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Business Officer Magazine

Federal File

Coverage of legislation and regulatory activity that affects higher education

By Matt Hamill

No Matter the Election Outcome, Higher Education Funding Is at Risk

Voters casting ballots in the upcoming presidential and congressional races will help determine how and to what extent the federal government will fund higher education in the coming years. Included in the outcome will be the question of how for-profit institutions are regulated.

Candidates from both political parties have focused on ways students and families finance higher education, given the increasing attention on rising tuition and rapidly expanding student-loan debt. That said, each candidate presents significantly different proposals to deal with the issues.

Starting Points

Both candidates agree that there are multiple ways to benefit from a college education—including two- and four-year degrees and continued vocational training—and that students and families need comprehensive information about the cost and value of college so they can make informed choices.

Republican presidential nominee Mitt Romney has promised to simplify the federal student aid system, streamline federal regulations, and reintroduce the bank-based student lending system. While the campaign's documents do not include detailed language, they strongly suggest that a Romney administration would revisit the gainful-employment regulations, as well as those that define a "credit hour," and require state approval of distance education programs.

If reelected, President Obama has promised to defend the Pell Grant program from budget cuts and make sure that the maximum grant amount increases as scheduled next year. He would seek to extend his signature American Opportunity Tax Credit, slated to expire in January, which gives students and families a tax credit of up to $10,000 over four years of college. The Obama administration is also expected to continue its scrutiny of for-profit colleges and to further develop and push its proposal to tie eligibility for some federal student aid to a college's success in moderating tuition increases.

Sobering Fiscal Issues

The next president, along with members of Congress, will face a variety of significant fiscal policy decisions, the confluence of which is leading to the so-called "fiscal cliff." Pending decisions relate to the following:

  • Completing action on FY13 spending bills to fund federal agencies and programs.
  • Dealing with the fate of across-the-board spending cuts scheduled to kick in starting in January.
  • Considering numerous tax rules slated to expire in December.
  • Raising the federal debt ceiling in early 2013.

There is little consensus about how to address these issues, or even whether they constitute a significant enough threat to our economy or to our global standing to drive passage of a comprehensive, long-term plan to bring federal deficits under control.

Nevertheless, a comprehensive plan could include (1) an alternative framework to lower annual discretionary spending, replacing the across-the-board spending cuts called for in current law; (2) changes to entitlement spending programs; and (3) revamp of our tax laws. Colleges and universities, and students and families, have significant interest in the decisions that might be reached in each of these major budget areas.

The next president, along with members of Congress, will face a variety of significant fiscal policy decisions, the confluence of which is leading to the 'fiscal cliff.'

Discretionary spending. Many programs that support higher education are funded through the 12 annual spending bills. Thus the spending levels, from one year to the next, are up to the discretion of Congress and the administration. The largest of these are the federal student aid programs and funding support for the research activities that take place on campuses across the country.

Before leaving Washington to campaign for the November elections, members of Congress gave their final approval to legislation that would continue to fund federal agencies through the end of March, at levels close to the approved spending for FY12. While the legislation gives policy makers a little more time to negotiate spending levels, in the meantime they will also confront the initial impact of across-the-board spending cuts that take effect in January.

According to an administration projection released on September 14, spending for student aid, except for Pell Grants, would be reduced across the board by 7.6 to 8.2 percent, depending on the program. While most federal research budgets would see an 8.2 percent reduction, defense research would be subject to a 9.4 percent decrease. For FY13 only, the Pell Grant would be protected from sequester cuts.

In addition, policy makers are regularly confronted with the increased costs of maintaining sufficient annual funding for the Pell Grant program, which has grown rapidly in recent years—approaching $40 billion in FY12. Romney and vice presidential candidate Paul Ryan (R-WI) have both called for changes to the eligibility criteria for Pell Grants so that fewer students receive aid. The Romney education platform also calls for consolidating "duplicative and overly complex programs."

While neither presidential candidate has released detailed proposals related to academic research, Ryan—in his capacity as chairman of the House Budget Committee—has proposed budgets that call for significant reductions in federal spending on programs that support academic research, such as those of the National Institutes of Health, and for the elimination of the National Endowment for the Humanities.

Changes in entitlement programs. Among the many entitlement programs, only one has direct impact on higher education—the federal student loan program. The future of the loan program is among the several areas of strong disagreement between the two presidential candidates.

Early in the Obama administration, legislation was developed and later adopted that mandated all federal student loans be made through the direct loan program. In contrast, the Romney platform calls for a return to the bank-based system of originating federal student loans. While his proposals as a congressman have not been formally incorporated into the Romney education agenda, Ryan has proposed budgets that would end the in-school interest subsidy on undergraduate Stafford loans.

The question of tax reform. Both presidential candidates, and many congressional office seekers, have pledged their support for simplifying the federal tax code. However, that is where agreement seems to end. Neither presidential candidate has offered a comprehensive, detailed plan for such an overhaul, making a comparison of priorities difficult. Instead, the two campaigns have focused more rhetorically on who should bear the burden of federal taxes. 

Driving the heightened interest in tax reform is the regularly recurring sunset for many of the current tax rules. This forces Congress to repeatedly debate whether or not to extend these rules—many of which were adopted in 2001—or offset the costs of these tax cuts with other changes that raise revenue.

No matter who is elected to serve, policy makers attempting to rewrite the tax laws will face the difficult task of assessing the purpose and value of hundreds, if not thousands, of different tax rules and developing a political compromise to reduce or eliminate many of them. Included in this mix are policies important to colleges and universities, and their students: charitable giving rules, access to tax-exempt financing, and deductions and credits to help offset tuition and fees. 

Regulatory Changes

The Romney education platform calls for the repeal of "confusing and unnecessary regulations that primarily serve to drive costs higher," substituting "common-sense reforms that ensure appropriate student outcomes." The platform does not specify which regulations a Romney administration would eliminate, although the language gives strong hints.

For example, the plan suggests that he might seek to undo the "gainful-employment rule," calling for expanding disclosures to students "rather than limiting choices through punitive regulations." The rule, which is the subject of pending litigation, restricts student aid to programs for which students carry high debt relative to their incomes and show low loan-repayment rates.

Further and more significant regulatory changes could follow passage of legislation to revise and update the Higher Education Opportunity Act. The process of reauthorizing this legislation is expected to commence in 2013; however, it is far from certain when such an initiative will be complete.

A Correlation Between Tuition and Financial Aid?

In their speeches and writing, Romney and Ryan both have argued that increased federal student aid has encouraged increases in college tuition. "We must stop fueling skyrocketing tuition prices that put higher education out of reach for some and leave others with crushing debt," Romney has been quoted as saying.

"The goal of federal financial aid is to make college more affordable, but there is growing evidence that wholesale increases in aid have had the opposite effect," Ryan wrote in a column that appeared in the Wisconsin State Journal in May. "Instead of helping more students achieve their dreams, these increases are simply being absorbed by (and potentially enabling) large tuition increases."

Engage in the Debate

The elements leading to the fiscal cliff—annual government discretionary spending and across-the-board spending cuts, sunsetting tax rules, and the looming need to increase the debt ceiling—will continue to put pressure on elected officials to address issues in a comprehensive, long-term way. The next president, and members of the 113th Congress, will be considering strategies to address these issues, many of which will directly affect institutions of higher education and those they serve.

Whatever the outcome of the elections, college and university leaders will need to be engaged in serious discussions in Washington—and in states across the country—that will influence the level of public support for higher education in the years ahead.

NACUBO CONTACT Matt Hamill, senior vice president, advocacy and issue analysis, 202.861.2529

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