White House budget assumes student-debt forgiveness will move forward

Borrowers across the country are in financial limbo as they wait for the Supreme Court to decide whether the White House’s student-debt cancellation plan is legal. But the Biden administration’s own financial planning presumes the initiative will survive the courts. 

As part of the Department of Education’s funding request to Congress for $2.7 billion for the Office of Federal Student Aid, officials took the costs and savings into account of President Joe Biden’s plan to cancel up to $20,000 in student debt for a wide swath of borrowers, Undersecretary of Education James Kvaal said on a conference call with reporters Thursday.  

The “budget assumes that we will move forward,” with the plan, Kvaal said. 

The fiscal-year 2024 funding request unveiled Thursday marks the latest salvo in a battle over the money Congress will give FSA. If the courts allow the Biden administration’s debt-relief plan to move forward, FSA would be charged with implementing it. That’s made FSA funding a flashpoint for congressional Republicans in recent months. But FSA is also responsible for almost every aspect of the financial-aid and student-loan system, something that could be put at risk if the office doesn’t get enough money from Congress. 

Biden administration officials didn’t provide much detail on the call with reporters about how debt cancellation impacted the Department of Education’s request for funding for FSA. Implementing the debt-relief plan would likely be a cost, but wiping borrowers off the books could also save the agency money because there would be fewer accounts to deal with. 

“My assumption is that if you take cancellation into account, the budget request would be smaller than it would be if you assume cancellation is not happening,” said Sarah Sattelmeyer, the project director for education, opportunity and mobility in the Higher Education Initiative at New America, a think tank.  

That could create challenges if the court strikes down debt cancellation, she said. “The bottom line is, really we need to make sure there are sufficient resources for any situation that might happen with FSA,” she said. “That’s the most important because when there aren’t sufficient funds, students and borrowers bear the brunt of that.” 

Like the IRS, FSA may not ‘seem sexy,’ but it’s important

Though FSA is not a household name, the office is in charge of all sorts of seemingly wonky tasks that touch almost every student and borrower. FSA oversees the Free Application for Federal Student Aid, which college students use to apply for loans and grants; it disperses student loans to borrowers; manages the companies collecting student-loan payments; monitors colleges for wrongdoing and more. 

That’s why many researchers and student-loan borrower advocates were concerned when Congress level-funded FSA last year, despite a request from the Department of Education for an uptick of $800 million. Congressional Republicans touted the decision as providing “no new funding for the implementation of the Biden administration’s student-loan forgiveness plan.” 

Dominique Baker, an associate professor of education policy at Southern Methodist University, compared FSA to the Internal Revenue Service. “It doesn’t always seem sexy,” to lawmakers to increase funding for these types of bodies, she said, but a lack of funds can have a real impact. 

She cited delays in borrowers qualifying for relief under already existing programs as one impact of an underfunded FSA. Last year, the Department of Education said that student-loan servicers weren’t properly tracking the number of payments borrowers made toward qualifying for forgiveness under certain student-loan repayment plans.   

“It is important to ensure that college is affordable,” Baker said. “It is sometimes easier to talk about funding pieces that make college more affordable than it is to talk about compliance and regulatory bodies that are ensuring that this one piece of paper that gets shuffled over to this other desk happens in a timely manner.” If it doesn’t, she added, “you will accidentally pay five months of extra loan payments past when your debt should have been canceled.”  

Over the past few years, FSA has been asked to do even more than what’s typically required. Many of the Biden administration’s initiatives to improve the student-loan experience, including making it easier for borrowers to access Public Service Loan Forgiveness and proposing sweeping changes to the way borrowers repay their student loans, fall under FSA’s purview. 

In addition, FSA is in the middle of overhauling its student-loan servicing contracts in an aim to provide a better experience for borrowers. Things like giving more direction to student-loan servicers about how they communicate with borrowers about their loans, and ensuring student-loan companies are more responsive to issues borrowers and regulators have raised in litigation, are part of that effort and will require resources, said Clare McCann, a higher-education fellow at Arnold Ventures.

“All of that is incredibly important to making sure borrowers are going to have a smooth transition back into repayment, when that does happen,” she said. 

It’s too early to say which of these priorities could be at risk because of Congress’ decision to level-fund FSA last year, Sattelmeyer said. “We don’t have a great idea yet of the tradeoffs FSA is going to make, but they’re going to have to make tradeoffs,” she said. 

For fiscal-year 2024, the Biden administration has asked for a $620 million increase over the amount that Congress enacted for fiscal-year 2023. And if FSA doesn’t get that funding increase, researchers and advocates worry the office will continue to have to make tradeoffs that could hurt students and borrowers.

“D.C. is and remains a political town,” Sattelmeyer said of the possibility that the department’s funding increase for FSA could fall victim to the same forces that scuttled it last year. “I can’t predict the future, but I can say that it is really important to message,” through the budget, “that FSA needs additional resources,” she said. “It’s also important for practitioners and advocates and others in this space to be pushing for additional resources.” 

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GoFundMe fundraisers for college tuition are up by more than 50% over last year

College students are increasingly turning to crowdfunding to help cover their education expenses, according to new data from the fundraising platform GoFundMe.

GoFundMe fundraisers for tuition money are up more than 50% compared to last year, and both college and trade school fundraising are up 30%, a GoFundMe spokesperson said.

The rise in students seeking donations comes as the cost of higher education is in the national spotlight. The U.S. Supreme Court this week heard arguments in two cases involving President Joe Biden’s stalled student-loan cancellation plan, which could help an estimated 40 million borrowers erase up to $20,000 each in student-loan debt.

The average published price for tuition, fees, room and board at a four-year private college is $53,430 for the 2022-23 school year, up from $51,690 in 2021-22, according to the College Board’s Trends in College Pricing and Student Aid report

Tuition and fees at four-year private colleges are 4.5 times higher than they were in 1992-93. For in-state students at public four-year universities, the average published tuition, fees, room and board for 2022-23 is $23,520, up from $22,700 in the previous year.

Changes in the published price, or sticker price, “tend to garner the most media attention,” the College Board said in its report. “However, it is important to note that the majority of undergraduate students do not pay the full sticker price.” 

College tuition hasn’t risen as fast as other prices amid roaring inflation, but higher education remains unaffordable in the U.S., and has been for a long time, said Robert Kelchen, a higher education professor at the University of Tennessee, Knoxville. The uptick in tuition-related GoFundMe campaigns is another sign that concern about college affordability is now “front and center” in Americans’ consciousness, more than it was five or 10 years ago, Kelchen said.

While schools have kept tuition increases relatively low over the past few years, other costs associated with college have shot up, especially living expenses, he noted. “Housing, dining, things like that, whether you’re on campus or off, they’ve both gotten more expensive,” Kelchen said.

Students use a combination of their own money, grants (which don’t have to be repaid), and loans to cover their education bills. More than half (54%) of bachelor’s degree recipients graduated with debt in 2020-21, and the average debt was $29,100, according to the College Board.

Reducing the financial burden

Reducing the financial burden created by higher education would require one or both of two major changes, Kelchen said. “You either have to give students more money to go to college, or you have to try to make providing an education less expensive, so spend less money per student on education.” He added, “It’s the same issue we run into with healthcare. The cost of providing it has gone up, and people don’t want to pay it. It’s expensive.”

The parallel to healthcare costs is relevant in the context of GoFundMe: people often turn to the platform for help paying medical bills, often after a surprise diagnosis or accident. Similar to how GoFundMe campaigns serve as financial Band-Aids for systemic issues, canceling student-loan debt would be a “temporary fix” that would not solve the root causes of why students take out debt, Kelchen noted.

GoFundMe promotes itself as a solution for cash-strapped students, referring to itself as “the leader in online education fundraising” on its site. It says it hosts more than 100,000 education fundraisers per year, raising more than $70 million annually. GoFundMe offers tips on how to host a successful fundraiser for college costs, suggesting that students promote their fundraiser to alumni of their school and share their “hopes and aspirations” in their fundraiser story.

Students considering using crowdfunding for college costs should first make sure they understand how their school will treat the money when calculating their financial aid package, said Karen McCarthy, vice president for public policy and federal relations at the National Association of Student Financial Aid Administrators. Donations made to personal GoFundMe fundraisers are generally considered to be “personal gifts” which, for the most part, are not taxed as income in the United States, a  GoFundMe spokesperson said. GoFundMe charges a transaction fee of 2.9% + $0.30 per donation. 

Students who’ve sought donations on GoFundMe recently include a Sacramento nursing student who said she needed to pay off a $4,600 balance before she could take her exit exam and graduate from her program; a sophomore art student in Santa Fe who said an “unexpected circumstance” left him with a $3,176 fee bill; and a student looking for $3,800 to finish her culinary degree at a Virginia community college.

Several of the tuition-related campaigns on GoFundMe appear to be for students in financial straits because of unanticipated setbacks. One silver lining of the pandemic is that colleges and universities have become more equipped to help students cope with such financial emergencies, McCarthy said. That’s because when federal pandemic relief money was flowing to college campuses, schools handed out emergency grants to students. In tracking how the money was spent, schools learned a lot about the types of surprise costs that can sometimes force students to drop out of college, McCarthy said.

Pandemic relief money is gone now, but some schools have set up their own emergency grant funds to help students bridge sudden financial gaps. “A lot of institutions really became aware of the emergency needs that their students have and how they might move forward in meeting those needs,” McCarthy said. “The development of some of those emergency-aid programs may help students meet those needs so they don’t have to resort to things like crowdfunding.”

See also: This 72-year-old hopes to retire one day — as soon as she raises enough money on GoFundMe

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