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The Congressional Money Tree's Focus on Education

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Published: 29Jan2009
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In recent days, the Democratic leaders of the House of Representatives have widely publicized their plan to infuse the economy with a massive $825 billion dollar stimulus package designed to - well, to be honest, I still haven't quite figured this one out yet. I'm still stuck on the first stimulus package of $700 billion -or was it $750 billion? - I'm sure it was seven hundred and something.

At this rate of spending and future taxation (coming soon to a wallet near you), the exact figure is almost irrelevant. What is relevant, though, is that to add anxiety to an already frightening non-stop spending binge, the leaders in the Senate are working on their own stimulus version of "let's make a deal with the taxpayers."

Although it compels us to pause and calculate how old our great (or maybe great, great) grandchildren will be when they stop paying for this lunacy, the congressional draft does shed light on what our elected officials are thinking in terms of providing assistance with higher educational costs. So let's take a look.

The draft calls for $15.6 billion to increase Pell Grants by $500, to $5,350, in the 2009 and 2010 school years. Pell Grants do not have to be repaid and you must demonstrate financial need (in other words, the FAFSA must be filed) in order to be considered. Most Pell awards go to students with the highest financial need, typically those with family incomes below $30,000. This portion of the draft is certainly in line with the founding philosophy behind the Pell grant and with President Obama's campaign pledge to make college more affordable for those who are least able to afford it.

Continuing with the economic need theme, the draft directs an additional $490 million to the work study program. Work study programs provide part-time employment to students during the school year based on financial need (again, the FAFSA must be filed) to assist with college costs. The Federal government pays a portion of the student's salary, making it economical for businesses and university departments to employ the student.

The draft also calls for an increase in federal limits to the Unsubsidized Stafford Loan. Unsubsidized Stafford Loans are federally-guaranteed loans that are not based on financial need; however, the FAFSA application still must be submitted for consideration. Interest or payment of principle can be deferred until six months after graduation or six months after you drop below half-time status as long as the loan is capitalized. In effect, this adds the deferred interest to the balance of the loan, thereby increasing your debt.

The congressional draft also calls for the simplification of existing educational tax credits. It directs $12.5 billion to replace the Hope tax credit (the current credit is $1,800 for the first $2,400 in qualified educational expenses during your child's first two years in college assuming income qualifications are met) with a new credit worth up to $2,500. This is coupled with an increase in income limits so that more people can take advantage of this credit. And to be fair to those individuals who don't pay enough in taxes to qualify for this new credit, our esteemed representatives in Congress propose a partially-refundable credit of 40 percent of the $2,500 (equally $1,000) for these folks.

In addition, the draft calls for another $79 billion over two years for the newly-created "State Fiscal Stabilization Fund." This money is given to states with direction to its governors to spend the money in such a manner as to restore their K-12 and higher education budgets to 2008 levels. Here's the catch, though (and it's a doozy!): The governors only have to spend 61 percent of this money as outlined above, which leaves an additional 39 percent to be spent on "public safety and other governmental services."

Finally, for the most underfunded part of the draft: $50 million to the Department of Education for "oversight" purposes. Good old oversight. How in the world could we forget this? After all, it worked like a well-oiled machine in the first stimulus package. As far as I can tell, these higher education assistance measures represent the most significant aspects of the draft that directly affect families. Additional money is being spent on grants for research on energy, greenhouse gases and rebuilding of infrastructure.

How much and in what form any of this will actually occur is anybody's guess. Secretary of Education-elect Arne Duncan indicated during his confirmation hearing that he believes in increasing federal investment in college tuition. But what that means exactly is also anybody's guess.

The only person to date who hasn't chimed in on the specifics is the president. However, when he was still just a presidential candidate, his campaign position was that more funding needs to be directed to students of economically-challenged parents. Considering his campaign promises and his lobbying efforts on behalf of the draft, one could conclude that he is pleased.

Marc Hill is a financial planner who coaches and educates families on how to dramatically reduce their college costs up to $12K or more! Now you can learn how to cut your family's college costs and protect your retirement account with Hill's FREE e-newsletter: "College Savings Tip Sheet." Subscribe now for free at http://www.reduceyourcollegecosts.info & receive two FREE issues of Hill's members-only newsletter "Affording College."

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