Obama's fiscal plan to increase federal loan funding

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Susan Walsh | Associated Press President Barack Obama speaks about the “Community College to Career Fund” and his 2013 budget on Monday at Northern Virginia Community College.

Photo Credit: The Associated Press

President Barack Obama’s 2013 fiscal budget, which he proposed Monday, will increase funding for several federal financial aid programs in an attempt to make higher education more affordable and reduce student debt.

Tom Melecki, director of Student Financial Services, said Obama’s new budget was very consistent with his administration’s previous policy.

“President Obama has always tried to grow the Pell grant program, which is directed at the neediest students, and keep student loans affordable,” Melecki said. “One thing that is fairly new is that he wants to give the federal Perkins loan program eight times the funding it has now. This is important for UT students because they take out about $8 million in loans from that program every year.”

Melecki said UT students also take out around $100 million in federal direct subsidized loans every year and Obama’s new budget would postpone an interest rate increase for those loans. Congress passed a law about five years ago to institute temporary reductions in the interest rate on Federal Direct Subsidized Loans every year, but these decreases are set to expire July 1, Melecki said.

“The interest rate on federally subsidized student loans is currently 3.4 percent and it is set to increase to 6.8 percent after the beginning of July,” Melecki said. “As I understand it, the president pushed this doubling off for one year.”

Melecki said he is particularly pleased by Obama’s goal to double the number of work study jobs on university campuses, but he knows that many government officials disagree with Obama’s plan.

“These kinds of programs tend to cause a lot of tension in Washington because their net effect is greater cost for the government,” Melecki said.

Kaitlynn Dooley, applied learning and development junior, said she approves of Obama’s new education budget.

“I think President Obama’s new policy can only have positive results,” Dooley said. “As of recently, UT students have become more and more frustrated with the tuition increase, and this new policy might curb that frustration.”

History senior Jose Nino, the president of Libertarian Longhorns, said he does not think that the Obama administration’s approach will be effective.

“This policy prescription only hacks at the branches while forgetting to strike at the root and will ultimately result in higher tuition for UT students,” Nino said. “It is essentially adding an infected Band-Aid to a critical wound. A more bottom-up approach is needed.”

Nino said student loans guaranteed by federal law tend to illegitimately inflate the amount of credit available, which in the end hurts the students.

“What there need to be are organic, spontaneous orders in education to ensure that education is available to anyone and at the right price,” Nino said. “UT is affordable for the most part, but it could be much cheaper if it was operating under a legitimate free market system.”

Printed on, Tuesday February 14, 2012 as: Proposed plan aids federal funds, reduces student debt