children’s education, up to $1000 per child.
Aside from the agencies that provide financial assistance to students, the budget cut will also affect non-government organizations that provide pre-employment training. Examples of these training groups are the AmeriCorps, which gives skills training through community services and the Job Corps, which helps graduates find jobs.
Luckily, the tax increases as stipulated in the fiscal cliff are only limited to higher-income families so most of those in need of student loans are safe.