Analysis: President Trump Again Proposes Massive Cuts to Student Aid

By Stephen Payne, Policy and Federal Relations Staff

In the "An American Budget" proposal for federal fiscal year (FY) 2019, which affects award year (AY) 2019-20, President Donald Trump again reiterated his support for hard-hitting cuts to the federal student aid programs, similar to the cuts outlined in his budget proposal last year. Congress largely rejected the proposed cuts as they continue to iron out details for final FY 2018 (AY 2018-19) funding.

Below is a more detailed description of how Trump's budget proposal would affect specific student aid programs and benefits.

Pell Grant Program

Trump proposed sufficient funding to support a FY 2019 Pell Grant maximum award of $5,920. Trump proposed  expanding Pell Grant eligibility to "include high-quality short-term programs that provide students with a credential, certification, or license in an in-demand field, with sufficient guardrails in place to balance students' needs with protecting taxpayer interests." The expansion of eligibility will cost approximately $2.1 billion over 10 years.

In the original budget proposal, Trump requested removing $1.6 billion from the Pell Grant surplus, but the recently agreed to budget deal raised domestic spending caps, allowing the administration to axe this provision.

Trump also suggested moving the Iraq and Afghanistan Service Grant program into the Pell Grant program "to ensure the children of our fallen service members receive a full aid award."

Campus-Based Aid Programs

Federal Supplemental Educational Opportunity Grant (FSEOG) Program

Trump again proposed eliminating the FSEOG program entirely. FSEOG was established by the 1972 Amendments to the Higher Education Act of 1965. The program provided $993 million in grant aid to 1.5 million students in award year 2015-16. Since FY 2014, FSEOG has been funded at $733 million annually. To defend the elimination of FSEOG, the Department of Education's (ED) budget summary notes that FSEOG is "largely duplicative of the Pell Grant program and does not deliver need-based aid in the most targeted method."

Congress chose to reject last year's proposed elimination of FSEOG in both the House and Senate appropriations bills for FY 2018.

Federal Work-Study (FWS) Program

For Federal Work-Study (FWS), Trump's proposed funding level of $500 million represents a 49.5 percent cut to the program. In the original budget proposal, Trump requested only $200 million for FWS, which would amount to a devastating 79.8 percent cut to FWS, but a recently agreed to budget deal raised domestic spending caps, allowing the administration to bump up the FWS request level.

In FY 2017, FWS was funded at $989.7 million. The program provided $1,096,080,441 in aid to 634,931 students in the 2015-16 award year. If enacted, this cut would amount to the largest percentage cut and the largest dollar-for-dollar cut in the program's history. Since 1965, FWS funding was cut by more than 10 percent twice: in FY 1973 and in FY 2010, a result of one-time funding increases in the 2009 American Recovery and Reinvestment Act.

Because of the current "base guarantee" component of the campus-based aid allocation formula, which guarantees funds to institutions at the level of their award year 1999-2000 allocation, a large cut to FWS could have dramatically different implications for different institutions. Based on a NASFAA analysis, FWS funding at a level less than approximately $660 million would mean institutions would receive — at most — their base guarantee as their total allocation in award year 2018-19, with no funding for the "fair share" portion. Because the Trump budget proposed funding for FWS at $500 million, if enacted, institutions would receive approximately 75 percent of their "base guarantee" and no "fair share" funds, a potentially devastating cut particularly for those institutions with low "base guarantee" allocations.

The budget expressed support for revising the FWS allocation based "in part on enrollment of Pell recipients" and for targeting FWS to "career or academically relevant" placements. The budget would also eliminate graduate student eligibility for FWS. In 2015-16, 45,018 graduate students received about $115 million in FWS support.

Congress chose to reject last year's proposed cut of FWS in both the House and Senate appropriations bills for FY 2018.

Federal Perkins Loan Program

Trump did not propose an extension of the Perkins Loan Program in his FY 2019 budget.

Direct Loans

Trump again proposed eliminating the subsidy for Federal Direct Loans for undergraduate students. Students would be ineligible for subsidized loans for any first loan originated after July 1, 2019, or until they have completed their "current course of study." Already eliminated for graduate and professional students in 2011, eliminating the in-school interest subsidy will result in an increase to the cost of college by thousands of dollars for undergraduate students with financial need. According to an analysis by the Institute for College Access and Success (TICAS), a student starting school in 2018-19 who borrows the maximum aggregate subsidized loan amount ($23,000) and graduates in five years would enter repayment with $3,400 in additional student loan debt without the in-school interest subsidy.

Repayment

With the same components as last year's budget, Trump proposed consolidating the income-driven repayment (IDR) plans into a single plan: an IDR plan with a discretionary income cap of 12.5 percent and a 15-year repayment term for undergraduates, but a 30-year repayment term for graduate students. The standard repayment cap would be eliminated. The new plan would be the only income-driven repayment option for borrowers who originate their first loan on or after July 1, 2019, "with an exception for students who borrowed their first loans prior to July 1, 2019 and who are borrowing to complete their current course of study." Those borrowers would retain access to the current slate of income-driven repayment options. In addition, the new IDR plan would calculate payments for married borrowers filing separately on the combined household Adjusted Gross Income.

Further, Trump proposed  automatically enrolling "severely delinquent borrowers" in IDR and facilitating for multi-year consent for data-sharing between the IRS and ED.

In addition, Trump proposed eliminating the Public Service Loan Forgiveness (PSLF) Program altogether to "generate savings that help put the Nation on a more sustainable fiscal path." The same grandfathering provisions for the elimination of subsidized loans and the new income-driven repayment plan would apply to PSLF: any borrower who originated his or her first loan before July 1, 2019, would be eligible for PSLF.

Other Provisions

The budget also included language calling for "shared accountability" between the federal government and colleges and universities for repayment of federal student loans. The administration did not spell out its risk-sharing priorities, but noted an interest in "working with the Congress to address these issues."

Furthermore, the budget supported funding for student aid administration to support the Office of Federal Student Aid's (FSA) "Next Generation Financial Services Environment," which will include new mobile phone engagement "for all customer interactions." FSA announced in January plans to move forward with an FSA payment card program pilot. The new student aid ecosystem is also expected to feature a single access portal for students and borrowers.

What's Next?

Fresh off the deal to increase spending levels for the next two years, congressional leaders will now work to finalize funding for FY 2018, which should have been completed by Oct. 1, 2017. Funding allocations should be finalized by March 23, the next deadline for government funding. From there, Congress will begin to consider its own priorities for FY 2019.

For more information on the federal budget and appropriations process, check out NASFAA's Federal Budget and Appropriations page, which features a flowchart that explains the budget process and also includes recent news.

NASFAA encourages all members to join the "Fight for Financial Aid" by liking the campaign's Facebook page, tweeting with #Fight4FinAid, and by sharing campaign links with friends, colleagues, and students.

 

Publication Date: 2/13/2018


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