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Federal spending cuts could have heavy impact on student financial aid

Rex Barber • Mar 2, 2013 at 1:55 PM

Sequestration could cost thousands of dollars in student financial aid, possibly resulting in more student debt, according to East Tennessee State University’s financial aid director.

The Associated Press reported President Barack Obama and Republican congressional leaders refused to budge in their budget standoff Friday as $85 billion in across-the-board spending cuts was set to go into effect at midnight.

This sequester, a result of failed budget talks in 2011, will be spread out over 10 years unless Congress acts.

Many federal agencies face cuts from the sequester, including programs that provide financial aid and research grants to colleges and universities.

Margaret Miller, director of ETSU financial aid, said Pell Grants, which are what most students who receive financial aid get, will not be reduced in 2013-14 but could be reduced the following year.

For certain, in 2013-14 reductions are planned for federal work study funding, the federal supplemental educational opportunity grants (SEOG), and Gear Up and TRIO Programs. Additionally, direct loan origination fees will increase.

Current origination fees for direct student loans, which would be federal Stafford Loans, are 1.1 percent. The PLUS Loan is 4 percent. Both of these fees will go up slightly July 1.

The National Association of Student Aid Administrators estimated the effects of sequestration on each school in the nation. For ETSU, the SEOGs will be reduced by $29,869. Federal work study will go down by $36,934.

That equates to 18 students who will not be able to get a work study position. The SEOG grants are usually $2,000, so that means about 16 students would not get those grants.

“And those are so few and far between anyway that they really make a difference to the students getting those,” Miller said.

These amounts could reduce further over the course of 10 years if nothing is done, Miller said.

In 2011-12, 6,209 ETSU students received almost $24 million in Pell Grants. Again, these will not be reduced this next fiscal year but in 2014-15 Pell Grants could be reduced.

“So, again, if you see that many students get a cut, even though that’s two years down the road, it’s something that concerns me and I’m sure it concerns them too,” Miller said. “The thing that upsets me about it, and the thing that upsets most financial aid people, is that because of these cuts this is almost certainly going to force students into taking out more loans, and the loan programs are the ones everybody has been calling to do something about.”

Some students will have no choice but to borrow more money, Miller said.

The issue of student loans has become very prominent in recent years. Reducing student debt has been a focus for many who seek a solution to the ever increasing debt burden for school, Miller said.

In 2011-12 ETSU processed more than $78 million in student loans. The total amount of aid dispersed that year was more than $155 million. The prior year ETSU dispersed $145 million in total aid. In 2009-10 $135 million was given to students.

These total amounts include everything from loans to grants to federal work study positions to scholarships. A clear increase of around $10 million per year can be seen, indicating greater and greater need.

TRIO and Gear Up programs nationwide are facing a 5.1 percent cut in funding this next fiscal year from sequestration.

At ETSU, TRIO Programs receive $2.5 million in funding. A university spokesman said these nine TRIO Programs are facing a $127,000 cut. TRIO Programs are federal outreach and student services programs designed to identify and provide services for individuals from disadvantaged backgrounds, according to ETSU’s website.

Research funding is another area in which ETSU could feel the effects of sequestration.

ETSU researchers receive the majority of their grants from the National Institutes of Health and the National Science Foundation, both of which are scheduled to receive cuts of $1.65 billion and $359 million, respectively.

ETSU Vice Provost for Research Bill Duncan said ETSU researchers received $10.2 million in grants from these sources in 2012. Total research funding for 2012 was $12.3 million.

NIH has not yet decided how it will handle sequestration, though some recurring grants could be reduced by 10 percent. NSF has indicated it would fund 1,000 fewer grants, Duncan said,

“I guess the concern we have is the impact on ability to get a new grant, because it’s really competitive and the reduction in funding hurts your chances even more,” Duncan said.

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