The Impact of Obama’s Reelection on Federal Student Aid

President Obama’s victory over Mitt Romney in the 2012 election will give the administration four more years to push its ambitious higher education and student aid goals. But the president will certainly face new challenges in his second term.

Perhaps the two biggest challenges Obama will face are a potentially more partisan Congress with fewer moderates and the mounting national deficit that puts all federal spending – including federal student aid – at risk for scrutiny and cuts.

Before Obama even begins his second term, there are three issues impacting student aid that could be addressed by the lame-duck Congress.

First, the across-the-board spending cuts – known as sequestration – are scheduled to take effect in January 2013 before the new Congress convenes. The federal Pell Grant program is protected from these cuts for one year, but spending on campus-based aid programs would be trimmed by the sequestration and loan origination fees on federal Stafford loans would increase.

Second, several higher education tax benefits are scheduled to expire at the end of 2012. Families will be able to claim these benefits when they file their 2012 taxes in 2013. If the lame-duck Congress does not extend these tax benefits, the incoming 113th Congress might need to pass new legislation to ensure students and parents can take advantage of these benefits when they file their 2013 taxes in 2014. It is unclear whether Congress could retroactively pass these tax cuts after January 1. 

Third, the U.S. is expected to reach its debt ceiling before the end of the year. In previous debt ceiling discussions, Republicans in Congress were unwilling to agree to a debt ceiling increase without massive spending cuts.

Whether the president and the lame-duck tackle these issues prior to the next Congressional session or defer these decisions until after, some legislation passed in 2013 is likely to contain several provisions that affect the student aid programs.  

Budget Challenges

During his first term and throughout the campaign, Obama voiced his ardent support of financial aid, particularly Pell Grants for low-income college students. In the first few years as president, he helped push two pieces of legislation to increase federal spending on the student aid programs.

In 2009, Obama signed the American Reinvestment and Recovery Act (ARRA), also known as the stimulus bill, which provided $17 billion to help fill an impending Pell shortfall and $13.5 billion to temporarily replace the HOPE Tax Credit with the more generous American Opportunity Tax Credit.

In 2010, he signed the Health Care and Education Reconciliation Act (HCERA), which eliminated the Federal Family Education Loan Program (FFELP) and diverted most of the projected savings to the Pell Grant program and other higher education priorities.

Like his first term, Obama will likely face another, smaller Pell Grant funding shortfall and the expiration of the higher education tax benefits. Unlike his first term, it appears he will have fewer options to increase funding for his student aid priorities through stimulus legislation or savings derived from changes to the federal student loan programs.

This could make maintaining funding for the student aid programs a bigger challenge in his second term. Indications of this challenge were seen in Obama’s final year of his first term, when he signed three bills that trimmed spending on federal student aid programs by tightening eligibility criteria. 

Despite these challenges, Obama is expected to maintain his vocal support for student aid funding, but a lack of funding and a more divided congress could impede his ability to maintain or increase funding for student aid.

Containing College Costs

In addition to increasing student aid, Obama hopes to help slow increasing college costs. The president has said his goal is to reduce the rate of tuition growth by half over the next decade. 

He has articulated a plan to use campus-based financial aid programs as a reward to colleges and universities that keep down tuition prices, but this plan gained little traction in congress.  As part of this plan, Obama has pushed for major changes to the federal Perkins Loans, which provides money to colleges to lend to qualified students. The plan called for another $8 billion in Perkins Loans that would be doled out to institutions that kept tuition in check while enrolling and graduating low-income students.

Despite the lack of support in Congress, Obama will likely look to use federal student aid funds as a reward to colleges that provide “good value” to students, including “quality education and training that prepares graduates to obtain employment and repay their loans,” as outlined in a White House statement on the president’s goals. 

In the first term, the Obama administration had more success pursuing these goals through the regulatory process, which bypassed congress. The administration successfully enacted a host of “Program Integrity” regulations aimed at restricting certain colleges’ access to federal financial aid funds if they fail to meet certain performance criteria like preparing students for gainful employment. The fate of gainful employment regulations is still unclear given recent court decisions that have called into question the measures used to determine whether a student is “gainfully employed.” 

Consumer Information

In his first term, Obama launched an aggressive campaign to improve consumer information to help students and parents make more informed higher education and student loan decisions. These initiatives have included the Shopping Sheet, Scorecard, and College Cost Comparison Worksheet. The administration is expected to continue efforts to improve consumer information during Obama’s second term. Unlike other initiatives, consumer information appears to have Congressional interest. 

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