Debt Ceiling Showdown Could Hurt College Students' Financial Aid

The debt ceiling showdown in Washington could cost South Carolina college students who rely on federal financial aid.

At USC in Columbia, about 26,000 students get some form of financial aid.

At Clemson, Director of Financial Aid Chuck Knepfle says 80 percent of students receive some form of financial aid, with 43 percent of students getting federal financial aid.

Ed Miller, Financial Aid Director at USC, says federal Pell Grants should be settled for this year, but their amount and eligibility could be cut in coming years.

But he says the biggest impact will be on students who get federal student loans. Right now, many of those loans don't charge interest as long as students are in school. Interest charges don't start until six months after students graduate or stop attending. But the uncertainty in Washington could mean those interest subsidies would disappear.

"That means that you're going to be in a position where you're borrowing money and going to have an interest expense immediately, so your debt is going to increase," Miller says. "There's already concerns across the country at the level of debt burden for students, so to make that worse, again, is going to have a significant effect on higher education."

But he says the financial aid office is continuing to process applications like normal. "It's extremely difficult for me to believe that the federal government will shut down higher education across the country," he says.

And that's the attitude that Teresa Hughes has. She and her son, Tyler McCary, came to USC's Financial Aid office Thursday to go over his applications for Pell Grants and student loans. Hughes believes Congress and the president will work out a deal.

"The federal money's going to be there," she says. "We've been in debt many, many years."

Her son is concerned, though, about the possibility that his student loans will start charging interest right away. "It worries me. Yeah, it does," he says. "Something you have to work through. Can't do anything else."

Knepfle says, "We will tell anyone who calls that Clemson will not let a delay in their Pell Grants or loan funds affect their ability to enroll here for the fall. With three weeks between the August 2nd (debt ceiling deadline) date and our bills' due date (August 23rd), we will have sufficient time to communicate with the students and outline the options that are appropriate to them."

So what are the alternatives for students if federal money doesn't come in or is less than expected? Miller says there's really no alternative to federal Pell Grants, which are based on financial need and don't have to be paid back.

He and Knepfle say students can get non-federal student loans from private lenders, but those loans have much less attractive interest rates and repayment terms than federal loans do.