When the economy stumbles and jobs vanish, America goes back to school. College admissions rates spike, particularly for older students, as Americans look to improve their credentials. Meanwhile, high school students and undergraduates look to continue their own educations and to ride out the storm.
As anybody who has looked at the bottom line of his college tuition bill knows, an education is not cheap. Only through a combination of government, institutional and private grants and loans can most people afford school. Nonetheless, a college education remains out of reach for some of the poorest prospective college students.
Federal Pell Grants have been available since the 1960s; however, they max out at around $5,000. Moreover, the grant program is subject to congressional funding. In other words, despite what Congress may set as the maximum grant amount, if members do not fully fund it, grants may be lower. Even if fully funded, the grant is not enough to pay for private colleges or even some public ones.
President Barack Obama has proposed pulling the plug on federal subsidies to private lenders and using the money to fund an expansion of the Pell Grant program for the neediest students. Subsidy opponents argue that lenders have earned massive profits while assuming virtually no risk on the government-backed loans. In addition, the industry received a bailout last year from the federal government to keep the student lending system afloat.
Pell Grants’ efficacy has eroded as more students have applied for less congressionally funded financial aid. Expanding the size and availability of Pell Grants would certainly be a boon to poorer students. With more grants and fewer loans, college costs may seem less daunting. If college is more accessible, poorer students may have a better chance to improve themselves financially.
However, Obama’s proposal raises questions. A drop in private lender subsidies would have an impact on jobs in the industry, but perhaps more importantly, it could cut access to loans for countless other students. Middle-income families, who may not qualify for financial aid at public colleges, may find costs prohibitive without sufficient access to loans. The problem could get worse for prospective private college students. For example, although Boston University has a generous financial aid program, it cannot cover everything for middle-income students, requiring at least some private loan backing.
Obama has made protecting the middle class a hallmark of his administration. One crucial part of maintaining and expanding the American middle class has been the assurance of access to a quality college education. Although grants are better than loans, borrowing money is often inevitable, and cutting access to loans could imperil the middle class further.
Private lenders should justify why they need government backing despite making huge profits. Still, as more students flood schools and financial aid budgets run low, private capital backed by Uncle Sam must remain a means of financing college costs not funded by grants and scholarships – a burden left for many middle-class families.
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