NAICU Washington Update

President Sends Budget to Congress Kicking off FY 2015 Budgeting Process

March 07, 2014

The president’s FY 2015 budget request, sent to Congress on March 4, includes no surprises for student aid funding and offers several familiar tax proposals. While the White House and Congressional leaders will be working on budget matters throughout the spring, NAICU expects to see education funding bills sometime in the summer.

Overall, on student aid, the president’s budget proposes $29 billion to fully fund the scheduled $100 increase in the Pell Grant maximum, to $5,830, and level funds the other student aid programs. The president’s budget also continues the national conversation about quality higher education by proposing reform programs to implement the College Value and Affordability agenda he has been advocating for since August, including a proposal to provide $10 million for his controversial college rating metric.

Because the Bipartisan Budget Act that was passed in January sets a tight limit on discretionary spending, the president’s budget for higher education includes new proposals on the mandatory side of the budget, which would come out of automatic spending not from appropriations. The Administration is able to make these proposals for mandatory spending as long as the president balances the offsets anywhere else in his spending plan. This is different than the section-by-section budgeting rules Congress has to follow; making it less likely the president’s ideas could be paid for.

Many parts of the budget, including many of the proposed higher education reforms and specific changes to the student aid programs, would need to go through a separate legislative process in Congress. Given the tense relationship between Congress and the White House, many of the president’s proposals are a long way from being given a serious audience on Capitol Hill.

Highlights of President Obama’s FY 2015 Budget

  • College Opportunity and Graduation Bonus: Provides $7 billion over 10 years in mandatory funds to reward institutions that enroll and graduate a high percentage of Pell Grant recipients. Bonuses would be tiered to $1,000 per Pell Grant graduate at 4-year institutions; $700 per Pell Grant graduate at 2-year institutions and $350 per Pell Grant graduate at less than 2-year institutions. Institutions could use the funds to award additional need-based aid, enhance academic and student support services, improve student learning outcomes, reduce costs, accelerate learning, and other innovations.
  • Campus-Based Aid Programs: Revises the allocation formulas for SEOG and Federal Work Study to reward institutions that provide high-quality education to low-income students at a reasonable price. Perkins Loans would be expanded to $8.5 billion in new loan volume, and would function like a second direct loan program. Lending authority would be allocated in a similar manner to the new allocation for SEOG and FWS, while savings from reforming the program would be reinvested into the Pell Grant program.
  • College Rating System: Provides $10 million to develop and refine the president’s proposed college rating system. The budget includes these funds under the authority of the Government Performance and Results Act (GPRA), and HEA program evaluation. (GPRA was originally enacted in 1993 to require federal agencies to engage in project management activities for the programs they run.) In this budget line, $52 million will be provided overall for pilot and demonstration programs in student aid, postsecondary evaluations, performance measure improvements, and the development and refinement of the college ratings system.
  • State Higher Ed Performance Fund: Provides $4 billion in mandatory funds for state public higher education reform through competitive grants. To be eligible, states would have to implement policy and funding reforms to improve college performance, such as maintaining state expenditures on higher education, ensuring a seamless transition into higher education, establishing pathways to work, allocating state financial aid based on need, and providing consumer information about the return on investment at colleges. States would be required to match federal dollars one-to-one, and awards would be allocated to institutions within the state based on a performance formula.
  • College Success Grants: Provides $75 million to target additional aid to minority-serving institutions with the goal of increasing completion for Pell Grant recipients by implementing sustainable strategies, improving technology, lowering cost, improving outcomes, and other measures.
  • First in the World: Provides $100 million for the First in the World competitive grant program, allocated through FIPSE, for institutions to develop innovative strategies and practices that improve college completion and make college more affordable for low-income students.
  • Pell Grant Eligibility: The budget proposes to “strengthen academic progress requirements to encourage students to complete their studies on time.” There is no additional information on this proposal right now, but satisfactory academic progress requirements were already strengthened through regulation in 2010.
  • “Ability to Benefit (ATB):” Reinstates ATB eligibility for Pell Grants only for adult students who are dually-enrolled in adult education and postsecondary education as part of an approved career pathway to work. This was proposed by Sen. Patty Murray (D-WA) in the appropriations process last year, and reflects a specific community college program in Washington State.
  • Expand Pay As You Earn: Proposes to lower student debt burden by expanding the “Pay As You Earn” (PAYE) student loan repayment plan to all borrowers, regardless of when they borrowed. With the goal of protecting against institutions driving up student debt and to reduce program complexity for borrowers, PAYE would become the only income-based repayment plan after July 1, 2015. Reforms would also include eliminating the standard cap so that high-income, high-balance borrowers do not benefit excessively; ensuring married borrowers pay appropriately based on combined AGI, capping public sector loan forgiveness, establishing a 25-year forgiveness period, and capping interest that can accrue.

Other Notable Items

  • $1.4 billion for Student Aid Administration: This would be a $280 million increase over last year, $269 million of which would cover the move of loan servicing costs from the mandatory budget to the discretionary budget.
  • Teacher Quality Partnership Grants: Funding would be eliminated and the program would be incorporated into ESEA.
  • International Education Domestic Programs: Funding would be increased by $4 million, to $69 million.

Tax Provisions

  • Charitable Deduction Cap: The Administration has, once again, included a proposal to limit the value of charitable contributions. The budget would impose a 28% cap on all deductions, including the charitable deduction. This would affect higher income givers, impacting single taxpayers earning over $186,350 and married/joint filers earning over $226,850. The proposal has been included in each of President Obama’s budget blueprints since he took office, and has not yet gained any traction in either the House or the Senate.
  • Other Tax Benefits: The budget proposal would make the American Opportunity Tax Credit (AOTC) permanent (it is currently set to expire on December 31, 2017). The AOTC allows a partially-refundable $2,500 annual tuition tax credit. The president would make this a permanent benefit without substantial changes to the structure of the current credit or the current income limitations.
  • Loan Forgiveness: The budget would also allow tax-free loan forgiveness on the income-based repayment of student loans after 10 years of repayment. Under current law, the federal government forgives the loan debt of certain borrowers who enter the public and nonprofit sectors after as few as 10 years. Other programs forgive loan debt after 20 or 25 years, but the amount is still subject to taxation. The president’s proposal would eliminate the taxes on the forgiven loan amount.

Next Steps on Capitol Hill

This budget proposal will have more impact on the Higher Education Act reauthorization discussions in the education committees than it will in the appropriations committees. The biggest challenge for student aid funding will be to maintain funding levels for Pell Grants, campus-based aid, TRIO, GEAR UP, and graduate programs, without being cut to pay for the additional funds needed in student aid administration to properly run the programs.

Because last year’s budget process went into January, the FY 2015 process is starting in March instead of February. House and Senate Budget Committee Chairmen Rep. Paul Ryan (R-WI) and Sen. Patty Murray (D-WA) agree that the total spending amount that was set in the January budget deal stands for their work in this cycle’s appropriations process.

House and Senate appropriators will start the hearing process once the president’s budget has been scored by the CBO. NAICU expects to see education spending bills in early summer.

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