Obama's 2013 Budget Request Makes Student Aid and College Affordability Top Priorities

President Obama's fiscal year (FY) 2013 Budget Request to Congress includes a maximum Pell Grant award of $5,635 for the 2013-14 award year, a one-year extension of the 3.4% interest rate on Subsidized Stafford Loans and a permanent extension of the American Opportunity Tax Credit.

Director of the White House's Domestic Policy Council Cecilia Munoz explains the higher education proposals in Obama's 2013 Budget Request 

"The 2013 budget includes a combination of discretionary and mandatory funding that would make available $165 billion in new grants, loans, and work-study assistance -- an increase of more than $67 billion, or 69 percent, over the amount available in 2008 -- to help more than 15.2 million students and their families pay for college," according to a summary of the budget request issued by the U.S. Department of Higher Education.

Regarding student aid and higher education, Obama's budget requests Congress to:


  • Maintain a maximum Pell Grant award of $5,635 for the 2013-14 award year. 
  • Replace the TEACH Grant with a new Presidential Teaching Fellows program that would be funded with $190 million in mandatory funding. This program would provide formula grants to states to fund up to $10,000 in scholarships for students attending "high-performing" teacher preparation programs. Students would receive scholarships of up to $10,000 to cover the cost of program participation for the final year of their teacher preparation program.

Federal Loans

  • Extend the 3.4% interest rate on undergraduate Subsidized Stafford student loans for one year. This would prevent the interest rate from doubling to 6.8 % this July 1.
  • Eliminate the interest subsidy for borrowers who remain in-school beyond 150 percent of their program length. This would save $1.8 billion over ten years that will be used to help fund Pell Grants
  • Change guaranty agency compensation for rehabilitating defaulted loans by eliminating their current retention share of the original defaulted student loan amount, and reducing to 16 percent the fee they can charge a borrower on outstanding balances.  If a guaranty agency is unable to locate a private sector lender willing to purchase a rehabilitated loan, the guaranty agency will send the loan to the Department of Education.  The guaranty agency would continue to earn a 16 percent collection fee. The administration estimates that this would save $3.4 billion over 10 years to be invested into the Pell Grants.

Campus-Based Aid

  • Double the number of federal work-study jobs over the next five years.
  • Expand the Perkins Loan Program from $1 billion to $8.5 billion a year. Reform the program by increasing the interest rate from 5% to 6.8 %. The White House estimates that the expanded program would support Perkins Loans at up to 2,700 additional schools.
  • Reform federal campus-based aid programs to shift aid away from colleges that fail to keep net tuition down, and toward those colleges and universities that do their fair share to keep tuition affordable, provide good value, and serve needy students well. The budget doesn’t include many specifics about this proposal.

Tax Benefits

  • Permanently extend the American Opportunity Tax Credit (AOTC) -- a partially refundable tax credit worth up to $10,000 per student over four years of college. AOTC benefits more than 9 million students and their families.

Access and Affordability Proposals

  • Create incentives for states and colleges, mirrored after the K-12 Race to the Top initiative, to keep costs under control through a $1 billion investment in a new challenge to states to spur higher education reform focused on affordability and improved outcomes across state colleges and universities.
  • Create a new $55 million initiative to increase college access and completion and improve educational productivity through an evidence-based grant competition, up to $20 million of which will go directly to minority serving institutions.
  • Provide $30 million for a new competitive grant program, Hawkins Centers of Excellence, to improve and expand teacher education programs at minority-serving institutions, a significant pipeline for preparing a diverse teaching force; and $9 million to promote post-baccalaureate programs for Hispanic-Americans.
  • Fund a new initiative designed to improve access to job training across the nation to support state and community college partnerships with businesses to build the skills of American workers to give them the skills employers explicitly need.

It is important to remember that the release of the President’s Budget Request is just the beginning of the budget process. Congress will debate these proposals and must go through the appropriations process--a process which typically alters, sometimes significantly, the president's original proposal. Many are already predicting that the contentious FY 2013 budget debate in Congress won't be resolved until the lame-duck session after Election Day in November.

Obama's higher education proposals sparked criticism by Republican lawmakers.

"The slew of proposed changes to higher education policy raises concerns about price controls and unnecessary confusion in student loan programs," said House Committee on Education and the Workforce Chairman John Kline (R-MN) in a statement.

"Financial aid administrators appreciate that President Obama continues to make college access and affordability a top priority," said NASFAA President Justin Draeger. "Proposals that keep interest rates low, provide more funding to students, and encourage a shared commitment to college affordability are welcome discussions after multiple years of student aid cuts."

However, Draeger also expressed some concerns about Obama's proposals. Regarding the one-year extension of the 3.4% interest rate on Subsidized Stafford loans, Draeger urged policy makers to  a find a permanent, sustainable solution to providing low-cost, predictable federal loans to students and parents.

Regarding the proposal to distribute campus-based aid to campuses that keep costs down, Draeger said. "While we embrace the concept of shared accountability and responsibility in keeping the costs of college down, it must be done in a way that does not impede institutional freedom or unfairly penalize schools that serve diverse student populations."


Compare Obama's 2013 Budget to 2011 and 2012 Enacted Funding Levels >> 


Publication Date: 2/13/2012

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