December 11, 2013

Budget Deal’s Impacts on Student Aid Servicers

By Sarah Castro

The agreement reached on Wednesday by Senator Patty Murray and Congressman Paul Ryan reverses some sequestration cuts without raising taxes or making changes to entitlement programs. If approved, Congressional appropriators would have at their discretion $492 billion for non-military spending. That is about $23 billion more than would be available if Congress were to allow a second round of automatic sequester cuts to take effect in January. And yet, it is still about $14 billion below the original level of non-defense funding before the cuts first took place in March.

Within the confines of those top-level limits, lawmakers would have the discretion to restore and theoretically increase funding to campus-based financial aid programs and federal research agencies such as the National Institutes of Health and National Science Foundation, which would otherwise suffer more cuts if a second round of mandated “sequestration” reductions take place in January.

However, in order to pay for the $63 billion worth of increases to federal discretionary spending over the next two years, the negotiators identified various sources of revenue, such as hiking airline security fees and requiring federal workers to kick in more money for their pension plan.

Two of the cost saving provisions in the the agreement impact student aid servicers, but are not expected to have any immediate impacts on students. The first calls for Congress to cut payments to guarantee agencies in the now-defunct Federal Family Educational Loan Program, and changes how certain federal student loan servicers are paid. Not-for-profit and state loan agencies won a special provision in the 2010 Student Loan Bill that ended federal bank-based lending that guaranteed the entities loan-servicing contracts with the Education Department without having to go through a competitive bidding process. These payments will now be made with discretionary, not mandatory, funds. This change would save approximately $3 billion.

The second provision reduces the compensation that guaranty agencies receive for rehabilitating a loan from the Federal Family Education Loan (FFEL) program, beginning July 1, 2014. It will save more than $2 billion over ten years

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