Biden’s 2025 Budget Proposal Would Boost Pell, Eliminate Student Loan Origination Fees

By Maria Carrasco, NASFAA Staff Reporter

President Joe Biden on Monday released his budget request for fiscal year 2025, which would eliminate origination fees on federal student loans and increase the maximum federal Pell Grant award by $750 through the annual appropriations process, in addition to funding other new initiatives at the Department of Education (ED). However, the budget proposal would provide no increased funding for campus-based financial aid programs.

NASFAA has long advocated for the elimination of origination fees and has supported several pieces of bipartisan legislation. NASFAA President and CEO Justin Draeger responded to Monday’s budget proposal by applauding the move, saying that origination fees are a “hidden tax” on student loans and “an outdated mechanism that no longer serve a purpose for the federal government or for borrowers.”

“It’s not often that we see bipartisan agreement in Washington, but Republicans and Democrats alike have supported the removal of these fees to promote transparency and affordability in higher education, and we applaud the Biden administration for including this proposal in its fiscal year 2025 budget request,” Draeger said.

Currently, the Higher Education Act specifies a loan origination fee of 1% for all Direct Subsidized Loans and Direct Unsubsidized Loans, and a fee of 4% for all Direct PLUS Loans for both parent borrowers and graduate and professional student borrowers, with an annual mandatory adjustment percentage required by sequestration rules. The administration wrote in its budget proposal that origination fees “burden anyone who needs to borrow to help get an education and cost American families billions of dollars.” 

Overall, the proposed budget requests $82 billion in federal discretionary spending for ED in 2025, which, according to the Biden administration, is a $3.1 billion (or 3.9%) increase from the 2023 level. However, that is about $8 billion less than last year’s 2024 proposal, which requested $90 billion in discretionary funding for ED.

Education Secretary Miguel Cardona said in a statement that Biden’s 2025 proposal “raises the bar in education.”

“Through this budget, the President prioritizes fiscal responsibility while making bold strides to narrow opportunity and achievement gaps,” Cardona said. “I look forward to working alongside states, schools, and communities as they leverage these investments to promote access, opportunity, and excellence for all students.”

Rep. Virginia Foxx (R-N.C.), chairwoman of the House Committee on Education and the Workforce, said Biden’s proposal would “significantly” increase funding for Pell Grants “with no accountability to ensure the degrees students are given actually yield high-quality jobs.”

“A trimmed, fiscally sound budget is what the American people both deserve and demand – not a budget, like what the president is peddling, that treats taxpayer dollars as if they were nothing more than Monopoly money,” Foxx said in a statement. “With the imperative of delivering unfettered accountability to the American people in mind, we must chart a more fiscally judicious path than the one that the president intends to take this nation down.”

When it comes to campus-based aid in Biden’s proposal, the Federal Supplemental Educational Opportunity Grant (FSEOG) and Federal Work-Study (FWS) programs did not see an increase in funding over fiscal year 2023. The administration is requesting the FSEOG program be funded at $910 million, and the FWS program to be funded at $1.23 billion. 

Funding for the Pell Grant program comes from both discretionary (subject to the annual appropriations process) and mandatory (set in law) funding streams. Within FY 2025’s proposal, the maximum award would see an increase of $100 in discretionary funding, for a total discretionary award of $6,435. This would expand the reach of the program to over 7.2 million students, according to the administration. In ED’s budget summary, the program would receive $24.6 billion in discretionary budget authority. 

The budget proposal would increase the maximum Pell Grant by an additional $650 for students attending public and non-profit institutions, which would come through mandatory funding, for a total maximum award of $8,145. The total maximum award for students at proprietary institutions would be $7,495.

The administration noted that this part of the proposal excludes for-profit institutions from the mandatory increases “due to evidence these institutions are least likely to provide good outcomes for students.”

The Biden administration also proposed excluding for-profit institutions from the Pell Grant increase in its Build Back Better agenda. Parceling out the funds by institutional sector “will add new complexity to a financial aid system on the verge of much-needed simplification,” Draeger said at the time. “The best place to address concerns about institutional quality at some proprietary institutions should be in the institutional eligibility and accountability provisions in the Higher Education Act, not by making programmatic changes that add complexities to students.”

Career Education Colleges and Universities (CECU), the trade association representing for-profit institutions, expressed disappointment with Monday’s budget request, saying “underserved students deserve equal access to Pell Grants.”

“Pell Grants are awarded to students based on their financial needs rather than the institutions in which they enroll,” said CECU’s President and CEO Jason Altmire, in a statement. “Thus, it is disappointing that the Biden administration has decided to penalize students attending for-profit colleges by excluding them from the Pell Grant increase proposed in the 2025 budget.”

According to the Biden administration, this proposal builds on bipartisan efforts to increase the maximum Pell Grant award by $900 over the past two years, and provides a path for the administration to double the maximum award by 2029. And in a supplemental analytical perspectives document, the administration predicts a $1.3 billion shortfall in Pell Grant funding in 2025, and a $7.8 billion shortfall in 2026 if discretionary Pell Grant funding remains at a baseline. 

The Biden administration wrote that its new budget proposal would increase future discretionary Pell Grant program costs by $5.1 billion over 10 years. 

This comes after recent concerns in Congress on a budgeting shortfall of the Pell Grant program. The Committee for a Responsible Federal Budget (CRFB) released an analysis in February that estimates Pell Grant costs will exceed new funds and the program’s reserves will soon be depleted. Further, Biden signed into law a continuing resolution for fiscal year 2024 in early March that adds roughly $3 billion in additional “mandatory for discretionary” funding for the Pell Grant program over the next four fiscal years, through fiscal year 2027.  

The proposal also includes a provision that provides two years of subsidized tuition for students from families earning less than $125,000 enrolled in four-year historically Black colleges and universities (HBCUs), Tribally-controlled colleges and universities (TCCUs), or minority-serving institutions (MSIs). The administration is requesting $30 billion for this provision. 

Biden’s budget proposal also would invest in services for student borrowers, including $2.7 billion for the Office of Federal Student Aid (FSA), which is a $625 million increase above the 2023 enacted level. This increase in funding is meant to provide better support to student loan borrowers and make improvement to the new servicing system. Additionally, FSA would continue to “modernize its digital infrastructure” of its financial aid programs, including the FAFSA. 

The administration proposed a $12 billion fund to reduce the costs of college, which would provide funding to three separate initiatives, including Classroom to Career to support states expand access to dual enrollment for all interested high school students. It would also provide funding for the Incentivizing Excellence initiative for institutions “that deliver an excellent education at an affordable price” to expand the number of students served, and the Scaling Evidence-Based Strategies initiative to “scale evidence-based strategies that are already saving students thousands of dollars.”

At a briefing with ED on Monday, Under Secretary James Kvaal shared with attendees that the budget proposal touches on issues Biden spoke about at the State of the Union last week, including investing in college affordability and tackling issues with student loan debt. 

“The ideas in the president’s budget are really steps toward a different vision of higher education where we're on the path to doubling Pell Grants, making community college free, creating new scholarships at HBCUs, tribal colleges, HSIs, other MSIs, and making it possible for people to earn college credit in high school at no tuition,” Kvaal said. 

 

Publication Date: 3/12/2024


Jeff A | 3/12/2024 9:31:53 AM

It is disgraceful that this budget is attempting to exclude some of the neediest students who attend a for profit college with strong outcomes by categorically slandering the majority that do very well for a lot of students that have struggled in their prior attempts at higher ed.

With BDR, GE, 90-10 and heightened over the top scrutiny and accountability, this is such bad policy. Shame on them.

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