Obama: Good for the college student's wallet? - Commentary on Obama's Student Loan Proposals

Obama: Good for the college student's
Matthew Rick

Issue date: 2/9/09 Section: Money/Health

It's a new year, a new semester and there is even a new president. Naturally some (hopefully all) college students are wondering how and if President Obama's policies will directly affect their wallet this year. With tuition costs consistently raising year after year, this is of course a legitimate question and definitely a topic all students should be fully knowledgeable about.

The new administration first plans to create the American Opportunity Tax Credit, which will be a fully refundable $4,000 credit. Wondering what it means for the tax credit to be fully refundable? To put it simply, this tax credit will allow the person deducting it to reduce their tax owed to less than zero and actually get paid money back!

Fantastic, right? Well, it gets better. President Obama and Vice President Joe Biden plan to allow the tax credit to be available at the time of enrollment by using the prior year's tax return. By using the prior year's tax return you can receive the credit at the time the tuition is due rather than having to wait till the next time you file your taxes. Perhaps the only potential downfall is that anyone who receives the credit will be required to conduct 100 hours of public service. Then again that's like getting paid $40 per hour and I think most college students would find that to be a more than fair wage.

In addition, if you're from a low income family and you receive the Pell Grant you'll be happy to hear that it will increase to $5,400 over the next few years. What's best is that Obama and Biden plan to have the future grant amount keep pace with the increasing cost of college inflation.

Now for those of us who don't receive the Pell Grant, it's highly likely that you take out college loans. There are two college loan programs - the Direct Loan and the Federal Family Education Loan Program. The first of which is publicly funded while the second is privately funded by banks and other lenders. Many of us don't know that the private lenders receive subsidies and guarantees from the government as an incentive to continually supply student loans. Even with the subsidies, these private lenders charge higher interest rates than the Direct Loan system, which ends up costing taxpayers (and students) billions of dollars. The Obama administration plans to eliminate this program and use the money saved to provide more aid for students. So not only will we receive more aid, but we'll receive it at lower interest rates!

Now lastly, do you hate filling out your FAFSA or find yourself begging your parents to do it for you? Well I have good news, because the Obama administration plans to eliminate FAFSA altogether. Instead of having to fill out five pages and 127 questions you'll simply check a box on your tax form to authorize the use of your tax information to apply for aid. This is much simpler and far more convenient.

Evidently college students will benefit from the Obama administration's policies through tax credits, grant increases, additional availability of financial aid and even free up some of our valuable time by eliminating FAFSA. All this federal money and assistance couldn't come at a better time, since the current economic crisis will likely force most states to tighten their budgets and inevitably increase tuition fees. Just make sure to take advantage of these benefits so perhaps you can be a bit better off than previous students who, on average, left college with over $19,000 in debt.

Rick is a senior business economics major and columnist for The Spectator. This column appears bimonthly in the Money section.