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Business Officer Magazine

Capitol Report

Coverage of legislation and regulatory activity that affects higher education

By Liz Clark

Budget Debates Likely to Last Through 2011

Over the past several months, much of the discussion in and around Capitol Hill has focused on the seemingly implacable federal budget deficit. A predictably vociferous debate continues to rage about whether, how, when, and in what areas to cut spending. The challenge, both for the FY11 and the FY12 budgets, will be to find a path to compromise among the Republican-controlled House, the Democratic majority in the Senate, and President Obama.

Ironically, the House passed H.R. 1 (The Full-Year Continuing Appropriations Act, 2011)—its version of a budget for the remainder of FY11, incorporating $61 billion in cuts to discretionary spending, including funding for education—during the same week that President Obama unveiled his budget plan for the following year. True to his theme of "investing in the future," outlined in the State of the Union address, the Obama proposal avoids large cuts to higher education and research but does recommend elimination or reduction of some programs and changes to others.

H.R. 1, representing House Republicans' opening offer in preparing for budget negotiations with Senate Democrats and President Obama, would have a significant impact on higher education. The bill calls for the following:

  • Reducing the amount of the maximum Pell grant to $4,705 (down $845).
  • Terminating the Supplemental Educational Opportunity Grants (SEOG) program that offers grants of up to $4,000 for low-income students.
  • Drastically reducing funding for the Strengthening Institutions Program that targets minority-serving institutions.
  • Cutting by almost $3 billion several budgets for agencies that support research activities on college and university campuses.

The Senate has not approved a competing measure, and the path to compromise for the remainder of FY11 is not clear.

Tax Provisions

H.R.1 cuts by almost $3 billion several budgets for agencies that support research activities on college and university campuses.

The revenue side of the question was largely resolved, at least for a little while, by the extension of the Bush-era tax cuts passed in December in the lame-duck Congress. The president's budget calls for scaling back the value of itemized deductions, including charitable gifts, for higher-income taxpayers in order to help pay for a three-year fix to the alternative minimum tax (AMT). Although the president's budget has previously called for this change and legislators on Capitol Hill have not embraced the proposal, there continues to be concern in the nonprofit community that limiting tax deductions will translate to reductions in charitable giving.

Education Funding

The administration's FY12 budget blueprint sets forth recommendations for appropriations for the following fiscal year. The plan often includes a variety of proposals that would require separate legislative action to implement. In a typical year, Congress uses the president's budget as a starting point in its deliberations, but the actual budget that results is usually quite different from the president's original one. However, in the current budget landscape, in which the debate has shifted rather dramatically toward spending reductions, the final outcomes for spending on student aid and other programs in FY11 may more closely resemble the ceiling for FY12, rather than the floor.

Key recommendations regarding federal student aid reflected in the president's budget proposal include the following:

Pell grants. The maximum grant would remain at the current $5,500 even though the program has grown substantially over the past few years because of an increase in eligible students, coupled with higher awards.

Pell grants are funded by a mix of discretionary and mandatory funding. Prior legislation calls for a decline of almost $6 billion in the amounts of mandatory funds available for the Pell program from FY11 to FY12. As a result, additional discretionary funding will be needed to keep the maximum award steady. In order to dedicate these funds to the Pell program without significantly increasing student aid spending, the budget proposes certain changes to the Direct Loan program and elimination of the year-round Pell benefit that provides a second Pell award in one year to students who accelerate their programs. The year-round Pell program is a new benefit introduced by the Higher Education Opportunity Act of 2008. According to the budget analysis, the program has proven to be much costlier than expected and has not demonstrated its effectiveness. Eliminating this benefit will save almost $5 billion a year.

Guaranteed loans. The president proposed to eliminate the in-school interest subsidy for Stafford loans for graduate and professional students. This is projected to save $2.2 billion in FY12.

The budget also lays out a plan to encourage existing borrowers, with outstanding loans under both the bank-based Federal Family Education Loan (FFEL) program and the Direct Loan program, to consolidate their loans under the Direct Loan program by offering them a 2 percent reduction of their loan balances. Savings from simplifying collection activities and reducing subsidies to banks are estimated at $2.1 billion for FY12.

Campus-based programs. The budget resurrects an earlier proposal to reorganize the Perkins Loan program. The Department of Education would take over operations of the Perkins Loan program, with loans made and collected directly by ED in the same way Direct Loans are handled.

Colleges and universities would no longer maintain revolving loan funds. Loan volume would increase with more institutions participating and four times more students receiving loans. Interest rates would rise to 6.8 percent and would accrue while students are in school. The administration claims that these changes would save $8.6 billion over 10 years.

The SEOG and Federal Work-Study programs would be level-funded for FY12.

TEACH grants. The Teacher Education Assistance for College and Higher Education (TEACH) Grant Program—which provides grants of $4,000 a year to individuals studying to become teachers and planning to perform qualifying service after graduation—would be eliminated in favor of formula grants to states. The new program would provide grants of up to $10,000 to students for the final year of teacher preparation.

College completion incentive grants. A proposed new program would provide $50 million in grants to states, which would in turn provide payments to schools as a "positive incentive to encourage better outcomes for students." States would be required to align high school graduation requirements with college expectations, develop articulation agreements and improve transfer of credits, and provide matching funds.

Funding for the TRIO program and GEAR UP (Gaining Early Awareness and Readiness for Undergraduate Programs), Strengthening Institutions, and Historically Black Colleges and Universities would be level-funded under the president's proposal.

Program eliminations. The president's budget would eliminate a number of education programs, some of which have been targeted in the past. The House jumped on the suggestion to eliminate the Leveraging Educational Assistance Partnership (LEAP) program, which provides seed money to encourage states to provide grant assistance to students, and axed the program in the two-week continuing resolution enacted on March 2. Other education programs that the president's budget would eliminate include the Robert C. Byrd Honors Scholarship Program, the Pilot Program for Course Material Rental, and the Legal Assistance Loan Repayment program.

Other Important Funding and Regulatory Matters

The Department of Education would take over operations of the Perkins Loan program, with loans made and collected directly by ED.

Given the president's goal to "out-educate" and "out-innovate" the rest of the world, research and development does not fare too badly in the administration's FY12 proposal, with overall funding up 6.5 percent from FY10 levels. The National Science Foundation would gain 13 percent, while the National Institutes of Health would be in line to receive a boost of  2.4 percent. However, funding for the National Endowment for the Arts and the National Endowment for the Humanities would be scaled back by 13 percent each.

While budget battles rage on, Capitol Hill is also taking a keen interest in regulatory matters. In anticipation of ED's final rule on "gainful employment," the House approved an amendment in H.R. 1 that would block the department from using any funds to carry out the regulation, effectively putting the issue on the table as a negotiation item for the FY11 budget. Also, Chairman of the House Education and Labor Committee John Kline (R-MN) held hearings in March examining federal regulations that affect higher education institutions. Kline has expressed a general interest in using his position to address unnecessary regulatory burdens, and it is likely that he will maintain this focus through the 112th Congress.

 NACUBO CONTACT Liz Clark, director, congressional relations, 202.861.2552

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