After clearing the House with a 269-191 vote, the Senate will vote Tuesday on the legislation to raise the nation’s current $14.3 trillion debt ceiling and cut funding for government programs to save $2.4 trillion over the next 10 years.
Finance professor Lewis Spellman said the decision will directly impact students by determining whether or not the federal government can fund financial aid programs and student loans.
“There’s a realization that the environment has changed and the U.S. government is no longer the rich uncle to bail everyone out,” Spellman said. “It all trickles down to businesses and to you and I as consumers.”
Spellman said the current economic crisis developed as a result of the federal government spending to promote economic growth during the baby boomer era, beginning around 1965, instead of saving it. Now that baby boomers are beginning to retire, the government cannot afford to pay its debts and benefits such as Social Security, which it promised to provide, he said.
“It strikes me that the only way to reconcile a desire for economic growth and jobs with trying to pay those entitlements is to set a limit to how much of entitlements will be paid each year relative to the level of income,” Spellman said. “The whole answer to affording more is growing more. Both parties must focus on ways to promote economic growth instead of just how much we spend.”
He said if the government defaults on its debts, as it is projected to do Aug. 2, it would affect students through higher interest rates for student loans.
“The reason student loans are possible is because the government guarantees them,” Spellman said. “We need fiscal control over our deficit or guarantees on [student loans] could very likely cease.”
University Democrats President Janette Martinez said students, including herself, who depend on federal aid to assist with their tuition costs should reach out to their Congressmen to keep funding for those programs in place.
“If interest rates go up after these debt ceiling talks, I’ll be graduating with a mountain of debt for student loans,” she said. “It’s important for University Democrats and other campus organizations, whether political or not, to inform students of the impact this could have on financial aid.”
If the bipartisan congressional committee formed to address the debt deal can agree on how to allocate government funding, Martinez said it will spur economic growth and job opportunities for graduating seniors, such as herself.
“Every program that is being funded can be qualified as necessary by a lot of people,” Martinez sad. “The biggest thing isn’t sacrificing one thing over another but trying to keep as many programs in place as possible by raising revenue.”
Economic recovery can only be achieved by drastically reducing government spending, said Sen. Kay Bailey Hutchison, R-Texas, in a weekly column on her website.
“A U.S. default debt would, for the first time, call into question the stability of the U.S. dollar,” Hutchison said. “Congressional Republicans believe that unprecedented levels of federal spending should be reduced to move from this year’s $1.4 trillion deficit to a balanced federal budget.”