FISCAL CLIFF: How Will College Loans Be Affected? - Spokane, North Idaho News & Weather KHQ.com

SPOKANE, Wash. - Many federal programs that help students pay for a college education are facing cuts. Student loan debt is now at $965 billion dollars nationwide, which is more than auto loan or credit card debt. In fact, the average student owes more than $20,000 dollars after college.

At Gonzaga University, about 70% of the students pursuing undergraduate degrees take out some kind of loan to help pay for school. Therefore, the tax cuts coming with the fiscal cliff will impact the majority of students at Gonzaga.

"Our students would lose about $90,000 a year in the form of work study and federal grant programs," said Jim White the Dean Of Student Financial Services at Gonzaga University. "In the state of Washington it would be about an $800,000 loss for citizens of Washington affecting about 900 students."

The loss in money for education comes from a combination of tax and spending cuts. First, automatic spending cuts are set to kick in at the end of the year which could mean an 8% cut to federal financial aid.

This includes federal grants, which already saw a decrease for the first time in five years, and also federal work study programs. Work study programs allow students to work on campus to help pay for their tuition. However, next year we could see a decrease in the number of positions available.

The cuts also impact how much lower-income families are able to get back each year in taxes. Right now, qualifying families can claim up to $2,500 each year for every child they have in college. While some of that money goes toward taxes, a thousand dollars of it can be refunded in cash. 

However, at the end of this year that amount will drop to $1,800 and families would not be able to receive any of that amount in cash. Also, instead of being able to claim the tax break for all four years, it would be changed to two.

"The population that would be most affected, have the least ability to repay that debt, so that would really be a double whammy for them," White said. "You are talking about the poorest students having to borrow more to pay for college, which is just not a good formula."

For example, a family with one child in college making about $84,000 a year would see a tax increase of nearly $3,000 if no decision is made by congress.