July 15, 2009
Today, the House of Representatives will introduce a budget reconciliation package designed to achieve components of the President’s agenda. Budget reconciliation is a special procedure, not subject to a fillibuster in the Senate, that was intended to serve as a deficit reduction tool by forcing spending cuts or tax increases to meet the targets set forth at the beginning of an appropriations cycle in a budget resolution.
The legislation, The Student Aid and Fiscal Responsibility Act of 2009, advances President Obama’s goal of making the Pell Grant program an entitlement -not subject to annual appropriations debates. As has been discussed on this site, the Pell Grant entitlement would be funded by eliminating the Federal Family Education Loan program (FFEL)-which utilizes banks and guarantee agencies- in favor of the Direct Lending (DL) program. Financial institutions, Members of Congress with a heavy presence of financial institutions in their states/districts, and many conservatives have been against the elimination of the FFEL program. Just a few weeks ago, it appeared likely that a compromise would be stuck that fell short of a full Pell entitlement. However, the legislation offered today supports a Pell entitlement and a number of other student aid items.
Provisions of the bill:
- $40 billion for Pell mandatory (The total savings from conversion to DL is approximately $86- 87 billion)— This would theoretically take the Pell max (assuming that the current appropriated amount of $4860 is maintained in the outyears) from the FY2010 level of $5,500 to $6900 in FY2019
- $10 billion for some version of the $12 billion community college program unveiled by President Obama yesterday
- $10 billion for an interest rate “fix”—The last reconciliation dropped the interest rates and the rates are scheduled to go up again soon. The interest rate would become variable again.
- $5 billion for modernization of K-12 schools
- $10 billion for “early learning” programs
- $2.5 billion for the Access and Completion initiative
- Changes to the Perkins program
- FAFSA is simplified by allowing the IRS to pre-populate some data and the asset question is removed.
- As drafted, starting in FY2015, the bill would eliminate in-school loan subsidies for graduate and professional students. The higher education community is working to “fix” this provision, as it serves as a disincentive to graduate and professional studies.
The community college piece appears to have a number of different components, including a set-aside in the “Access and Completion” Initiative. In addition, it includes:
- A “best practices” program
- Construction/modernization grants to states to be used for community colleges
- An on-line education component, which would be open to partnerships with 4-year institutions.
With respect to the Access and Completion Initiative, in addition to the carve-out, there will likely be 4 components to the plan:
- Keep the current Challenge program, which is a grant program to states for access purposes
- A competitive grant program to states for completion efforts
- A national competitive program, open to any entity
- A small role for non-profit lenders