Higher Education Funding in President Obama’s FY 2011 Budget

higher-education-fundingOn February 1, 2010, President Obama released his budget proposal for Fiscal Year 2011, including proposals for changes in federal student aid programs. The federal government’s fiscal year runs from October 1 through September 30, so this budget proposal is for the fiscal year starting October 1, 2010. Congress can vary from the President’s proposals as it drafts the appropriation bills.

The President’s budget includes the following provisions:

Student Aid and Fiscal Responsibility Act of 2009

Supports the Student Aid and Fiscal Responsibility Act of 2009 (SAFRA), which has passed the House but is still pending in the Senate. This legislation includes a switch to 100% direct lending, indexing the Pell Grant to CPI + 1%, the four-fold increase in Perkins loan funding, and the $3.5 billion College Access and Completion Fund.

Pell Grants

Increases the maximum Pell Grant by $160 to $5,710 in 2011-12, with the maximum grant indexed to CPI + 1% thereafter. A total of $34.878 billion in funding will be awarded to 8,743,000 students with an average grant of $3,984 (up from $3,865 in 2010 and $3,646 in 2009). Proposes making the Pell Grant a true entitlement with 100% mandatory funding.

Flat Funding of Some Programs

Flat funds SEOG, FWS, TRIO, Upward Bound, GEAR UP, Javits fellowships, GANN, Thurgood Marshall Legal Educational Opportunity Program, and Child Care Access Means Parents in School.

Note that the American Recovery and Reinvestment Act of 2009 (stimulus bill) included $200 million for FWS that was a one-time event.

Eliminates Some Programs

Eliminates LEAP, Byrd scholarships, B.J. Stupak Olympic Scholarships, and loan repayment for civil legal assistance attorneys. (As part of the Perkins loan reengineering, subsidized interest and loan cancellation provisions for the Perkins loan program will be eliminated.)

TEACH Grants

TEACH grant funding will increase to $93.2 million from $79.8 million. The Department estimates 80% of TEACH grants will not fulfill their service requirements, and treats the TEACH grants as a 100% forgivable loan on its books.

Sunsets Some Programs

The Academic Competitiveness and National SMART Grants sunset at the end of 2010-11 and will not be extended.

Direct Lending

The budget estimates the savings from 100% Direct Lending at $45.6 billion through 2020, down slightly from OMB’s previous estimate of $47.5 billion. (OMB’s estimates are closer to reality than CBO’s estimates. But the fact that OMB’s estimate did not change much suggests that any CBO rescoring of SAFRA is unlikely to change by much.)

The following table shows the percentage distribution of loan volume in 2008-09 and 2009-10, derived from the budget’s figures.

Fiscal Years DL FFEL ECASLA
2008-09 24% 12% 64% (ECASLA 84% of FFEL)
2009-10 34% 15% 51% (ECASLA 77% of FFEL)
SUM 30% 13% 57%

So the US Department of Education funded 88% of federal education loans in 2008-09 and 85% in 2009-10, 87% overall.

The budget projects a lower life of loan overall default rate in the Direct Loan program than in the FFEL program for 2010 for the first time, 16.81% vs 17.77%. These figures probably include the ECASLA loans with the DL loans.

Total new federal education loan volume, not including consolidation loans, will exceed $100 billion for the first time in FY2010.

American Graduation Initative

American Graduation Initiative to improve and modernize community colleges with the goal of graduating 5 million more students by 2020. Provides $10.6 billion in funding over 10 years.

Income-Based Repayment Program

Modifies the income-based repayment program by changing the percentage of discretionary income from 15% to 10% and the loan forgiveness from 25 years to 20 years. (Public service loan forgiveness remains unchanged at 10 years.)

Education Tax Credits

Although they are not part of the US Department of Education’s budget, provides FY2011 estimates for the Hope Scholarship tax credit ($11.4 billion), Lifetime Learning tax credit ($3.4 billion), and student loan interest deduction ($1.1 billion).

Total Funding

Total funding for student aid is $173 billion.

The following table compares the proposals for major student aid programs with actual appropriations for FY2009 and estimated appropriations for FY2010. (Although Congress is supposed to pass the budget before the start of the fiscal year, some of the spending bills are still pending.)

Total Aid FY2009
Actual
FY2010
Estimated
FY2011
Requested
Pell Grant $28.213B $32.295B $34.834B
SEOG $958.8M $958.8M $958.8M
FWS(*) $1.417B $1.171B $1.171B
LEAP $161.6M $161.6M
AC Grants $503.0M $548.0M
SMART Grants $361.0M $384.0M
FFELP $66.778B $35.234B
Direct Loans $29.738B $73.529B $116.393B
Perkins Loans $1.106B $1.042B $2.603B
TEACH Grants $72.3M $79.8M $93.2M
* FWS for FY2009 includes $200M of stimulus funding.

Additional details can be found on pages 382-406 of the education appendix to the President’s budget. Material of special interest includes summaries of the aid funds available, number of aid awards and average aid awards on page 383, and loan volume, number of loans, average loan size, default rates, and program cost rates on pages 391-393.

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Mark Kantrowitz is Publisher, FinAid.org