Obama Proposes Financial Aid Increase

President Obama in his recently proposed budget is asking for substantial increases to college financial aid. This is not a surprise. There has been a lot of news coverage over the past several months about how student loans are harder to come by, how many loan companies have locked their doors, and how colleges endowments have taken a hit.

While the news coverage painted a picture of fund availability that was far more gloomy than reality; an increase in federal funds was virtually inevitable. Only social security is probably a greater hot button issue than helping students pay for college. So how will these changes affect students on the way to college and those already there? The answer is two-fold...

There will be a substantial increase in funds available to college students. The Perkins loan program has been one of the least expensive methods for student's to borrow money for years. Many in our industry regard Perkins as perhaps the best type of loan that students can get their hands on. The only problem with the Perkins is its rarity. Hold on to your hat, because the Obama administration wants to increase the Perkins program 6-fold. They have proposed an increase in funding from $1 billion to over $6 billion. The President also wants to increase the number of schools participating in the program from 1,800 to over 4,000. The Perkins loan program just got an incredible shot in the arm.

The President has also asked for a substantial increase to the Pell Grant program. Although numbers are sketchy at this time, expect that increases in Pell resources for the coming year will be some of the largest in the program's history.

I wouldn't expect to see these changes for the 2009-10 academic year, but more likely for the 2010-11 academic year. In the short run, these changes will be very welcome help to many students around the country. There is however a downside to this helping hand.

Mark Kantrowitz, publisher of FinAid.org said in a recent interview... “It puts pressure on colleges to start controlling their costs, because if they know the Pell Grants are only going to go up by so much, then it means that they’ll either have to control their costs or find other sources of funding to help the students if the college costs go up even faster.” With all do respect, I have to disagree with my colleague.

Pouring more money into the college funding system does not put downward pressure on controlling college costs. It has the exact opposite effect. Although these increases in available financial aid will help many students' immediate needs, it will also have a continued inflationary impact on overall college costs. It's simple economics. If you inject more money into a system to pay for a limited resource (such as college education), you will increase the price of that limited resource.

This, however, is not a new problem in college financing; it's just exacerbating the same old problem we've been dealing with for years. How do we make college costs manageable in a market that rises two to three times faster than the average inflationary rate. You can expect to see another spike in cost of attendance figures in the next 2 - 3 years, and I and CFS will continue to find ways to mitigate those increases.