In his fiscal year (FY) 2021 budget proposal, which would impact award year 2021-22, President Donald Trump offered a slew of new policy proposals aimed at setting loan limits for students and parents and restructuring the Office of Federal Student Aid (FSA), alongside significant cuts to federal student aid programs — part of an overall $5.6 billion cut to the Department of Education (ED).
Among other things, the proposal — "A Budget for America’s Future" — recommends regular loan counseling, consolidating income-driven repayment plans, and continued support for expanding Pell Grants to more learners. The budget also included deep cuts to student aid programs that have been part of past years’ proposals — eliminating the Public Service Loan Forgiveness (PSLF) and Federal Supplemental Educational Opportunity Grant (FSEOG) programs, cutting in half funding for the Federal Work-Study (FWS) program, and eliminating subsidized federal student loans.
“The spending cuts in the president’s proposed budget would devastate student access and success in postsecondary education, and should continue to be rejected outright by Congress, as has been done in previous years,” said NASFAA President Justin Draeger. “But this year’s budget also puts forth several ideas worthy of further consideration, such as giving financial aid administrators the authority to limit student loans in certain circumstances, allowing incarcerated individuals the opportunity to receive federal aid to pursue higher education, and bringing much-needed oversight to [FSA]. We are intrigued by proposed changes to borrowing limits and look forward to future conversations on those topics. We look forward to working with Congress and the administration on those ideas, while disregarding the short-sighted cuts to vital student aid programs.”
Education Secretary Betsy DeVos said in a statement that the budget proposal “is about one thing — putting students and their needs above all else,” touting the changes to FSA — evaluating whether the office should exist as a stand-alone agency with “reformed governance” — and its overhaul of the federal student loan system, the Next Generation Financial Services Environment (NextGen).
"FSA has, in recent years, essentially ballooned into a $1.5 trillion bank that has outgrown its current governance structure. Students and their families deserve better from FSA,” DeVos said in a statement. “In the meantime, we're continuing to build on our important customer-centric Next Generation reforms. Through a singular FSA platform, operating system, and unified website, we will provide customers with a seamless student loan experience from application through repayment. We're also providing students with more information than ever before so they can make better decisions about how they finance their education."
Rep. John Yarmuth (D-Ky.), chairman of the House Budget Committee, said ahead of the budget’s official release that Congress “will stand firm against this President’s broken promises and his disregard for the human cost of his destructive policies.”
“Just six short months ago, the President signed a bipartisan two-year budget deal into law but now, the President is apparently going back on his word,” Yarmuth said in a statement. “Instead, he is proposing deep cuts to critical programs that help American families and protect our economic and national security.”
Other higher education associations and advocacy groups were quick to denounce the cuts included in the proposal.
James Kvaal, president of the Institute for Student Access & Success said the budget “fails the millions of students who are struggling to pay for college,” but that students can be comforted in knowing that Congress will reject its substantial cuts to aid programs.
“While re-prioritizing student aid spending could make college more affordable for students who need it most, the Trump budget cuts our overall investment in college affordability by $170 billion,” Kvaal said in a statement. “...Students can console themselves that this budget is here today, gone tomorrow. In fact, Congress is now considering substantial increases in student aid. The deep cuts proposed in this budget should be quickly forgotten.”
Peter McPherson, president of the Association of Public and Land-grant Universities (APLU) said the budget would "hurt students who rely on student aid to enable access and succeed in higher education," pointing to the elimination of FSEOG and cuts to the FWS program.
"These programs provide an essential ladder to economic opportunity for students. The proposal would significantly increase costs to students of earning a college degree, jeopardizing access and completion," McPherson said in a statement.
Changes to Federal Student Loans
Borrowing Limits, Loan Counseling
Trump proposed to limit the amount of loans graduate students and parents of students can borrow to fund their education. Specifically, the budget includes an annual cap of $50,000 on Grad PLUS Loans, and an aggregate cap of $100,000. In a 2017 white paper on graduate and professional loan limits, NASFAA recommended limiting Grad PLUS borrowing to $30,000 annually, and requiring that anything over that figure be subject to underwriting. Trump also proposed “consolidating all graduate borrowing under one graduate loan program with the same corresponding loan terms and conditions as current Graduate PLUS Loans,” which is also similar to what NASFAA recommended in its white paper. A single loan program for graduate and professional students, NASFAA wrote, “will allow financial aid administrators to focus on educating students about making prudent budgeting and borrowing choices rather than explaining the often minor differences between the existing borrowing and repayment options.”
Trump proposed to cap aggregate Parent PLUS Loans at $26,500, the difference between what dependent and independent students are eligible for ($31,000 and $57,500, respectively). Depending on their parents’ eligibility for borrowing, some dependent undergraduates may be eligible to borrow an additional amount, up to the independent undergraduate limit.
Trump also proposed to allow financial aid administrators the authority to set loan limits for their students — which NASFAA has supported. Trump wrote in the budget that he would allow institutions “greater flexibility to ensure their students avoid excessive student loan debt and are able to repay their loans” by granting financial aid administrators “greater latitude to limit loan borrowing.” He also proposed allowing schools to mandate annual loan counseling as a condition of receiving a loan disbursement, another provision NASFAA supports.
Direct Loans, Repayment
Trump again proposed eliminating the subsidy for Direct Loans for undergraduate students. Students would be ineligible for subsidized loans for any first loan originated after July 1, 2021, “with an exception for students continuing to borrow to complete their current course of study.”
A NASFAA working group recommended instituting one, annual subsidized limit on Direct Loans depending on year in school, setting stepped aggregate limits, and allowing schools with levels under a certain cohort default rate the opportunity to offer students up to $5,000 more in loans.
With the same components as last year's budget, Trump proposed consolidating the income-driven repayment (IDR) plans into a single plan with a discretionary income cap of 12.5%, a 15-year repayment term for undergraduates, and a 30-year repayment term for graduate students. The standard repayment cap would be eliminated.
The new plan would be the only IDR option for borrowers who originate their first loan on or after July 1, 2021, “with an exception for students who borrowed their first loans prior to July 1, 2021 and who are borrowing to complete their current course of study.” Trump also proposed automatically enrolling "severely delinquent borrowers" in IDR.
In addition, Trump proposed eliminating the Public Service Loan Forgiveness (PSLF) program altogether, as he has done in years past.
Level Funding for Maximum Pell Grant, Expanded Eligibility
Trump proposed sufficient funding — $22.5 billion — to support a FY 2021 Pell Grant maximum award of $6,345, the same amount Congress allocated for the maximum award for the current award year. Similar to last year, Trump proposed expanding Pell Grant eligibility to include students in “high-quality, short-term programs,” and new this year expressed support for expanding Pell Grant eligibility to prisoners — known as Second Chance Pell — at an estimated cost of $10 million in the first year.
While Trump last year proposed a $2 billion rescission from the Pell Grant reserve fund, and $500 million from the reserves was used to support an increase to the maximum award for award year 2020-21, this year’s budget proposal does not include a rescission.
In a report released last month, the Congressional Budget Office (CBO) estimated that the reserve fund will be emptied by FY 2025 if Congress continues to allocate the same level of discretionary funding for the Pell Grant program as it did in FY 2020 and freezes the maximum award.
Cuts to Campus-Based Aid Programs
Trump again proposed eliminating the FSEOG program entirely, which, he wrote, “duplicates Pell Grants but are less targeted on those who need the most help.” Congress chose to reject previous proposals to eliminate FSEOG for the last three years. In FYs 2018 and 2019, FSEOG was funded at $840 million, and Congress increased funding for the program for FY 2020 to $865 million.
For the FWS program, Trump again proposed to cut funding to $500 million, which represents a 58% cut to the program. By comparison, in FY 2020, FWS was funded at $1.2 billion. Congress chose to reject prior proposed cuts to FWS for the last three years, appropriating $1.131 billion for the program in FYs 2018 and 2019 — the first time since FY 2009 the program’s funding surpassed $1 billion — and an additional $50 million for the program in FY 2020.
New Structure for FSA, Movement on NextGen
Trump’s budget includes a proposal to start an “evaluation of FSA as a separate organization, with reformed governance,” which he wrote could significantly improve its ability to serve students and taxpayers. NASFAA published a white paper in 2017 that also suggested structural changes to help FSA fulfill its mission as a performance-based organization (PBO), such as creating an oversight board that reports directly to the public, the secretary of education, and Congress.
At the FSA Training Conference in December, DeVos told a room full of financial aid professionals that she thought FSA would function better as a stand-alone agency, “run by a professional, expert, and apolitical Board of Governors.” The 2021 budget does not provide any further details as to what a newly structured FSA may look like.
The budget also requested funding at $1.9 billion — a $115 million increase — for student aid administration to support FSA’s NextGen initiative. Specifically, the administration expressed its support for the “multiyear effort” to build the technology for a new loan servicing platform, adding that FSA is also currently working to “consolidate all of its customer-facing websites into a single, user-friendly hub to complement a new mobile platform and give students, parents, and borrowers a seamless experience from application through repayment.”
Congress will now begin consideration of FY 2021 funding levels. To pass a budget on time it would have to complete the appropriations process by the new federal fiscal year, October 1.
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. In addition, NASFAA’s Federal Budget FAQ page answers some of your most pressing budget questions.
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: 2/10/2020