One question we're getting a lot at the Student Loan Ranger is how the sequester will affect student borrowers. Nobody knows for sure, but there are certain to be short-term consequences that will disproportionately hurt low-income students and there are likely to be long-term ones as well.
The Congressional Research Service defines sequestration as "the permanent cancellation of budgetary resources by a uniform percentage … applied to all programs, projects, and activities within a budget account." The particular sequester everyone is talking about now was passed as part of the Budget Control Act of 2011.
The idea was that the broad budget cuts—including 8.2 percent to non-exempt, non-defense discretionary funding—in the sequester would be so harmful that they would spur a Joint Select Committee on Deficit Reduction (the "super committee" you may have heard of) to replace them with a bipartisan plan to cut $1.5 trillion over 10 years and incentivize Congress to pass that plan by Dec. 23, 2011. Alas, the super committee failed to create a bipartisan compromise.
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The sequester was supposed to go into effect on January 1 along with the expiration of the temporary Bush tax cuts and the expiration of the payroll tax cut. This confluence of events was labeled the "fiscal cliff" and we examined its potential effects on student loans then. Fortunately, the fiscal cliff was averted in a last-second deal that postponed the sequester until March 1 and reduced the budget cuts to non-exempt, non-defense discretionary funding to a proportional 5.1 percent. The idea was that this would give Congress plenty of time to forge a compromise. This was just a temporary reprieve.
Indeed, Congress and President Obama have again failed to reach agreement and now the sequester has taken effect and is cutting many government programs by that set 5.1 percent. The Department of Education has given some guidance on how this cut will affect education across the country.
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Its estimates include a $725 million cut to Title I funding (which distributes funding to schools and school districts with a high percentage of students from low-income families) that would affect 1.2 million disadvantaged students and a $600 million cut to special education that could result in approximately 70,000 students losing access to Head Start. College access programs like TRIO and GEAR UP will also be cut. The department's estimated state-by-state cuts and cuts to the largest 100 school districts are also available on its website.
In higher education, an estimated 70,000 students who can least afford it will have to borrow more for college as federal work-study grants will be cut by $49 million and supplemental educational opportunity grants for undergraduate students with exceptional financial need will be cut by $37 million.
The sequester mandates increases in student loan origination fees, meaning the cost of borrowing will go up for all federal student loan borrowers. According to the Congressional Research Service, if sequestration had occurred on Jan. 2, 2013, the current 1 percent origination fee on subsidized and unsubsidized Stafford Loans and the 4 percent origination fee on PLUS loans would all have increased by 7.6 percent. Again, this is an increase that will most hurt low income students.
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In a February 1 letter to the U.S. Senate on Committee Appropriations, Education Secretary Arne Duncan stated that budget cuts, furloughs, and potential layoffs may affect the ability of nonprofit student loan servicers and the Department of Education to provide services to borrowers. It seems likely to the Student Loan Ranger that the ability of borrowers to change repayment plans or consolidate their loans will be hampered.
Unfortunately, this is not the end of it. The Budget Control Act will continue to impose budget caps until 2021. And, while it protects Pell grants from cuts in fiscal year 2013, there is no such protection in future years. That means this perennially imperiled program, as well as other programs that benefit students, will have to fight for funding in a severely constrained budget.
If the pain the sequester will inflict on millions of students seems as unjust and ill-advised to you as it does to the Student Loan Ranger, we urge you to help end it by contacting your senators and representative.
Isaac Bowers is a senior program manager in the Communications and Outreach unit, responsible for Equal Justice Works's educational debt relief initiatives. An expert on educational debt relief, Bowers conducts monthly webinars for a wide range of audiences; advises employers, law schools, and professional organizations; and works with Congress and the Department of Education on federal legislation and regulations. Prior to joining Equal Justice Works, he was a fellow at Shute, Mihaly & Weinberger LLP in San Francisco. He received his J.D. from New York University School of Law.