The Bush Administration issued a $3.1 trillion budget request for the 2009 Fiscal Year that proposes increasing funding for the Pell Grant and eliminating 47 Education Department programs including the Perkins Loan program. The request would provide $138 billion in federal student aid grants and loans for 10.9 million students and parents in 2009.

The 2009 request increases Pell Grant program discretionary funding by $2.6 billion over the 2008 level, setting the maximum Pell grant at $4,310. When combined with the $490 in new mandatory funds provided for Pell through the College Cost Reduction and Access Act (CCRAA) the maximum award would be $4,800.

The budget request also proposes terminating 47 education programs to create almost $3.3 billion in budget savings. Student aid programs targeted for elimination include Byrd Honors Scholarships, Federal Perkins Loans Cancellations, and Federal Supplemental Educational Opportunity Grants (FSEOG). Previous attempts by the administration to eliminate these programs have failed.

The budget proposes to limit eligibility for the public-sector employee loan forgiveness programs to those with loans originated on or after July 1, 2009. Under current law this loan forgiveness is available for all borrowers, regardless of when their loans were originated. The budget request also proposes to eliminate the interest subsidy under the income-based repayment plan because "similar subsidies are already available through economic hardship and unemployment deferments."

The 2009 request promotes savings for college by providing a 50 percent tax credit for the first $2,000 that moderate- and low-income parents invest annually in a 529 tuition-savings account. The credit ranges between 10 and 50 percent of the amount contributed, depending on the taxpayer's filing status and adjusted gross income (adjusted for inflation).

The budget request also proposes a new loan program for short-term training. The program would be jointly administered by the Departments of Education and Labor to help dislocated, unemployed, transitioning, or older workers and students acquire or upgrade specific job-related skills through short-term training programs.

"The budget process is one where we must balance process and priorities and I believe this budget does that for education," Education Secretary Margaret Spellings said in a press release. "In addition to Reading First, I am pleased the budget calls for increased funding for Pell Grants, Title I, and IDEA. All of these programs are essential to ensuring that our children not only have access to a rigorous education, but one suited for the global economy. I hope Congress acts to fund these important programs at the level requested by the President."

However, Democrats in Congress were critical of the budget proposal, suggesting that another budget showdown is likely this year. Because Democrats control Congress, they are unlikely to enact many of Bush's budget proposals.

"[Bush] proposes misguided, anti-student policies in the loan programs that take away new benefits for student borrowers enacted last year," Senate education committee Chairman Edward Kennedy (D-MA) said in a press release. "His proposals would cut critical assistance for borrowers in low paying jobs struggling to repay their loans and dramatically cut the number of individuals eligible for public service loan forgiveness."

The following details the Bush Administrations proposals for federal student aid programs.

Loan Program Costs

The budget request notes that the cost estimates for the FFEL and Direct Loan programs have changed due to the CCRAA. This legislation decreased FFEL program cost estimates and increased Direct Loan program cost estimates. The FY 2009 budget request shows that the total estimated subsidy cost (including administrative costs) for FFEL Stafford, PLUS and Consolidation loans made in FY 2008 is 1.44 percent (the lifetime cost of these loans is 1.44 cents for each dollar loaned), compared to 2.26 percent for Direct Loans. However, consolidation loans make FFEL cost estimates lower than Direct Loan cost estimates. Roughly half of Direct Loan consolidation volume is from underlying defaulted loans, which increase the cost estimate because these loans are much more likely to default again. The total estimated subsidy costs for just Stafford and PLUS loans in FY 2008 is 4.61 percent in FFEL, compared to .37 percent in the Direct Loan program.

Pell Grants

The request includes $16.9 billion in discretionary funding and $2.1 billion in mandatory funding to support a maximum award of $4,800 for award year 2009-2010. The $2.6 billion discretionary increase proposed for 2009 primarily reflects updated cost estimates for the Pell Grant program as well as a small increase needed to restore the discretionary share of the maximum Pell Grant to $4,310. The 2009 request increase sets the Pell Grant program back on the 5-year path to a $5,400 maximum award in award year 2012-2013, as envisioned in the President's 2008 Budget proposal and implemented by the College Cost Reduction and Access Act.

The Administration also plans to work with Congress to increase the program's effectiveness and improve its overall operation. Accordingly, the 2009 request includes the following proposals:

• Pell Grants would be made available year-round at eligible 2- and 4-year degree granting institutions, giving students a more convenient option for accelerating their studies and promptly completing their education.

• As a further incentive for timely completion, and to eliminate an area of potential abuse, Pell Grant eligibility would be limited to the equivalent of 16 semesters.

• To ensure Federal Pell Grant funds are properly used, the Department and the Internal Revenue Service continue to implement a consent-based approach to matching applicant data reported on the Free Application for Federal Student Aid with Federal tax data.

ACG/SMART Grants

All funding for these programs is mandatory, so annual discretionary appropriations are not required. The Administration said it is working with States and postsecondary institutions to increase demand for these programs, but participation trends during the first two years indicate that future funding will substantially exceed the amounts needed to support anticipated grant awards. Congress rescinded $525 million in unneeded ACG/SMART balances in 2008 and the Administration proposes to cancel an additional $652 million in unneeded balances in 2009. In the 2009-10 academic year the Administration estimates there will be 84,000 new ACG recipients (a 15 percent increase) and 6,000 new SMART grant recipients (an 8 percent increase) compared to the prior year.

TEACH Grants

For budget and financial management purposes, this program will be operated as a loan program with 100 percent forgiveness of outstanding principal and interest upon completion of a student's service requirement. The Administration currently estimates approximately 80 percent of participating students will not complete the required service and thus will have their grants converted to Direct Unsubsidized Stafford Loans. Budget authority for this program reflects the estimated net present value of all future non-administrative Federal costs associated with awards made in a given fiscal year. Re-estimates of prior-year costs will be performed each year beginning in fiscal year 2009.

Loans for Short-Term Training

This proposed new loan program provides up to $5,000 in loans for dislocated, unemployed, transitioning, or older workers and students to acquire or upgrade specific job-related skills through short-term training programs. These programs are usually shorter than 10 weeks and are not currently eligible for Federal student aid. Eligible programs for the new loans must lead to an industry credential or certificate, or to employer-endorsed technological/occupational skills. This program is expected to provide over $362 million in loans to 377,000 recipients in FY 2009.

Perkins Loan Revolving Funds

The Administration is proposing to recall the Federal portion of the Perkins Loans revolving funds currently held by participating institutions, which will total $4.2 billion over fiscal years 2009-2013. The Administration believes the Perkins Loan program is ineffective, redundant, and poorly targeted.

Tax Benefits

In 2009, students and families will save an estimated $3.6 billion under the HOPE tax credit, $2.3 billion under the Lifetime Learning tax credit, which allows a credit of up to $2,000, and $830 million in above-the-line deductions for interest paid on postsecondary student loans. The 2009 request also promotes savings for college by providing a 50 percent tax credit for the first $2,000 that moderate- and low-income parents invest annually in a 529 tuition-savings account. The credit ranges between 10 and 50 percent of the amount contributed, depending on the taxpayer's filing status and adjusted gross income (adjusted for inflation).

Work Study

The Administration provides $1.17 billion in FY 2009 the same amount as in FY 2008.

Federal TRIO Programs

The request for 2009 would maintain level funding for these college preparation and student support programs, which would serve an estimated 830,000 middle school, high school, and college students and adults. Of the four TRIO programs reviewed by the Program Assessment Rating Tool (PART), Student Support Services, Talent Search, and McNair received Moderately Effective ratings. The Upward Bound program received an Ineffective rating, but has implemented changes that address program deficiencies by better targeting funds to higher-risk students. The request also includes funding for Staff Training grants, evaluation, and administrative support for the TRIO programs.

Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP)

Several features of GEAR UP, including targeting entire grades of students, partnering with local organizations and businesses, and matching local contributions, allow projects to serve increasing numbers of students at the same level of Federal support. The request maintains funding at the 2008 level and would serve approximately 743,000 middle and high school students in fiscal year 2009.

The GEAR UP program received a PART rating of Adequate in 2003 based on evidence that the program employs a number of strategies that hold significant promise for success in college preparation. An evaluation on the early effects of the GEAR UP program highlights the positive impact of the program on participants attending middle schools, their parents, and middle schools housing GEAR UP programs.

Javits Fellowships

The requested 3.3 percent increase over the 2008 appropriation would begin to stop the long-term decline in the number of fellowships awarded. The request would support 225 fellowships in 2009, including 66 new fellows. The program received a PART rating of Adequate in 2004 based on data showing that its performance exceeded targets and that the program is on track to achieve program goals related to time-to-degree completion and graduation rates.

Graduate Assistance in Areas of National Need (GAANN)

Increased funding is requested to stop the long-term decline in the number of fellowships awarded under the program. In addition, $2 million would be used to address acute shortages in the field of psychometrics that have hampered implementation of certain aspects of the NCLB Act. The 2009 request would provide support for 747 fellowships, including 529 new fellows. Following an initial PART rating of Results Not Demonstrated in 2004, a 2006 reassessment of the GAANN program highlighted improvements in program management and performance supporting an Adequate rating.

The following table shows proposed funding levels in the president's 2009 budget request.

2009 Aid Available to Students ($ in millions)