The Fiscal Cliff & College Savers: What You Should Know

The Fiscal Cliff

What is the fiscal cliff?

Everywhere you look on the news recently you’ll hear talk of the fiscal cliff and how it’s going to affect everything from credit cards to jobs to people saving for college. But what is the fiscal cliff? According to, the fiscal cliff is the popular shorthand term used to describe the conundrum that the U.S. government is facing at the end of 2012. That’s when the terms of the Budget Control Act of 2011 are scheduled to go into effect, if congress and the President cannot agree on a budget by January. On the campaign trail President Obama vowed to increase federal financial aid, but experts say a divided congress could put those changes on hold and it could actually lead to higher college costs for many families.

According to a report issued by the White House Office of Management and Budget, 8.2% in cuts must be made to domestic discretionary spending and 7.6% must be cut in mandatory spending programs. So on or around January 1, 2013, about $500 billion in tax increases and $200 billion in spending cuts are scheduled to take effect. This means over 1,000 government programs are in line for “deep, automatic cuts.” Some financial aid programs will likely not be affected immediately by automatic cuts including Pell Grants, which do not need to be repaid, which are federally funded and offered to students with the most financial need.

Students’ currently receiving financial aid might see fewer government grants and higher interest rates for government loans on their future aid packages. Those students dependent on financial aid might be forced to start considering alternative educational options in the near future. And students receiving federal work-study grants may also be affected by cuts. College experts caution that even more cuts could kick in starting next fall when the Higher Education Act, a major piece of legislation that for decades has helped determine how much college aid the federal government provides, is up for reauthorization. If it isn’t renewed next year, there’s an automatic one-year extension of the current rules, giving students one more academic year of breathing room before changes kick in.

Mark Kantrowitz of says even if there is no change to financial aid, families looking for college aid could be worse off than this year. That’s because financial aid isn’t keeping up with the rate at which tuition is rising. So how does a family sending their child off to college combat the shrinking amount of government financial aid they may receive? Experts say it’s time to broaden your horizons and start thinking about what other kinds of financial aid are out there to fund your student’s college education. Here are a few tips.

  • Do not assume that public in-state colleges, since their tuition costs are significantly lower than private colleges, will cost your family the least. The private colleges do have money available and families are often surprised that they may qualify
  • Private colleges have scholarships available that are not government backed. Contact the colleges’ financial aid office and ask them about school grants that could be available to you. Most schools themselves give out money to help with tuition and other college costs.
  • Apply for private scholarships. Whether you’re a great athlete, a volunteer in the community or a star student, there are probably scholarships available to you. Try searching on websites like or Also ask around, many local community organizations and companies have programs that will benefit students. If you don’t ask you won’t know.

In the meantime, you should keep your eye on three types of financial aid that could see changes in 2013 including Pell Grants, Federal Student Loans and College Tax Credits.

To learn more about how Westface College Planning can help you navigate the financial aid process call us at 650-587-1559 or sign up for one of our Tackling the Runaway Costs of College Workshops or Webinars.

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