CBO Suggests Cuts to Federal Student Aid Programs to Reduce Budget Deficit

By Joelle Fredman, NASFAA Staff Reporter

The Congressional Budget Office (CBO) released a report Thursday with suggestions for measures Congress could take to reduce the federal budget deficit by 2029, which included a handful of reductions and cuts to federal student aid programs such as the Pell Grant and Public Service Loan Forgiveness (PSLF) programs.

Similar proposals have been offered in the past and have not come to fruition, and the final fiscal year 2019 appropriations bill signed into law by President Donald Trump in October—which actually included boosts to the Pell Grant program—signals that Congress does not currently want to cut funds from higher education.

However, CBO wrote in its report regarding the $779 billion budget deficit that “to put the federal budget on a sustainable long-term path, lawmakers would need to make significant policy changes—allowing revenues to rise more than they would under current law, reducing spending for large benefit programs to amounts below those currently projected, or adopting some combination of those approaches.”

Among hundreds of other suggestions to make cuts to programs from various departments, CBO wrote that removing the add-on to the maximum Pell Grant award—which is mandated in the Higher Education Act (HEA) and increased the maximum award by $1,060 for award year (AY) 2019-20 to $6,195—would save the government $62 billion over the next decade and reduce the number of recipients by 3 percent, or by 275,000 students, each year. Alternatively, CBO suggested cutting the mandatory add-on by half, which would make the maximum Pell Grant $5,665 for AY 2019-20, would save the government $31 billion and reduce the number of recipients by 2 percent.

“A few studies suggest that some postsecondary institutions have responded to past increases in the size of Pell Grants by raising tuition or shifting more of their own aid to students who did not qualify for Pell Grants,” CBO wrote. “An argument for reducing the maximum Pell Grant, therefore, is that institutions might become less likely to raise tuition and more likely to aid students who had lost eligibility for a Pell Grant or who were receiving a smaller Pell Grant.”

CBO warned that under this proposal, however, Pell Grants would be reduced across the board regardless of individual need, and “targeted reductions in grants might be more effective in protecting one of the program’s goals: boosting the educational attainment of students from the lowest-income families.”

To further cut spending, CBO also suggested two options for reducing the loan forgiveness granted to graduate borrowers by adjusting the qualifications for enrolling in Income-Driven Repayment (IDR) plans. CBO wrote that Congress could increase the percentage of income these borrowers pay from 10 percent to 15 percent or increase the repayment period from 20 years to 25 years. These options, according to CBO, would save the government $16 billion and $12 billion, respectively, and “both alternatives would encourage prospective borrowers who use an IDR plan to limit their borrowing because the cost of repaying the loan would increase.”

In addition, CBO suggested either cutting the PSLF program or capping the forgiven amount at $57,500—with the ability for borrowers to enroll in IDR plans for the remaining debt with the potential to receive loan forgiveness again—which would cut costs by $22 billion and $9 billion, respectively. The House Republicans’ bill to reauthorize the Higher Education Act (HEA) proposed to cut PSLF, however, it is unclear what will happen with regards to the bill under the 116th Congress.

CBO also recommended either restricting subsidized loans to undergraduate borrowers who also receive Pell Grants or eliminating the option altogether. By doing so, CBO wrote, “the direct loan program would produce $18 billion in budgetary savings from 2019 to 2028,” and limiting the program would bring in additional savings of $7 billion, and cutting it would bring in $22 billion.

Finally, CBO suggested either removing the interest rate cap on graduate loans and Parent PLUS loans or for all federal student loans—reducing costs by $11 billion and $16 billion, respectively. Without caps, CBO explained, interest rates for student loans would be higher for undergraduate borrowers “if the 10-year Treasury note rate was higher than 6.2 percent or for graduate and parent borrowers if it was higher than 5.9 percent.”


Publication Date: 12/17/2018

James C | 12/17/2018 9:10:21 AM

Rather than across the board Pell cuts, consider eliminating the less than half time Pell, eliminating year round Pell and capping it at 5 years rather than 6. It is absurd to think institutions raise tuition because of a nominal increase in Pell grants.

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