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The Gap Year Debate


President Obama is proposing a massive overhaul to the college financial aid system. His goal? For the U.S. to have the best college completion rate in the world by 2020.

As part of both his stimulus package and the federal budget, Obama plans sweeping changes designed to make education more affordable—changes that pose an interesting dilemma for anyone contemplating a college education in the next few months. The initiatives are significant enough that many students might be tempted to delay their education for a year to take advantage of them.

Experts like Eric Yaverbaum are predicting that many high school seniors will do just that. Yaverbaum is completing a book in which he provides college planning tips from guidance counselors and chronicles the many students he's encountered who've decided to wait a year before attending college because of the expected increase in federal financial aid. "There are an enormous number of students out there right now deciding if they should alter their plans for the upcoming school year, [as in] 'I'm not going,' " says Yaverbaum.

The stimulus plan includes several provisions that conceivably might lead students to postpone college for a year. The most significant is increased funding for Pell Grants for students from low- and moderate-income households. The grants, which range from $400 to $4,731 for the 2008-09 school year, will increase to a maximum of $5,500 in 2010-11. At the same time, the stimulus package will increase the number of Pell Grant recipients by an estimated 800,000.

downsides to consider

In addition to Pell Grants, the stimulus package will replace the Hope Scholarship tax credit with the more generous American Opportunity Tax Credit for tax years 2009 and 2010. The existing tax credit can be claimed on tuition and fees only for students in their first two years of college; the maximum credit is $1,800. The new credit is worth $2,500 a year, and far more families are eligible.

The stimulus plan also provides an additional $200 million in funding for the federal work-study program, which provides part-time jobs for students, increasing the number of recipients by 181,000. And it allows parents to make tax-free withdrawals from 529 college savings plan to finance the purchase of a student's computer.

The amounts might not seem like much, but for many low- and moderate-income families, the more generous aid provisions and eligibility changes might make the difference between an affordable college education and one that is tantalizingly out of reach. And the consequences can be long-term. A slightly larger Pell Grant combined with a bigger tax credit could be just enough to avoid the need for a private student loan—and the difference between graduating with high-interest debt, or no debt at all.

For anyone contemplating taking a year off to wait for changes to financial aid, there are downsides to consider. For one, a year off for most high school graduates may mean a year of low-wage work and living at home—while friends enjoy their independence at college—not the kind of thing that tends to impress admissions committees. The College Board warns that getting into a top school after taking a year off can be tough, unless the year off was put to good use.

After a year without flexing your academic muscles, college itself may prove difficult, quickly turning a four-year college education into a six- or seven-year ordeal. Philip Day, president of the National Association of Student Financial Aid Administrators, warns that students may want to reconsider. "A year delayed is a year lost," says Day.

Alternatives to waiting out the stimulus include opting for public institutions over elite private schools, choosing even less expensive community college programs, or attending classes on a part-time basis while working a full- or part-time job. Today, 85% of all college students work to help finance their educations. Says Day: "We are seeing an incredible number of students going to school part-time."

Gerdes is a staff editor for BusinessWeek in New York.

Lindsey_gerdes
Gerdes is a staff editor for BusinessWeek in New York.

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