Student loan defaults rising as Obama and GOP propose cuts to Pell Grants

(Image: Flickr Creative Commons/Wohnai)

Image by: Matt MahurinStudent loan defaults are on the rise, according to a new federal tracking system. For students who began repaying their loans in 2008, 13.8 percent have since defaulted. For profit institutions had 25 percent of their graduates defaulting after three years, and public four-year colleges had 10.8 percent of their graduates defaulting after three years.

“These disturbing numbers clearly indicate the need for local, state, and national leaders to strengthen their prioritization of higher education,” said United States Student Association President Lindsay McCluskey. “Young people face a staggering unemployment rate far above the national average and cannot afford to begin a post-collegiate life while saddled with tens of thousands of dollars of debt.”

U.S. House Republicans sought $64 billion in cuts in Pell Grant mandatory funding over the next 10 years as a result of the deep reduction it would make in the 2011 fiscal year, through H.R. 1. It would go on to make a 30 percent reduction in 2014 to Pell grants, and a 34 percent reduction in 2017.

U.S. Rep. Paul Ryan (R-Wis.) proposed budget for FY 2012 would also bring Pell Grants down to “pre-stimulus” levels.

The current proposal in the House would bring the maximum grant down from $5,550 to $3,040 per year, its lowest level since 1998. The grants would go down to $2,090 in the 2012-13 school year. It would also throw 1.4 million students out of eligibility.

President Obama’s proposed 2012 budget would keep the maximum grant at $5,550. However, the Obama administration is putting forward the idea of scaling back year-round Pell Grants, eliminating the summer assistance. That proposal was included in the Continuing Resolution signed on April 15, but colleges say they are awaiting guidance from the U.S. Department of Education before proceeding.

Ryan argues, citing a 2005 study by the University of Oregon, that as Pell Grants increase, so to does the average tuition to attend college.

The Institute for College Access & Success defends against the study, saying most economists who study higher education do not find a link between federal aid and increases in tuition.

U.S. Sen. Tom Harkin (D-Iowa), the head of the Senate HELP committee, told The Iowa Independent in March that private non-profit universities were pleading with the U.S. Senate not to cut Pell Grants because of the effect it would have on other students and their budgets.

“They came in to see us and said if [the government] whacks the Pell Grants, their tuition will greatly increase,” Harkin said. “What happens is if some of these students don’t get that Pell Grant, then they can’t go to school. Now if they can’t go to school then the private colleges then have to increase the tuition on other students who may come in. If you increase that tuition that means some more may drop out, and that creates this ripple effect if you cut the Pell Grants.”

Harkin has been adamant that cutting assistance for students to attend higher education is not the answer. He criticized major companies who have been avoiding their taxes. He mentioned Carnival Cruise Lines bringing in $5 billion last year, but rather than paying their 35 percent tax bill, Harkin claimed they only paid 1.8 percent.

Student Debt Burden Growing

The Pew Center for Research found there has been a trend over roughly the past decade of students taking out larger loans and more students borrowing to pay for college. In 2008, 60 percent of all college graduates had borrowed, compared with 52 percent in 1996.

Student loan debt outpaced credit card debt for the first time in 2010 and the indebtedness of collegiate students is expected to top $1 trillion for the first time in 2011.

The Obama administration did implement new rules for federal loans, to forgive student debt after a certain number of years. The income-based repayment forgives remaining debt if one pays 15 percent of their income for 25 years; 10 years, if they work in public service.

And already, the President is using Republican proposals to scale back student aid as he begins to campaign. Instead, Obama has told college students he would tax the wealthy and trim the Pentagon’s budget.

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