Compromise Stimulus Bill Expands College Grants but Not Student Loans

After weeks of back-and-forth political jockeying over President Obama's proposed economic stimulus package, Congress settled on a compromise bill that offers expanded federal grants and tax benefits to college students, along with funding for states to restore education budget cuts and for research institutions to expand their development.

Overall, the final stimulus bill will deliver between $50 billion and $75 billion to higher education, estimates Inside Higher Ed.

No Stimulus Help for Student Loans

In previous years, non-federal private student loans have offered undergraduate and graduate students a source for additional financial aid that they could use to supplement their federal student loans and grants. But in the face of the current credit freeze, most lenders of private student loans have suspended their private-loan programs or simply gone out of business altogether.

Those few lenders that still offer private student loans have tightened their credit criteria to the point that many students and families can no longer qualify - especially as borrowers' credit scores continue to take hits from foreclosures, missed bill payments, and cancelled credit cards.

In the current economic environment, with unemployment climbing, home equity largely gone, the value of investments and college savings plans evaporated, and private student loans hard to come by, more and more families are finding themselves unable to meet tuition and other college costs on federal student aid alone.

To help the growing number of cash-strapped students who will need additional financial aid on top of federal grants and student loans, the House of Representatives, in its version of the stimulus bill, had proposed to increase borrowing limits by $2,000 on unsubsidized federal college loans, which are available to eligible undergraduate and graduate students regardless of their financial situation.

The Senate version of the stimulus legislation, on the other hand, would have injected $61 million into the federal Perkins student loan program, providing additional funding for those subsidized federal college loans targeted at the neediest students,.

But the compromise bill does neither. The stimulus funds for higher education will go toward expanded grants, work-study, and tax benefits, with no money earmarked for federal student loans.

The Higher Education Stimulus for Students

• American Opportunity Tax Credit: Proposed by President Obama on the campaign trail, this tax benefit program will temporarily replace the current Hope Scholarship Tax Credit, raising the currently available maximum education tax credit from $1,800 to $2,500. The new tax credit will be available for up to four years of college and will be up to 40 percent refundable for those families who don't owe any taxes.

• Federal Pell Grants: The federal grant program for low-income students will receive an additional $17.1 billion in funding.

• Federal Work-Study Program: This federal financial aid program, which allows eligible students to earn money working part-time in government-subsidized jobs, will receive $200 million in funding.

The Higher Education Stimulus for States

States will receive $53.6 billion in education stimulus aid over the next two years, $39.5 billion of which will be used to restore spending cuts made to education and public colleges as a result of state budget deficits, and $8.8 billion of which will be handed to state governors to be used for high-priority "critical" initiatives, which can include education programs and school facilities improvements and maintenance. 

The Higher Education Stimulus for Research Institutions

• National Science Foundation: A federal agency dedicated to research and training in all fields of non-medical science and engineering, the NSF will receive a total of $3 billion, with $2.5 million allocated for research, $400 million for infrastructure, and $100 million for education.

• National Institutes of Health: Part of the U.S. Department of Health and Human Services and the primary federal agency for conducting and supporting medical research, the NIH will receive $10 billion - $8.5 billion for research and $1.5 billion for university research facilities.

• Department of Energy: The DOE, which oversees U.S. energy and nuclear security, will receive $2 billion for research, with $1.6 billion going to the Office of Science and $400 million going to the Advanced Research Projects Agency for Energy (ARPA-E).