President Obama’s Final Budget Proposal Renews Push for Signature Policy Initiatives
By Stephen Payne, Policy & Federal Relations Staff
With a little less than a year remaining in office, President Obama released his final budget proposal on Tuesday. The $4.1 trillion budget for federal fiscal year (FY) 2017, which affects award year 2017-2018, provided little surprises for observers, as key higher education initiatives had already surfaced in previous budgets or prior to Tuesday’s announcement. A focus on improving outcomes at historically black colleges and universities (HBCUs) and minority-serving institutions (MSIs) stands as one of the broad themes of President Obama’s final budget.
In terms of funding levels, President Obama proposes an estimated $5,935 maximum Pell Grant award, a $120 increase, and will look to freeze funding for Federal Work-Study (FWS) and Federal Supplemental Educational Opportunity Grant (FSEOG), which were also flat-funded in December’s FY16 spending agreement.
Access and Affordability Proposals
- Develop “America’s College Promise,” a 10-year, $60.8 billion proposal to make two-years of community college free for “responsible” students. The proposal, designed to be a federal-state partnership, would have the federal government cover three quarters of the average cost of community college, with states expected to contribute the remaining amount of outstanding tuition. New to this year’s budget, and to match the legislation introduced in Congress, America’s College Promise would also provide grants to four-year HBCUs and MSIs to offer students up to two years at zero or significantly reduced tuition.
- Create a College Opportunity Bonus program that would provide $5.7 billion over 10 years to schools that enroll and graduate low-income students on time. Funds would be given directly to the institution to expand need-based aid, enhance student support, or employ other best practices to help low-income students succeed. The total annual bonus amount an institution could receive would be calculated based on the number of on-time Pell graduates at the institution multiplied by a tiered bonus amount: $1,000 at four-year schools; $700 at two-year schools; and $350 for less-than-two-year schools. The school’s cohort default rate and graduation rate would also be considered in determining eligibility.
- Dramatically reduce the number of questions on the Free Application for Federal Student Aid (FAFSA) by eliminating questions related to “assets, non-IRS untaxed income, non-IRS income exclusions, and other income adjustments.” “Non-IRS” income and exclusions refers to data elements that cannot be verified using the IRS Data Retrieval Tool (DRT). The questions being targeted for elimination are those considered to be confusing for students and families. To guard against any Pell award decreases, these changes are offset by a reduction of $600 to Expected Family Contributions (EFC). The budget does not further explain the rationale or operational details of the $600 EFC decrease.
- Decrease the percentage of funds at proprietary institutions that can come from the federal government to 85 percent, thereby returning the 90/10 calculation to the original 85/15 ratio. Department of Defense tuition assistance and GI Bill Benefits would be counted as federal funds.
- Develop a new $30 million HBCU and MSI Innovation for Completion fund to encourage these institutions to support evidence-based strategies aimed at increasing completion.
Pell Grant Program
- Maintain discretionary Pell Grant funding at current levels, which would lead to a maximum Pell Grant of $5,935 for award year 2017-18. This amount takes into the account the scheduled Consumer Price Index (CPI) increase in mandatory funds.
- Pell for Accelerated Completion (Year-Round Pell): Limited to 150 percent of a student’s regular Pell Grant award, an additional semester of eligibility will be awarded to students who have already completed 24 credits.
- On-Track Pell Bonus: Students who enroll in 15 or more credits per semester would be eligible for an additional $300 award per year, split evenly to $150 per semester.
- Second Chance Pell: Individuals incarcerated in federal or state penal institutions would be eligible for Pell Grant funds.
- In order to “encourage students to complete their studies on time,” the president’s budget proposes to modify the satisfactory academic progress (SAP) requirements. Specific details are absent from the proposal.
- The proposal would prevent additional Pell disbursements to “recipients who repeatedly enroll and obtain aid but do not earn any academic credits.”
- Move Iraq and Afghanistan Service Grants to the Pell Grant Program to avoid further award reductions as a result of sequestration and ensure that eligible students receive the full, non-sequestered Pell Grant award for which they are eligible.
- Extend the automatic inflationary increase to the maximum Pell Grant award, which expires at the end of the 17-18 award year.
- Level-fund both the FSEOG and FWS programs at the FY16 amount and revise the allocation formulas. As in the past, the budget request also seeks to revise the allocation formulas to direct dollars toward institutions that enroll and graduate higher numbers of Pell-eligible students and “offer affordable and quality education and training such that graduates can obtain employment and repay their educational debt.” Details on metrics for these formulas are absent from the proposal.
- The president’s proposal would make Perkins Loans unsubsidized with the same interest rate as the Unsubsidized Stafford Loan and expand the program from its current $1 billion funding level to $8.5 billion. Schools would continue to have some awarding discretion, though the federal government would take over origination and servicing. Federal government revenues from origination fees and interest rates would be redirected into student aid.
- The Revised Pay as You Earn repayment plan, or “REPAYE,” would become the only income-driven repayment plan for borrowers who originate their first loan on or after July 1, 2017.
- Other REPAYE modifications include: eliminating the standard payment cap; calculating payments for married borrowers filing separately on the combined household Adjusted Gross Income; establishing a 25-year forgiveness period for students who borrowed as graduate students; capping the amount of interest that can accrue when a borrower's monthly payment is insufficient to cover the interest; and preventing payments made under non-income driven repayment plans from being applied toward PSLF.
- The proposal would cap forgiveness under Public Service Loan Forgiveness (PSLF) at the aggregate loan limit for independent undergraduate students ($57,500).
- The president proposes to consolidate TEACH Grants and the other teacher loan forgiveness programs into a single loan forgiveness program with a cap of $25,000 beginning in 2021.
- The Administration will allow the Department of Education (ED) to obtain from the IRS the addresses of borrowers who are delinquent in repaying their loans.
Office of Federal Student Aid (FSA)
- As announced on Monday, the president proposes $13.6 million to create and expand a "Student Aid Enforcement Unit" to protect students and taxpayers by investigating bad actors in higher education.
Higher Education Tax Provisions
- Eliminate the lifetime learning credit.
- Expand the American Opportunity Tax Credit (AOTC) to five years, and index expense limits and the refundable amount to inflation. In addition, less than half-time students would be eligible for a credit up to $1,250.
- Exclude Pell Grants from gross income.
- Exclude all loans forgiven or discharged by ED from gross income.
- Repeal the current student loan interest deduction (SLID) for new borrowers.
With Republicans in control of both chambers of Congress, like in recent years, President Obama's proposal is essentially "dead on arrival."
"This isn't even a budget so much as it is a progressive manual for growing the federal government at the expense of hardworking Americans," Speaker of the House Paul Ryan (R-WI) remarked in a statement.
Republicans in Congress will now develop their own budget resolutions in each chamber's budget committee before appropriators decide how to specifically allocate funds.
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 process and also includes recent news.
As always, student aid funding legislation introduced in this session of Congress with links to NASFAA coverage and analysis can be found in the NASFAA Legislative Tracker.
Publication Date: 2/10/2016