NAICU Washington Update

FY 2016 Budget: $150 Billion in Jeopardy; Next Step Conference

April 10, 2015

While the congressional budget resolution has lately been a messaging document for the majority, changes proposed for student aid in this year’s plan could have a real impact on Pell Grants, student loans, and the outlook for reauthorization of the Higher Education Act. Now that the resolution has passed both houses, the next step in the process is for the House and Senate budget committees to agree to work out the differences between their versions of the budget then pass a final resolution.

There are two major proposals the House and Senate already agree on:

  1. Freezing the Pell Grant maximum at the current $5,775 for the next ten years.
  2. Eliminating the federal in-school interest payments for low-income students with Stafford loans.

Despite the intent to freeze the Pell maximum, both measures take an additional step by eliminating $90 billion in mandatory funding for Pell, which could effectively reduce the actual Pell maximum by an additional $1,000. The House also eliminates the recent expansion of income-based repayment and public service loan forgiveness. The loss of the interest payments alone would make student loans cost at least $3,800 more on average for low-income students. The total loss of all these changes is up to $150 billion over the next 10 years.

There are two additional procedural proposals that the conference committee would need to work out which, if agreed to, would have additional negative consequences for student aid policy, especially with the reauthorization of the Higher Education Act on the horizon:

  1. The use of “fair-value accounting”

    The House and Senate have different versions of language directing the Congressional Budget Office (CBO) to use “fair-value accounting” for the scoring of student loans. The House requires the CBO to use “fair-value,” while the Senate recommends its use where practicable. The “fair-value” methodology incorporates a market-based risk factor for student loans not inherent in government accounting. If this method is used, student loans will cost more on the federal government ledger. If this method were adopted, policy changes in the HEA reauthorization could result in increased costs to student borrowers through increased interest rates, or lower loan availability. 
  2. The inclusion of reconciliation instructions.

    The reconciliation instructions included in both resolutions are slightly different. The House includes an instruction for the Education and the Workforce Committee to make changes to legislation that result in $1 billion in savings over 10 years; while the Senate language allows for reconciliation for the repeal of the Affordable Care Act (ACA). While both are being interpreted as place holders for the committee to address ACA issues, if the conference committee agrees to keep reconciliation instructions, it allows the committees to produce legislation that would benefit from the expedited process reconciliation provides, including possible changes to student aid.

How the budget committees resolve these differences will have an impact on the FY 2016 appropriations process, which is expected to begin soon after the budget resolution is finalized, and the HEA reauthorization process, should the procedural elements survive the conference.

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