Obama’s Plans to Help Middle America Address College Costs

A sixfold expansion of the current Perkins Loan Program forms the centerpiece of President Obama’s goal for making college more affordable for middle-class America.

In recent days President Barack Obama has taken a number of hits over the economy and the bonus packages being doled out by bailed-out insurer IAG. He has also received significant criticism, some coming from members of his own party, over his first proposed budget.

However, the newly-elected president continues to be a ray of hope for young people, particularly those pursuing a college degree. As but one example, within his proposed budget Obama is not only seeking to vastly increase the amount of money available under the Perkins Loan program, he is hoping to adjust the qualifications for such loans so that more students will be able to benefit from the program.

The proposal stands in stark contrast to that of our prior president. A year before leaving office, George Bush sought to eliminate the entire program.

Easing the Middle Class Burden

Arne Duncan, the newly appointed Secretary of State, touted the proposals in a recent address to a career and technical-college group. Duncan also insisted that the proposals were a critical component of the new administration’s plan to ease the middle-class burden associated with paying for the costs of a college education.

Obama’s plan is to expand the Perkins Loan program six-fold in terms of dollar amounts, from the current $1-billion available to $6-billion a year. In explaining the expansion, Duncan also indicated that the funds would help more students attain that coveted diploma, an indication that the Perkins Loan criteria might also be adjusted.

While the program is a loan option, borrowers would have access to low-interest, need-based annual loans. Currently, students may borrow up to $4,000 for their undergraduate years (maximum of $20,000) and $6,000 for graduate studies (maximum of $40,000).

The Perkins loans are exceedingly attractive to need-based recipients as they are provided fee-free, at low-interest and without a credit check. They also feature a nine-month completion of school grace period, a full three months longer than the traditional 6-month for other federal aid programs.

The Perkins loan expansion will be in addition to the tuition tax credit already in place. Congress recently approved increasing that tax credit from $1,800 to $2,500.

Program Adjustments Still Unclear

How the new funds will affect the program are not entirely clear as yet. Possible options include adjustments to the yearly borrowing limits and the per student lifetime totals.

Another potential option could simply be more funds for schools to loan out. The monies are currently provided on a first come, first serve basis and most schools run out of funds before all qualified-borrower needs are met.

Yet another option could be adjustments on the earnings-level threshold, a step that would allow more families to qualify for these low cost loans.

More details on the current Perkins Loans program are available here.

Flickr photos courtesy of Llima and Obama-Biden Transition Project.