The Democrats Take Control of Congress: Prepare for Changes

John W. Dysart
President
The Dysart Group, Inc.

The Democrats have taken control of both houses of Congress and higher education changes are expected. While most of the prospective news looks promising for enrollment administrators, one change could turn into a financial burden.

The good news is talk of increasing the maximum amount of the Federal Pell Grant for the first time in more than four years. The current maximum award is only $4,050 and some are advocating an increase perhaps as high as $5,100. Such an increase would certainly benefit needy undergraduates but would also assist colleges and universities in controlling discount rates. Support for an increase in the maximum Federal Pell Grant seems to be strong but there are still major questions about how an increase would be funded.

The Democrats are also talking about reducing the cost of student borrowing. There are proposals being discussed that would cut the interest rate on Federal Stafford Loans in half. This would, of course, be welcomed news for student borrowers. Lower interest rates would serve to make these loans more attractive to students and families and that should help financial aid officers, recruiters and retention officials. The cost of this change would also be significant but no one is suggesting detailed ways to pay for the change in interest rates.

Tax breaks are also going to be on the table. Current tax deductions for educational expenses may be replaced by new, more generous deductions. This is good news for taxpayers but is unlikely to have any measurable impact on enrollments and the proposals are not going to make it any easier for needy students to meet the costs of higher education. Again, someone is going to have to find the money for this initiative as well.

A sleeper issue for higher education administrators and enrollment managers is the proposal to increase the federal minimum wage. There will be important considerations for the Federal Work-Study Program.

Discussions with many administrators revealed that some have not considered the implications. Federal Work-Study is awarded to students in flat amounts. The thinking is that if the hourly wage increases, it will not make much of a difference because the amount of the initial award will not change. This would only be true if most students actually earned their maximum awards.

At some schools, as many as 90% of students do not earn the total amount awarded. That means that if the minimum wage increases by more than $2 per hour, most students are likely to continue working the same number of hours but now each hour of work is going to increase costs by as much as $2.10! Since the majority of institutions already spend their entire Federal Work-Study allocation and more, the increase in the minimum wage could significantly increase the institutional share. Total Federal Work-Study expenditures could increase by literally hundreds of thousands of dollars dependent upon the size of the school and the number of students working under the program.

It would be wise to discuss the implications with your Director of Financial Aid. You may be faced with the choice of increasing the institutional funding for Federal Work-Study or cutting back on the number of hours students are allowed to work. In some cases, the increase in the minimum wage may mean that fewer students will be eligible to participate in the program.

Finally, keep your eye on the timing of implementation if the increase is approved. Immediate implementation will impact your budget this year while a more phased implementation will give administrators some more time to evaluate the impact and make the appropriate budget and/or packaging adjustments.