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On New Year’s Day, President Barack Obama signed the “fiscal cliff” deal, bringing temporary relief for financial aid and college students.
This will delay eliminating student benefits and tax breaks such as the American Opportunity Tax Credit, Tuition and Fees Deduction, and Student Loan Interest Deduction until 2017.
The fiscal cliff was the issue that the U.S. government would face at the end of 2012 with expiring tax and spending cuts. It was decided that tax rates will go from 35 to 39.6 percent on individuals with income of more than $400,000 and on couples with incomes of more than $450,000.
“More than 80 percent of households with incomes between $50,000 and $200,000 would pay higher taxes,” says Bloomberg, a global provider of 24-hour financial news and information. “Among the households facing higher taxes, the average increase would be $1,635, the policy center said. A 2 percent payroll tax cut, enacted during the economic slowdown, is being allowed to expire as of (Dec. 31).”
Spending cuts have been postponed for another two months and Congress has been given a deadline of March 1 to have a budget plan in place. If not, financial aid will experience cuts.
“The new legislation includes a two-month delay in sequestration (series of budget cuts),” said Mark Kantrowitz, founder of finaid.org, to The New York Times. “Across-the-board spending cuts would mean an 8.2 percent reduction in student aid funding.”
Kantrowitz also said that fewer students would get work-study jobs and Federal Supplemental Educational Opportunity Grants, as these programs would experience cuts. The fees for federal education loans would increase and the maximum Pell Grant would be cut by up to $400.
On a broader scale is the issue of the debt ceiling, which has hit its highest ceiling of $16.4 trillion. Congress is arguing over how to handle this economic issue.
White House spokesman Jay Carney simplified the issue to two alternatives:
“There are only two options to deal with the debt limit: Congress can pay its bills or it can fail to act and put the nation in default,” he said.
In the meantime, Americans will have to wait and see how far over “the cliff” they go.
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