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Debt Ceiling Jabberwocky

Democrats and Republicans, doubtless tired of gyring and gimbling in the wabe, have reached an agreement to raise the debt ceiling. At the same time, state budgets across the nation remain in dire shape and the increased federal aid of the last two years has almost completely evaporated. So what does this debt ceiling jabberwocky mean for higher education? The Student Loan Ranger will do its best to sum it all up.

First: Pell Grants. As our friends at Higher Ed Watch reported, Pell Grants are enjoying a temporary and tenuous reprieve. The Budget Control Act of 2011 (click here for the text but bring your vorpal sword because it’s heavy going among those legislative borogoves) adds $17 billion for Pell Grants that is spread between fiscal years 2012 and 2013. These funds will help replace funding sources (such as the American Recovery and Reinvestment Act of 2009 and last year’s student loan reform bill) that will run out at the end of fiscal year 2011.

However, as Ed Money Watch details, Congress will also need to appropriate $24.2 billion (an increase of $1.3 billion from the current year’s level) in addition to this injection of cash just to maintain the current maximum grant of $5,550. This is going to be a challenge: the debt ceiling bill cuts total appropriations spending by $7 billion in 2012, so Congress will have to increase funding for Pell Grants while reducing overall appropriations spending.

Unfortunately, the “snicker-snack” you hear is the sound of Congress taking from other higher education programs to pay for that additional $17 billion for Pell Grants. The Budget Control Act pays for that funding by eliminating the “in school interest subsidy” on subsidized Stafford loans for graduate and professional students and ending on-time repayment incentives for student loan borrowers.

Of course, Congress isn’t the only one cutting back. Four years of diminished revenue caused by the Great Recession has forced states to reduce their budgets. Federal aid, which helped limit the cuts to education in recent years, is now almost entirely gone.

As a result, according to the Center on Budget and Policy Priorities, at least 25 states are making major cuts to public universities. In Florida, for example, cuts in funding have led to tuition hikes of 15 percent at state universities and a cumulative tuition increase since 2009 of 52 percent. Arizona is slashing funding for its public universities by nearly one-quarter leaving per-student state funding at 50 percent below pre-recession levels. California is cutting funding for its university systems by more than $1 billion. Tuition in the University of California system for the 2011-12 school year will be 18 percent above last year’s rates and over 80 percent higher than it was in 2007-08.

Obviously in this climate it is more important than ever for students to find ways to reduce their educational debt burden. When you are choosing a school, factor cost into your decision making. Look hard for grants and scholarships from the school you are attending, federal and state governments and private sources. And remember that only federal loans are eligible for powerful programs like Income-Based Repayment (IBR) and Public Service Loan Forgiveness (PSLF). If you want to benefit from these programs, it is important to avoid taking out private loans if you can.

If you want to learn more about IBR and PSLF, our August 10 and August 24 webinars will teach you what you need to know before going to school. You can sign up here.

You can also email questions to and keep up to date by subscribing to our Twitter feed and following us on Facebook. Do all that and we promise you’ll be shouting “O frabjous day! Callooh! Callay!”

Isaac Bowers is a Senior Program Manager in the Communications and Outreach Unit, responsible for Equal Justice Works educational debt relief initiatives. An expert on educational debt relief, Mr. Bowers writes a weekly blog for U.S. News, conducts monthly webinars for a wide range of audiences, advises employers, law schools and professional organizations, and works with Congress and the Department of Education on Federal legislation and regulations. Prior to joining Equal Justice Works, he was a Fellow at Shute, Mihaly & Weinberger LLP in San Francisco. He received his J.D. from New York University School of Law

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