Middle Class May Get More Aid for College

President Bush recently signed legislation that could drastically affect the amount of financial help college students receive. The Higher Education Amendments of 1992 changed the eligibility requirements and the amount of aid available to America’s students.

The result is that the middle classes are likely to receive significantly more help in the form of low-interest loans. And students will no longer be deprived of aid simply because their parents own homes that have appreciated.

The flip side is that low-income students may find it harder to get federal financial assistance.

“Congress wanted to enfranchise the middle class,” said Martha Guthrie, director of governmental affairs for the National Assn. of Student Financial Aid Administrators in Washington.

As a result, legislators changed the way aid eligibility is calculated, opened federal loan programs to everyone and boosted authorized aid amounts on many of the cornerstone federal aid programs.

In theory, the changes will boost aid across the board. But in practice, financial aid experts maintain that the same amount of money will simply be divided among more students. Middle-class families that previously couldn’t qualify for aid are likely to get assistance under the new rules.

Poor families, which had a relatively easy time getting aid under today’s formulas, may get smaller grants, said Peggy Loewy-Wellisch, district director for financial aid and scholarships at Miami-Dade Community College.

Specifically, the federal aid calculation was revised in two main categories. First and foremost, it eliminates home equity as a determinant of how much a family can afford to pay for college. It also eliminates a requirement that students pay a minimum of $700 toward their education costs.

The “minimum student contribution” rule simply means that everyone is a bit more needy, said Laura Greene Knapp, assistant director for policy analysis at the Conference Board in Washington.

The new home equity rule will have a far greater impact, financial aid experts say.

Home equity is now pivotal in the calculation of a family’s “financial need”--the first step in getting nearly any scholarship, grant or subsidized student loan.

That’s because families that have lived in the same home for long periods--particularly in parts of the country where real estate values have soared--often have large sums of equity built up in their homes. That equity is counted as an asset that can be tapped to pay for a child’s education.

By way of example, a family that had only $5,000 in savings and investments, but $50,000 in home equity, would be expected to contribute roughly $3,080 toward their child’s first year in college under today’s rules, noted William E. Stanford, director of financial aid at Lehigh University in Bethlehem, Pa. Under the guidelines that go into effect for the 1993-94 school year, the family’s expected contribution would drop to about $280.

Meanwhile, the government’s cornerstone aid program--the Pell Grant, which is available only to financially needy students--has been increased substantially. Maximum authorized grant amounts jump from $3,100 in the 1992-93 school year to $3,700 in 1993-94 and by an additional $200 annually in each of the five following years.

Maximum authorized loan amounts have also been increased, and some federal loan programs that were once offered only to the financially needy are being opened to all students.

Aggregate limits on Perkins Loans, which are available at 5% interest to financially needy students, have jumped to $15,000 from $9,500 for undergraduates and to $30,000 from $18,000 for graduate students.

Limits on Stafford, SLS (Supplemental Loans to Students) and PLUS loans--low-interest loans made to both students and their parents--have also been raised. And maximum allowable interest rates have been pared slightly by the new law.

Doubtless, this all sounds like great news for parents with college-age children. But there’s a catch.

Each year Congress must appropriate the money to pay for student aid programs and right now there’s little money to go around. Because of the budget crisis and burgeoning federal deficit, aid experts maintain that actual appropriations are likely to decrease in coming years, reducing the total amount of aid available despite the new law.

“It is ludicrous,” said Stanford. “They just created more ‘financial need,’ but there’s no new money.”