As President Barack Obama readies the final budget proposal of his first term, major overhauls in federal financial aid processes will be among the proposed key changes that he will introduce Feb. 13.
In a series of speeches last week, Obama outlined the foundation of a financial aid proposal that would, for the first time, link a college’s eligibility for financial aid programs, such as Perkins loans, to gauges for increased affordability and value.
Nearly $8 million in Perkins loans are available for USC students this year by the Financial Aid Office, according to Thomas McWhorter, dean of financial aid.
“We use the Perkins loans funds for some of the neediest students,” McWhorter said. “We want to give them the most attractive, the best loans, first.”
In an address at the University of Michigan on Friday, Obama discussed a proposal to increase funding available for Perkins loans — federally funded loans that are distributed by individual institutions, unlike Stafford loans and Pell grants — 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 said Friday.
The Obama administration also stressed that an “antiquated” formula, which currently dictates where federally funded campus-based aid goes, would be overhauled to meet the new approach.
During last week’s State of the Union address, Obama warned that institutions unable to curtail ballooning tuition costs would find their funding for certain financial aid programs cut.
“Colleges and universities have to do their part by working to keep costs down,” Obama said.
In addition to Perkins loan allocation, the revised formula would impact supplemental educational opportunity grants and the work-study program allocations. Perkins loans are fixed at 5 percent interest and are repaid and therefore have no impact on the federal bottom line; however, increases in the Federal Supplemental Opportunity Grant and work-study, as outlined in the proposal, could prove another burden on the federal budget.
“[Perkins loans] go out the door to universities to figure out how they can help as many students as they can,” Jennifer Grodsky, executive director of federal relations for USC, said.
In total, the proposal aims to leverage more than $10 billion to colleges and universities to pressure them to keep tuition affordable and maintain value — qualities McWhorter already sees at USC.
“Their definition of value is offering quality education that prepares graduates to gain employment and repay their loans,” McWhorter said. “Private [universities] have the lowest loan default rates. Do I think [USC] can make that hurdle? Yes.”
Joyce Fienman, a senior majoring in history who received Perkins and Stafford loans, was encouraged by the strive to expand the programs and to make them more affordable.
“For President Obama to try to add to federal financial aid programs is a sign that providing for higher education is a priority,” Fienman said.
As part of the plan to overhaul critical aspects of the federal financial aid program, the Obama administration will look to push for individualized financial aid fact sheets to help prospective students better understand the financial aid each institution can provide. The information will give students information about postgraduate earning and employment at the institution.
Many institutions call similar financial aid provisions by different terms, and this proposal will look to avoid adding any more difficulty to the already grueling financial aid process, according to Grodsky.
The more stringent informational standards could, however, make the process more difficult for financial aid offices around the country, according to McWhorter.
“I understand the need for greater transparency,” McWhorter said. “[But] I have concerns about a ‘one-size-fits all’ approach. How can you standardize letters that would apply to community colleges, vocational schools, publics and private institutions?”
Obama’s proposal to Congress will also include a call to delay an increase in the Stafford loan interest rate, which is set to double from 3.4 to 6.8 percent July 1. Stafford loans, like Pell grants, can be used by students at any college or university and are federally distributed.
The five-year hold on Stafford interest rates is coming to an end, however, and as they affect the federal bottom line, it will be difficult to keep rates low, Grodsky said.
“Everyone wants students to have access to affordable student loans. The challenge is the price tag,” Grodsky said. “Congress is going to have to help [Obama] find the money to pay for that.”