NAICU Washington Update

President's FY 2012 Budget Plan Prioritizes Student Aid

February 19, 2011

The FY 2012 budget plan that President Obama sent to Congress February 14 highlights the core student aid programs as a top priority for the nation. In it, he proposes to maintain a Pell Grant maximum of $5,550, as well as current funding levels for the Supplemental Educational Opportunity Grant and Federal Work Study programs.  The plan also calls for creation of a new Perkins Loan program to provide additional loans to high performing, low-income students.  LEAP state grant funding and the in-school interest subsidy for graduate students , however, would be among some troubling cuts.

The FY 2012 budget funds student aid programs for the academic year that runs from July 1, 2012, to June 30, 2013.

Under the President's budget plan, TRIO programs are increased by $67 million to provide for a new Upward Bound competition, and GEAR UP is level funded. For graduate education, the budget proposes to consolidate the Javits Fellowships into the Graduate Assistance in Areas of National Need program.

Overall, the president's budget proposes a five-year freeze on discretionary spending. But within that framework, it increases the Department of Education budget by $5 billion.  (Here's a Department of Education summary of the President's budget proposal.)

Student Aid Details

The cost of the Pell Grant program has more than doubled since FY 2008, to an estimated $40 billion for FY 2012 ($28 billion discretionary + $12 billion mandatory). To maintain the $5,550 maximum grant, the administration's budget includes a proposal called the "Pell Grant Protection Act."  This combines a variety of eligibility changes and program cuts to pay for the increasingly high costs. The Pell Grant Protection Act would:

  • Eliminate the "year-round" Pell, added in 2008, which allows a Pell Grant recipient to receive an additional grant for a summer course of study to accelerate progress toward a degree. The moratorium on this program would go into effect on July 1, 2011, if enacted by Congress prior to that date.  However, students already enrolled could continue in the program for this summer only.

    When it was enacted, the "year round" Pell was projected to cost about $300 million a year, but it has already cost $8 billion. Preliminary Department data show that it is used across sectors in about the same proportion as regular Pell Grants.
  • Require Pell applicants to use IRS data to pre-populate the FAFSA, resulting in fewer over-awards.
  • Eliminate the in-school interest subsidy for graduate student loans.
  • Offer borrowers with FFEL and DL loans the option of converting their FFEL loans to the Department (students who convert would receive up to a two percent benefit on their loan balance).
  • Expand the Perkins Loan program, which saves money.
  • Eliminate funding for the LEAP state grant and Tech Prep Education State Grants.

Except for eliminating LEAP and Tech Prep funding, all of these proposals would have to go through the congressional legislative process - the equivalent of re-opening the Higher Education Act reauthorization process.


On the tax side, the president's budget proposes to make the American Opportunity Tax Credit permanent, and eliminate the tax on income-based repayment student loans, which help students and families pay for college. However, the budget also proposes to put a 28 percent cap on charitable giving.

New Programs

The budget proposes four major new higher education programs.  It's unlikely, though, that Congress will give much consideration to programs requiring new funding.

Perkins Loans:  The administration proposes to "protect and expand" the Perkins Loan program - expanding loan volume from $1 billion to $8.5 billion for more than 3 million students, at 2,700 institutions. A hold-harmless would be provided for currently participating institutions, but loans would be serviced as direct loans by the Department of Education, rather than by the campus.

The loans would have the same features and interest rate (6.8 percent) as unsubsidized Stafford, and interest would accrue during college.  New loan volume would be targeted to institutions that control costs and offer need-based aid, but we have no details on what that phrase means.

First in the World:  The budget proposes $123 million for an "I3 for higher education" program (Investing in Innovation) to challenge colleges to improve completion. The program appears to embrace the basic approach behind NAICU's own 2020 initiative, endorsing the idea of encouraging an "outpouring of innovation from the field."  Funding through the Fund for Improvement of Postsecondary Education (FIPSE) would be used to identify and expand successful strategies for college completion.

College Completion Incentive Grants:  Also proposed is $50 million in competitive grants to states to encourage institutions to improve higher education outcomes for students.  Participating states would be required to align high school graduation requirements with college preparation; create stronger articulation agreements; facilitate transfers; and provide performance-based funding for institutions.

Although targeted at public colleges and universities, private colleges would have the choice to participate if appropriate to their mission.  This nuanced distinction recognizes private colleges' governance structures, and appears to track the agreement negotiated with NAICU over the ill-fated college completion grant program originally included in the Student Aid Fiscal Responsibility Act (SAFRA) that mandated the conversion by all schools to direct lending. 

Presidential Teaching Fellows:  The administration proposes to replace the TEACH Grant program with a state program.  States would receive funds to award scholarships of up to $10,000 to teacher candidates in each state's more effective teacher education programs.  Program effectiveness would be partially based on student achievement in the schools where graduates of the teacher education program teach.

Scholarships would be available for the final year of teacher preparation, and recipients would then be required to teach at least three years in a high-need school or in a high-need subject area.  To participate, states would have to meet higher standards for teacher licensure and certification.


Congressional consideration of the administration's FY 2012 budget is expected to move at the regular pace. The next step in the process is for the House and Senate budget committees to hold hearings with agency officials to explore their proposals. Next, the committees write a budget resolution laying out the parameters for FY 2012. The target date for completion of the budget resolution is April 15, after which the appropriations committees can begin writing their spending bills.

Keep in mind, though, that Congress is still addressing the not-yet-completed budget for FY 2011, and will be deep in negotiations over those final details throughout March.  Once the current fiscal year budget is complete, attention will shift to FY 2012.

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