How the New Government Spending Bill Will Affect Student Loans

What Students and Parents Need to Know

How the New Government Spending Bill Will Affect Student Loans
January 8, 2015

Congress finally passed the “cromnibus” spending bill after the usual round of last-minute theatrics, sending it on to the President for an expected signature. As with any omnibus-spending bill, there are many aspects to sort through, including education spending.

From the perspective of students and parents dealing with collegiate debt, the provisions of the cromnibus bill were a mixed bag. Spending on education is similar to the previous years’ total, but there are two relatively significant changes worth mentioning in some detail.

  • Ability to Benefit (ATB) – For those with a poor educational start in life, the “ability to benefit” provision is a welcome sight. This affects those who do not hold a high school diploma or a GED, but are seeking federal assistance to further their education.

    The ATB test assesses a student’s writing, reading, and numerical reasoning skills. Prospective students must pass to be eligible for federal aid – in essence, you must prove that you can benefit from further education before the government will invest in your efforts.

    The ATB provision was cut in 2012. It returns in the cromnibus bill with the limitation that only students that are seeking career-path education through community colleges are eligible. Arguably, these are the students who would benefit most from this program in the first place.

    Students newly enrolled after July 1, 2015, are subject to the above limitation and can only receive the discretionary Pell maximum ($4,860). Students who are currently enrolled may be potentially grandfathered in. Check your eligibility with your collegiate aid office if you are unsure of your status.

  • Pell Grants – The Pell Grant program, one of the primary sources for collegiate financial aid for poorer students, has run up a surplus of approximately $4 billion through previous cuts and eligibility changes. What does Congress do when it sees a surplus? Re-appropriate it, of course.

    Fortunately, the damage was minor. Pell Grant funding was trimmed by $303 million, with most of that money being directed toward contractors that service student loans and collect the monthly payments. This replaces funding that the loan servicers lost in the previous Bipartisan Budget Act.

    In essence, the funds are coming from a surplus, so 2015-2016 grants should not be affected. Unfortunately, the Pell Grant program is forecast to have a potential deficit within two years.

    While you are in good shape for the coming fiscal year, further cuts to the program funding or eligibility requirements are sure to be debated, if not enacted. Good news for seniors, but bad news for freshmen… or current high school students.

    In one bit of associated good news, the maximum Pell Grant award increased $100 to $5,380 for fiscal 2015. The status of the surplus will likely dictate 2016 maximum grants.

Other funding streams affected by the bill include the Federal Work-Study (FWS) program, which received a $15 million increase in FY15 funding to a total of $989.7 million, and the TRIO program, which received an extra $1.5 million increase to reach $$839.7 million.

The Supplemental Educational Opportunity Grant (SEOG) and GEAR UP programs were kept at 2014 funding levels, but at least they escaped any cuts.

Overall, the cromnibus bill holds student aid funding relatively steady, relieving the concerns of some who were expecting significant cuts. We hope that the student aid picture will defy predictions and remain relatively stable throughout fiscal 2016, and the budget bill will pass with a minimum amount of drama. However, we are not counting on either one to occur.

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