PROSPER Act Results in Net Loss in Student Aid, CBO Analysis Shows

By Stephen Payne, NASFAA Policy & Federal Relations Staff 

The Congressional Budget Office (CBO), the non-partisan accounting arm of Congress, released a cost estimate on Tuesday for the PROSPER Act, the House Republicans' Higher Education Act (HEA) reauthorization bill. In total, the bill, if enacted as written, would result in a net loss in student aid of approximately $7.4 billion over 10 years.

CBO’s analysis considers the vast number of provisions in the PROSPER Act and estimates how those provisions will affect student and institutional behavior, which will ultimately affect the usage of funds in the federal student aid programs. Each provision is “scored,” meaning the provision is categorized as a new “cost” or as a new “savings” to the federal government. Many provisions in the bill affect institutional eligibility or student eligibility, which may have a variety of ramifications on estimated participation in the student aid programs, thereby potentially increasing or decreasing the costs in each program. Recently, CBO released a report outlining its process for providing cost estimates for legislation.

CBO splits its estimates into two buckets: programs subject to annual appropriations (so-called “discretionary” programs) and programs that operate outside of the annual appropriations process (often called “mandatory” or “direct spending” programs). Federal Work-Study (FWS), the Federal Supplemental Educational Opportunity Grant (FSEOG), and about 80 percent of each Pell Grant are all discretionary programs, while all student loan and repayment programs, the TEACH Grant, and the remaining portion of the Pell Grant are mandatory. 

CBO estimates $14.6 billion in savings to the federal government from the changes to mandatory programs in the PROSPER Act over 10 years. The elimination of Public Service Loan Forgiveness (PSLF), elimination of subsidized loans for undergraduates, and modification to loan forgiveness benefits generate the most amount of new money for the federal government. To a lesser degree, the elimination of origination fees and creation of a new Pell Grant bonus for students enrolled in 15 credits or more in a semester are new costs to the federal government in the bill.

Under current accounting methods, federal student loans generate revenue for the federal government. Because the PROSPER Act lowers caps for parent and graduate student borrowers by eliminating the PLUS Loan Program, thereby decreasing borrowing, CBO estimates these changes to result in $9.2 billion in new costs to the federal government over 10 years, creating what amount to new costs for the federal student loan programs, without benefiting students. Removing these costs that do not benefit students from CBO’s estimate brings the amount of lost aid dollars in the mandatory programs closer to $23.8 billion. 

On the discretionary side, the PROSPER Act proposes to eliminate FSEOG and redirect those funds into FWS, resulting in a net neutral for campus-based programs, but the several student and institutional eligibility changes could mean increased participation in the Pell Grant program, potentially increasing aid dollars in Pell by $16.8 billion. The bill also includes a small cut to the proposed funding level for TRIO. Additional dollars spent on student aid for discretionary programs amounts to about $16.3 billion based on NASFAA’s analysis of CBO’s estimate.

Combining the $23.8 billion hole created in the mandatory programs with the $16.3 billion increase in costs in the discretionary programs results in a net loss in the student aid programs of approximately $7.4 billion over ten years.

In a letter to the House education committee in December, NASFAA noted financial aid administrators cannot support a bill that results in a net loss in student aid dollars. “NASFAA firmly believes all savings generated from program eliminations must be reinvested into other student aid programs,” the letter said.

NASFAA will continue to highlight positive and concerning provisions in the bill with members of Congress and staff, but with Rep. Virginia Foxx (R-NC), chairwoman of the House Committee on Education and the Workforce, aiming to pass the PROSPER Act through the full House as early as March, NASFAA members are strongly encouraged to provide any and all feedback on how the PROSPER Act’s provisions will affect their institution to their representatives and senators as soon as possible. Learn more about PROSPER Act advocacy in this Today’s News article from January.


Editor's Note: A previous version of this article included an initial estimate of the potential net loss in student aid under the PROSPER Act. This article has since been updated to reflect subsequent NASFAA analysis of the CBO cost estimate.


Publication Date: 2/9/2018

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