The Burden of the Fiscal Cliff Rests on the Shoulders of College Graduates
Despite the abundance of fiscal cliff coverage by news media outlets in recent months, many Americans – a large portion being college students – remain unaware of the specifics regarding the country’s current economic situation and the implications new legislation could have on America’s economic growth in the next five years.
College students are facing tumultuous economic times during and after their college years as they struggle to pay loans back while dealing with higher tax rates. The reality of what the future holds for these students has created animosity towards Congress and its dysfunctional nature, directly affected by the polarizing nature of the current American political system.
The term “fiscal cliff” was used to describe the combination of spending cuts and expiration of the Bush era tax cuts that were set to take effect on New Year’s Day, if Congress was unable to reach a solution.
Going over the “fiscal cliff” would have had a catastrophic effect on the American economy, halting the growth seen in 2012 and reversing America’s trajectory towards another recession, with a contraction of over $500 billion in the next fiscal year.
On Jan. 1 Congress finally stepped up to the plate and passed legislation to avert or put off many of the worst portions of the “fiscal cliff”, with the bill being passed first in the Senate by a vote of 89-8, then passing in the House by a vote of 257-167. The legislation will see tax rates for any Americans with an income of $400,000 or above rise to 39.6%, reaching levels last seen under the Clinton administration. Tax rates for middle-class workers and families will remain unchanged, however the expiration of payroll tax cuts will still raise taxes for 77% of Americans, costing a typical middle-class family $1,000 more in tax in 2013.
The bill was signed into law Jan. 2 by President Obama, but the last minute legislation proves to be a short-term fix to an ever-growing, long-term problem.
Postponing Issues: Another Fiscal Cliff Coming?
The bill does not actually avert the massive spending cuts that were set to take place, but instead postpones the cuts for two more months, essentially creating another “fiscal cliff” at the beginning of March.
On Monday Dec. 31, the US government reached the debt ceiling limit, requiring the Federal Reserve to take precautionary measures to ensure the government will not default on its debt just yet. The debate over raising the debt ceiling, coupled with the debate over the new fiscal cliff set the stage for even more Congressional combat over the next few months.
The dissatisfaction with Congress is growing immensely amongst American citizens, and with tuition and tax rates rising and spending cuts looming, current and future college students are becoming more alarmed about the uphill battle they face with paying tuition and repaying loans after graduation.
Impact of Fiscal Cliff 2012-2013 on College Students
There is positive news for college students in the renewal of The American Opportunity Tax Credit, extended for another five years, which allows borrowers to deduct up to $2,500, defraying undergraduate college education expense. The Tuition and Fees Deduction was extended and this enables taxpayers to claim up to $4,000 in tuition expenses.
However, the burden placed upon college students depends greatly on the Higher Education Act, which is up for renewal in 2013 and could face the axe as a result of federal spending cuts. This piece of legislation affects the amount of money distributed to families through financial aid and grants, but if a renewal is not voted on, OSU students and others around the country will face lower amounts of aid coupled with rising tuition.
The total allocations of federal grants and work-study over the past year are both down at least 4%, and these numbers are expected to drop dramatically if the Higher Education Act is not renewed.
With uncertainty still relatively high, college students will gain little relief from the legislation Congress passed yesterday in the grand scheme of college financial worries, and the future of America’s higher education system remains to be decided in the coming months.