NAICU Washington Update

Government Shuts Down, Debt Crisis Looms

October 07, 2013

On October 1, the government shut down for the first time in nearly 18 years. There has not been much disruption on college campuses – yet. A majority of Pell Grant and student loan funds were drawn down by institutions in August and September, and the Department of Education deemed the student aid programs as essential in its contingency plan.

The longer the shutdown lasts, the harder it will hit people across the country, and on college campuses. Among the most immediate consequences are that the Department of Defense Tuition Assistance (TA) benefits are not available to servicemembers who began classes on or after October 1. Individuals already approved for these benefits will eventually receive them, but no payments will be made during the shutdown.

Individuals eligible for the GI Bill and other education programs administered by the Department of Veterans Affairs (VA) will continue to receive benefits until the funds currently available are exhausted. These funds are expected to run out later this month. Furloughs of VA employees may also lead to delays in processing payments. Insiders are also watching the effects the shutdown could have on such functions as the IRS Data Retrieval Tool that streamlines the federal student aid application process or if students' ability to request tax transcripts will be affected.

The National Center for Education Statistics (NCES) has shut down its website. With nearly 90 percent of the Department of Education’s staff on furlough, and similar staffing situations at such agencies as NIH and NSF, more problems could be ahead.

While the House and Senate have sent various continuing resolutions (CR) back and forth, the item of contention is funding the Affordable Care Act (ACA), not really funding of the government. There have been attempts to pass one-week, one-month, and two-month CRs, but the House insists on eliminating funds for ACA, and the Senate insists on stripping that language. Conversations at the White House with House and Senate leadership have yet to move them any closer to agreement at this time.

Debt Crisis Looms – Impact on Student Loans Could be Monumental

The greater crisis for higher education is if Congress does not vote to raise the debt limit, the next place the battle could play out. If the debt limit is not raised, funds for student loans could evaporate. Because student loans are provided directly from government capital, if the debt limit is not raised, and the U. S. defaults on its debt, there will be no capital for Treasury to provide to the Department of Education to issue direct student loans. President Obama has repeatedly stated over the last year that he will not negotiate over raising the debt limit, but Congress is holding out for a fight. According to a report from Treasury issued on October 3, the United States has never defaulted on its sovereign debt. If it were to do so later in October, as the deadline is estimated, the economy would be catastrophically damaged.

Debt Ceiling Calendar

Debt Ceiling.jpg

MORE News from NAICU