Consequences for Student Financial Aid if Congress Does Not Raise the Debt Ceiling (Grants and Loans

[JPZenger]

http://www.fastweb.com/financial-aid/articles/3196-consequences-for-student-financial-aid-if-congress-doesnt-raise-the-debt-ceiling?page=2&utm_content=fw_c1_20110726&utm_source=nlet

"Instead of defaulting on the debt, the White House would need to decide which among the other expenses must be cut. Social Security benefit payments account for about 20% of spending, Medicare and Medicaid for about 23%, other mandatory expenses for about 12%, the military for about 20% and discretionary spending for about 19%. (The interest on the national debt is about 6% of the budget.) Discretionary spending mostly includes spending through federal agencies and departments. The top seven department budgets (Health and Human Services, Veterans Administration, Education, Housing and Urban Development, Department of Homeland Security, State and Department of Justice) represent about half of the total, or about 10% of spending. The federal government cannot take the Social Security, Medicare/Medicaid and military budgets off the table and still cut spending by 40%. Cutting all discretionary spending just wouldn’t be enough.

In such an environment, spending on student financial aid would almost certainly be eliminated. Student financial aid is not one of the top spending priorities according to internal rankings by the Office of Management and Budget. It isn’t even in the top 10. Effectively this means that the Federal Pell Grant program and the federal education loan programs, which together represent more than $150 billion a year, would be suspended. This would force millions of students to drop out of college because they could not afford to pay for college without student aid. This, in turn, would force most colleges to lay off faculty and staff. Many colleges would have to close. The only alternative would involve doubling tuition rates, guaranteeing nationwide tuition riots.

But this is likely to be the least of many problems. A 40% cut in government spending would plunge the US into a long-term recession. Poverty would be widespread, especially among senior citizens, and mortality rates would increase significantly. Economic growth would stall and millions of jobs would be lost. Money market accounts would have to “break the buck”, causing significant losses for investors. If the Federal Reserve were forced to buy massive quantities of US Treasuries, it would lead to significant inflation. Defaulting on the debt would also hurt the world economy, since half of the US national debt is held by foreign investors."

[Raven]

1. My friend is a student aid administrator and has seen the panic

and heartbreak firsthand.

[JPZenger]

2. In short: China and Social Security get paid first-no money left for Federal college grants & loans

[Jon Ace]

3. I guess my last year of college will have to be out-of-pocket...

Let me go get a job first-OH WAIT.

[JPZenger]

4. If default, richer colleges will temporarily cover the missing funds

If the Feds default, the richer colleges will have the resources to temporarily loan the money to the students until the Federal funds are settled. However, the community colleges and poorer colleges won't be able to do that, particularly because the grants affect a much higher percentage of their population and they don't have large endowments and high credit ratings.

[Jon Ace]

5. Yep. CC. I'm boned.

[Fearless]

6. Is this change we can believe in? Ted Kennedy would turn over in his grave if he hasn't already!