The Economic Stimulus Bill and Higher Education
Written by Mark Kantrowitz, Publisher, FinAid.org
INTRODUCTION
The US House of Representatives introduced the American Recovery and Investment Act of 2009 (ARIA), also known as the stimulus bill, on Thursday, January 15, 2009. The tax-related provisions were introduced in a separate bill, the American Recovery and Reinvestment Tax Act of 2009 (ARRTA), and the two bills will be combined after markup is complete.
This legislation includes, among other provisions, several improvements in federal student aid programs. These improvements increase the maximum Pell Grant, increase the annual and aggregate limits for the unsubsidized Stafford Loan for undergraduate students, increase funding for the Federal Work-Study program and AmeriCorps and temporarily expand the Hope Scholarship tax credit. The legislation also includes a temporary fix for the Index Rate Mismatch.
EXPECTED TIMELINE
- Thursday 1/15/09 Stimulus bill introduced
- Wednesday 1/21/09 House Appropriations Committee Markup
- Thursday 1/22/09 House Ways and Means Committee Markup
- Wednesday 1/28/09 House Passes Combined Bill
- Tuesday 1/27/09 Senate Appropriations and Finance Committee Markup
- Tuesday 2/3/09 Senate Begins Consideration of House Stimulus Bill
- Sunday 2/15/09 Complete Passage of Stimulus Bill
- Monday 2/16/09 President’s Day
PELL GRANT INCREASES
Funding for the Pell Grant program is based on a combination of discretionary and mandatory funding. Student eligibility is based on the maximum Pell Grant under discretionary funding levels.
ARIA increases discretionary funding for the Pell Grant program by $15.636 billion over two years and increases the maximum Pell Grant under the discretionary funding to $4,860, a $500 increase. When combined with the $490 in mandatory funding enacted by the College Cost Reduction and Access Act of 2009, this yields an overall maximum Pell Grant of $5,350. The increase in the discretionary maximum Pell Grant will likely expand the pool of eligible students by 800,000 students to a total of about 7 million recipients. The increase in discretionary funding is significant because several other federal grant programs, including the Academic Competitiveness Grant and the National SMART Grant, require recipients to be eligible for the Pell Grant .
In addition, ARIA closes a funding shortfall in mandatory funding for the Pell Grant program by adding $643 million for 2009-10 and $831 million for 2010-11, a total of $1.474 billion.
STAFFORD LOAN LIMIT INCREASES
ARIA increases the annual limit for the unsubsidized Stafford Loan for undergraduate students by $2,000 and the aggregate limit (for both dependent and independent undergraduate students) by $8,000. These changes will be effective retroactively for loans first disbursed on or after January 1, 2009. The increased loan limits will not be treated as revenue from Title IV student aid for the 90/10 rule through July 1, 2011.
The following table illustrates the new proposed annual and aggregate loan limits:
|
Stafford Loan Limits for Dependent Students |
||
| Year in School | Unsubsidized Stafford |
Subsidized Stafford |
| Freshmen |
$7,500 |
$3,500 |
| Sophomores |
$8,500 |
$4,500 |
| Juniors and Seniors |
$9,500 |
$5,500 |
| Aggregate Limit |
$39,000 |
$23,000 |
|
Stafford Loan Limits for Independent Students and Dependent Students whose Parents were Denied a PLUS Loan |
||
| Year in School |
Unsubsidized Stafford |
Subsidized Stafford |
| Freshmen |
$11,500 |
$3,500 |
| Sophomores |
$12,500 |
$4,500 |
| Juniors and Seniors |
$14,500 |
$5,500 |
| Aggregate Limit |
$65,500 |
$23,000 |
As previously, the amount of any subsidized Stafford loan is subtracted from the loan limits for the unsubsidized Stafford loan.
CHANGES IN EDUCATION TAX BENEFITS
ARRTA increases the Hope Scholarship tax credit for the 2009 and 2010 tax years to $2,500, a $700 increase. The increases are named the American Opportunity Tax Credit. It allows the tax credit for the first four years of postsecondary education and four tax years, instead of the previous two-year limit. It expands the definition of qualified tuition and related expenses to include course materials in addition to tuition and fees. The legislation also increases the income phaseouts and allows the tax credit as an offset to the AMT. Finally, the tax credit is partially refundable up to $1,000 (40%).
The Tuition and Fees Deduction is not repealed, but instead will be allowed to expire at the end of 2009.
The following table illustrates the differences between the current Hope Scholarship and the American Opportunity Tax Credit.
|
Changes in the Hope Scholarship Tax Credit |
||
| Hope Scholarship Tax Credit |
American Opportunity Tax Credit |
|
| Maximum Credit | $1,800 | $2,500 |
| Credit Computation | 100% of first $1,20050% of second $1,200 | 100% of first $2,00025% of second $2,000 |
| Years Allowed | 2 Years | 4 Years |
| Income Phaseouts | $48,000 to $58,000 (single)$96,000 to $116,000 (joint) | $80,000 to $90,000 (single)$160,000 to $180,000 (joint) |
| Offset AMT | No | Yes |
| Refundable | No | Yes, 40% ($1,000) |
OTHER INCREASES IN STUDENT AID
ARIA increases funding for the Federal Work-Study (FWS) program by $490 million. This yields $613 million in additional funding for FWS when the institutional matching funds are included. This is enough funding for an additional 200,000 recipients.
ARIA also adds $200 million in increased AmeriCorps funding.
TEMPORARY FIX FOR CP-LIBOR DISLOCATION
FFEL program lenders receive special allowance payments on Federal education loans pegged to the 3-month Commercial Paper Rate (CP), but their cost of funds is pegged to the 3-month LIBOR index. However, the Federal Reserve intervened in the Commercial Paper marketplace by establishing the Commercial Paper Funding Facility (CPFF) in October 2008. This caused the CP to no longer be a market rate of return, compressing margins on approximately $300 billion in existing FFELP securitizations. This threatened to destabilize the FFELP industry by eliminating residual income on the securitizations and payments to the lower tranches of the securitizations, potentially leading to widespread downgrades. ARIA includes temporary relief for the CP-LIBOR dislocation by substituting LIBOR – 13 bp for CP in the definition of the special allowance payments for the last quarter of calendar year 2008.
HELPFUL RESOURCES
American Recovery and Reinvestment Act of 2009
American Recovery and Reinvestment Tax Act of 2009
House Appropriations Committee Press Release & Summary of the ARIA
House Appropriations Committee Minority Website’s Fact Sheet
House Appropriations Committe Minority Website’s Press Release
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