Obama’s Changes for Federal Financial Aid

February 8, 2012

President Barack Obama is preparing the final budget approval this February and he is proposing major changes to the federal financial aid program. The changes will be introduced on February 3rd. In a series of speeches by Obama last week, he spoke about the basis for financial aid proposals and would link college’s eligibility for financial aid programs, such as Perkins loans, to look for better affordability and value.

Perkins loans are made available to every college student on the Free Application for Federal Student Application, however not all students who apply receive the loan designed for low-income students. There are schools that use nearly $8 million in Perkins loans per year.

In his address, President Obama talked about a proposal to increase funding available for Perkins loans, which are federally funded loans that are distributed by individual institutions unlike the Stafford and Pell grants. The increase would go from $1 billion to $8 billion annually.

”We should steer federal campus-based aid to those colleges that keep tuition affordable, provide good value, serve their students well,” Obama stated on Friday.

Obama also stressed that it was an older formula being used which currently decides where federally funded campus-based aid goes, and that it would be changed to meet the new approach. During the State of the Union address, Obama also warned that institutions unable to curtail ballooning tuition costs would find funding for financial programs to be cut.

”Colleges and universities have to do their part by working to keep costs down,” Obama said.

In addition to Perkins loan distribution, the new formula would impact supplemental educational opportunity grants and the work-study program allocations. Perkins loans are fixed at 5 percent interest. These loans are also repaid and have no impact on the bottom line for the federal government. However, the increases in the Federal Supplemental Opportunity Grant and work-study that are also listed in the proposal will be an additional burden on the federal budget.

The proposal will raise more than $10 billion to colleges and universities to place pressure for keeping college tuition costs lower and affordable. These schools also have to maintain value, which means offering quality education and prepares graduates to gain employment and repay loans. The plan also talks about other aspects of the federal aid program, and the President has vowed to look for individualized financial aid fact sheets that will help students to understand financial aid that each institution can provide. The information will help postgraduates understanding earning and employment at the institution.

The new proposals are being praised by students, but some institutions claim that the tuition costs are due to a lack of funding or the rise in the cost of living. It’s not exactly the college’s fault for rising tuition costs. However, quality is going to be the key for these schools. The education must match the cost, according to the new proposal.

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