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Administration Releases Final Budget Proposal

February 8, 2008

Federal Budget Kicks off an Uncertain Year

The Bush administration’s final budget submission includes the usual combination of good and bad news. Overall, the $3.1 trillion budget for FY09 highlights a number of pressing fiscal choices that will likely loom over the federal budget process for years to come. And, while the new budget formally starts off the annual financial planning cycle in Washington, it remains to be seen how much of that exercise will be completed before the November elections. With a short legislative calendar in 2008--and Democrats eyeing the possibility of reclaiming the White House in 2009--Congress could pass a short-term budget bill. Such action would fund governmental programs through early 2009 and require negotiations with the next president on the longer-term budget.

Overall, the budget forecasts a dramatic increase in the projected deficit, from $162 billion last year to $410 billion. Some of this growth is attributable to the economic stimulus legislation recently adopted by Congress. The worsening deficit is not attributable to the area of spending historically referred to as "domestic discretionary spending," which, excluding security-related programs, was slated for an overall increase of 0.3 percent. This minor increase contrasts sharply, however, with the proposed 8.2 percent budget increase for defense, homeland security and international affairs--an amount that has more significant deficit implications.

Typically, the administration’s budget is criticized almost as much for what it omits as for what it includes. Critics argue, for example, that the budget lacks sufficient funds to pay for an entire year of U.S. military operations in Iraq and Afghanistan. At the same time, the budget calls for a one-year patch in the alternative minimum tax, rather than addressing the issue over the long run (such proposals generally have price tags that run in the hundreds of billions of dollars).

Budget Implications for Student Aid

The FY09 budget proposes to eliminate 151 federal programs, fully one-third of which are part of the Department of Education. The cancelled programs would generate $18 billion in savings. About a third of the projected amount would come from the recall of Perkins loans, a proposal made in previous budgets and rejected by Congress.

The budget proposal calls for overall grant assistance to students to increase from $19.506 billion in the current fiscal year to $20.226 billion in FY09. Within this increase, the budget would level-fund or eliminate a number of existing programs to allow for a significant increase in discretionary funds dedicated to the Pell Grant program. (See Figure 1.) About one quarter of the funds added to the program are needed to eliminate the Pell Grant shortfall (the difference between previously approved funding by Congress and actual grants made under the program).

The budget also proposes to raise the maximum Pell Grant award to $4,800 per year, assumes that the number of students receiving Pell Grants will increase by about 200,000 next year, and projects that the average 2009 Pell Grant will rise from $2,945 to $3,154.

Figure 1. Grant and Work-Study Program Proposed Budgets [$ in millions]




$ Change

Pell Grants




Federal Work Study












Academic Competitive Grants




SMART Grants




TEACH Grants








Loan programs. For the most part, the budget assumes that the Department of Education will implement recently enacted changes in the student loan program. In addition, the budget proposes one new loan program--Loans for Short-Term Training--and the federal recall of all Perkins loans.

The Loans for Short-Term Training program would be jointly administered by the departments of education and labor. The new program would help an estimated 377,000 dislocated, unemployed, transitioning, or older workers and students to acquire or upgrade specific job-related skills. This would be done via short-term training programs that are currently not eligible for federal student financial aid funds. (See Figure 2 for budget details related to loan programs.)

Figure 2. Proposals for Loans and Training Programs [$ in millions] 




$ Change

Federal Family Education Loans




Federal Direct Loans




Perkins Loans




Loans for Short-Term Training








Other Education Proposals

The budget allocates $10 million to support the development of systems to facilitate transfer of credits between institutions of higher education. The goals: reduce the cost of and completion time of college for the nearly 60 percent of all students who transfer during the course of their studies.

The President’s budget also proposes the creation of a Pell Grants for Kids program, under which the Department of Education would make grants to states, municipalities, and public or private nonprofit organizations (including faith-based and community organizations). These funds would be used to develop K–12 scholarship programs for eligible, low-income students attending certain Title I schools or schools that have a graduation rate below 60 percent. Eligible students’ parents who choose to send their child to an out-of-district public school or nearby private school would receive a scholarship. The amount would be the lesser of (a) the sum of tuition, fees, and other costs--including necessary transportation expenses--for the new school or (b) the average per-pupil expenditure for public schools in the state in which the recipient resides.

Proposed terminations at the Department of Education. The administration requested no funding for activities under the Carl D. Perkins Career and Technical Education Act of 2006.  The law, which authorizes grants to states to fund career-focused and technical education programs, was responsible last year for more than $1.16 billion in such grants. Additional grants authorize direct links with secondary schools to integrate career and technical education and prepare students to make the transition to college, and to a career. Last year Congress approved $103 million for these programs.

As noted earlier, the administration is proposing to terminate the Supplemental Educational Opportunity Grants program ($757.5 million) and Leveraging Educational Assistance Partnerships ($63.9 million), a program to encourage state-based grant programs. Also slated for termination are Byrd Honors Scholarships ($40.3 million), which constitute a merit scholarship program managed by the states.

Tax proposals. Among the budget’s revenue proposals are changes that would (a) make the 2001 tax bill permanent (including the exclusion of up to $5,250 in employer-provided tuition assistance and enhancements to the student loan interest deduction); (b) make the IRA charitable rollover rule permanent; and (c) allow taxpayers with income up to $53,000 to take a tax credit (not to exceed $2,000) for contributions to a 529 college savings or prepaid tuition plan.

Research funding. The FY09 budget continues to request additional funds for selected research programs—but level-funds the budget for the National Institutes of Health, a primary source of academic research funds. The National Science Foundation’s budget would increase by $822 million, or 14 percent, to $6.85 billion. And the Department of Energy’s Office of Science would see an increase of more than 18 percent, to $3.97 billion. Meanwhile, research efforts funded through NASA would see a significant reduction, from $10.57 billion to $8.39 billion; and research programs in the Department of Defense would realize a small reduction, from $1.78 billion to $1.7 billion.

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