Government Relations: Paying for College

By Ruth Flower

In Losing Ground: A National Status Report on the Affordability of American Higher Education, available electronically at <www.highereducation.org>, the National Center for Public Policy and Higher Education points to trends that make college less affordable now than in the 1980s. The center reports that families today "must devote a larger share of their income to pay for college. . . . Just as college opportunity has become indispensable, it also has become less affordable."

The study also notes that affordability is "a key element of college opportunity," and that "the gap in college attendance between high- and low-income Americans has widened, even among those who are prepared academically for college."

Congress and the president recognize that a college education is an essential fuel for the economy. So this year’s budget and appropriations cycle includes a "help menu" for students and parents trying to figure out how to pay for college. The menu includes four kinds of assistance: grants, loans, tax subsidies, and work opportunities. Congress and the president are not in disagreement about the importance of student aid, but the sagging economy and the priority given this year to the "war on terrorism" mean that funds for education and other domestic programs will be squeezed.

The Pell Grant program, the Department of Education’s largest grant program, is targeted to lower-income students. The maximum grant, available to those with the lowest incomes, is $4,000 a year. The program was underfunded in fiscal 2002 because the country’s economic slump sent more people back to school, and more of those people qualified for Pell Grants. In May, Congress passed a supplemental appropriations bill that included $1 billion, almost enough to finish out the year with the current program.

For fiscal 2003, the administration has recommended the same maximum grant, $4,000 a year, and a 5 percent increase in funding to permit expansion of the program to more students. The administration anticipated funding the supplemental appropriation and the increase in next year’s benefits by closing down several "earmarked" programs that legislators have added over the years. But members of both parties and houses have adamantly refused to give up their earmarking privileges.

The Department of Education administers guaranteed loans (made by 3,500 private lenders) and direct loans (made through higher education institutions). These programs offer subsidized and unsubsidized loans, PLUS loans (for parents), and consolidation loans(to allow students with several loans to combine them into a single repayment schedule). Earlier this year, the administration proposed changing the interest rate on the consolidation loans from a flat to a variable rate—saving the government money by passing the expense on to recent graduates. That proposal found little support in Congress and was withdrawn.

The HOPE and Lifetime Learning tax credits, inaugurated in 1997, offer education subsidies through the income-tax system. However, students (and their families) who have very low incomes sometimes do not make enough money to make use of the tax credit. Many community college students are unable to take the full credit, because the credits apply only to tuition and fees—not to books and other expenses. Amendments to these programs have already been proposed, but they are not likely to be considered this year.

Middle- and upper-income students and their families can benefit from tax-free education savings plans, including state-sponsored prepaid tuition plans, Coverdell Education Savings Accounts, and so-called 529 plans. Although contributions to these plans are not tax deductible, withdrawals for college expenses are tax free. Students and families can now also take a $3,000 tax deduction for educational expenses.

The Work Study Program offers part-time work to students who qualify for financial aid. The institution pays 25 percent of their wage, and the federal program pays for the rest. The administration has proposed continuing the program, but with no increases in funding.

The administration has also proposed reorganization and increased funding for a collection of federal volunteer programs, calling them the USA Freedom Corps. The Americorps program currently offers nearly $5,000 total to help with the college expenses of individuals who volunteer for one year of community service. The administration hopes to double the number of participants in the program.

Ruth Flower is AAUP director of public policy and communications.

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