NAICU Washington Update

President’s Budget Proposes Cuts to Student Aid

February 13, 2020

Similar to past proposals, President Trump’s FY 2021 Budget Request to Congress proposes deep cuts to student aid, including freezing the maximum Pell Grant award, eliminating Supplemental Educational Opportunity Grants (SEOG), and slashing Federal Work Study. 
If Congress reacts to the president’s budget as it has in past years, the proposal will be rejected in favor of a bill similar to its year-end spending bill.  That bill, which passed in Congress with bipartisan support, includes significant increases for the student aid programs.
In total, the administration’s budget includes $170 billion in cuts over 10 years to the student loan programs, and $2 billion in cuts to the annual appropriated student aid programs. This is against a backdrop of a $4.8 trillion total budget for annual and entitlement spending and a $1 trillion deficit.  
Annually-Funded Student Aid Programs
The budget proposed for the Department of Education keeps the Pell Grant maximum flat at $6,345 and expands eligibility for students who are in short-term programs and those who are incarcerated.  The proposal would also bring the Iraq and Afghanistan Service Grants into the Pell Grant program. These expansions would add an estimated 250,000 Pell recipients to the program, yet Pell Grant funding will remain flat. 
Rationalizing that SEOG is duplicative with the Pell Grant program, the budget request eliminates SEOG and its $865 million in funding entirely. 
Federal Work Study funding is cut by $680 million, which is more than half the program. Additionally, reforms are proposed to use the program for workforce and career-oriented training opportunities at institutions with high Pell enrollment.
TRIO is cut by $140 million and GEAR UP funding is eliminated ($365 million), while their activities are consolidated into a State Student Support Block Grant.
Citing graduate education as a personal benefit, and not a federal priority, the budget eliminated all funding ($23 million) for the Graduate Assistance in Areas of National Need (GAAN) program.
Student Loan Proposals
Proposals for changes to the student loan programs combined would “save” the federal government $170 billion over 10 years.  The “savings” translates to either higher costs for students or limited access to borrowing from the federal programs.  Because student loans are an entitlement program, and not funded annually, these proposals would need to be enacted through the Higher Education Act reauthorization process or a budget reconciliation process.
Specifically, the budget proposes:
  • Eliminating subsidized loans for low-income students.
  • Eliminating Public Service Loan Forgiveness.
  • Limiting graduate student borrowing.
  • Creating a single Income-Driven Repayment plan.
  • Eliminating the standard repayment cap.
Office of Federal Student Aid
The budget also includes funds to continue modernizing the Office of Federal Student Aid by reorganizing it as a separate agency with a board of governors that includes financial services experts.  The budget includes a $114 million increase ($1.9 billion total) for the Student Aid Administration to both administer federal student aid and evaluate the possibility of a reorganization to consolidate nine loan servicers and four loan servicing platforms, upgrade cybersecurity, and improve customer service.
Budget watchers expect the administration’s budget proposal to be “dead on arrival” in Congress.  Among other features, the budget utilizes the full new $741 billion cap for Defense, but does not reach the Nondefense spending cap of $627 billion.  Instead, it cuts $37 billion from Nondefense programs.
Congressional appropriators from both parties will not want to leave money on the table in an election year. Having just agreed to new spending caps in August, the outlook for the FY 2021 bills is that Congress will write them at the cap levels for both Defense and Nondefense spending.

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