A rundown of what to expect as students apply for financial aid for next semester

As students prepare their financial aid applications for the fall semester, they should be aware of several major policy changes made by the federal government that could hurt or benefit them when it comes to paying for college.

It was discussed before on this blog that in an effort to avoid the dreaded fiscal cliff at the beginning of January, President Barack Obama and Congress agreed on a financial plan that included – among other things – extended and renewed tax breaks to benefit the families of college students. Among them is the extension of the American Opportunity Tax Credit, which grants families up to $2,500 annually to put toward tuition, student fees and the cost of textbooks.

However, there were some actions brought to the table before the January fiscal cliff deadline that Congress and the president have shelved until March. These include several potential financial aid benefits offered by the Federal Government that many families rely on.

Federal work-study, for example, is one of several programs that faces automatic cuts, also known as sequestration. Although the president has voiced support for these initiatives, recognizing what a great opportunity they can be for students in need, Congress could still move to have work-study and other aid cut in an attempt to improve the national budget.

One fear many college students have is that they will qualify for a certain form of financial aid before Congress’s March deadline only to have it be removed following sequestration. Additionally, as of July 1, interest rates on new subsidized Stafford loans, which currently rest at 3.4 percent, are set to double if Congress doesn’t take action. Although students may not feel the impact immediately, loans with a higher interest rate will cost them more in the long run, especially after graduation.