A government budget proposal to cut federal financial aid spending by $15 billion will have a negligible effect on Northwestern students, according to university administrators.
The House of Representatives is scheduled to vote today on the bill, intended to ease the federal budget deficit before making room for a new round of tax cuts. The House plan decreases spending on public programs by $54 billion while setting the stage for about $70 billion worth of tax breaks.
Last week, the Senate passed its own version of the legislation calling for a slightly smaller cut to student aid.
The proposal effectively raises interest rates on student loans and adds additional fees to loan consolidation programs. According to the Illinois Public Interest Research Group, a grassroots public advocacy organization, the average student borrower could face up to $6,100 of additional debt.
“This will impact any school with students who take out federal loans,” said Luke Swarthout, a higher education associate with the Illinois Public Interest Research Group. “A private school with a large endowment will better be able to compensate, it’s true, but this will affect students with loan debt by making those loans more expensive and harder to repay.”
NU is willing to assist students through its healthy endowment with its own NU Loan program, said Michael Mills, associate provost for university enrollment.
“Northwestern’s a lucky school in that the size of our endowment allows us to meet, with institutional funds, every student’s need,” he said. “I don’t want to call (the new bill) inconsequential, but it’s close for Northwestern.”
According to the Office of Financial Aid, 3,359 NU undergraduates receive need-based financial aid. A typical aid package usually comes from a number of sources, including educational loans, both from the federal government and NU, grants and part-time work. The office does not keep data on how many students receive federal loans.
If the House bill is passed, it would virtually clamp the growth of federal Pell Grants, government awards to low- and middle-income college students. The bill would also lower the federal guarantees and subsidies to private lenders that make student lending an attractive business.
Banks currently keep any extra interest paid by students beyond the minimum federal borrowing rate. With the new bill, those funds would be diverted to paying off the budget deficit, revoking $5.2 billion of bank revenue. How banks respond might not be determined until Congress has combined and amended the House and Senate bills, said Tom Kelly, a spokesman for Chase Education Finance of JPMorgan Chase & Co.
“I think we’re going to have to wait and see where we end up on that,” he said. “I think the important thing is that we make sure loans are available to students. And part of the challenge is the amount of federal lending that can be made hasn’t increased in about 20 years. So private lending is an important way for students to finance their education.”
With the House legislation also lowering federal guarantees on the value of each loan from 98 percent to 97 percent, banks might have to scrutinize potential borrowers more carefully, Kelly said.
“If there are not guarantees from the federal government, you have to look closer at the loans themselves and see if they make sense for you,” he said.
When the dust settles on Capitol Hill and final legislation takes shape, Kelly said banks will have to “get together and decide whether it makes financial sense to be in the (student loan) business.”
Mills said he is confident Northwestern will continue to support students who need aid.
“It’s unfortunate for sure, but it won’t stop us from going about our business and trying to bring more under-represented students to this campus,” he said.
Reach Jordan Weissmann at [email protected].
