The President’s FY 2015 Budget
March 4, 2014
Prepared by: Wes Huffman (whuffman@wpllc.net)
Today, the President released his budget for Fiscal Year 2015. For student loans and higher education, the proposal was very much like last year’s, including a call for eliminating traditional Perkins Loans and replacing them with an unsubsidized direct loan called Unsubsidized Perkins.
Perkins Loans and the FY 15 Budget
In terms of Perkins Loans, the President is calling for the elimination of the current program to be replaced by essentially an expansion of Direct Lending under the terms and conditions of the Unsubsidized Stafford Loan Program. The President’s proposal calls for loan allocations under the new program to be tied to the enrollment and completion of Pell Grant recipients, among other measures for providing “good value,” particularly for those with low incomes.
Importantly, without legislative changes by Congress, the current Perkins Loan Program will continue. In their budget materials, the Department of Education indicated the current program is authorized through 2014 with an automatic extension to 2015, just like most of the other Title IV programs. At a briefing today, COHEAO Executive Director Harrison Wadsworth asked if the guidance indicating the current program is expected to continue and loans should continue to be made through September 30, 2015 absent a legislative change. The answer was yes. Another attendee asked how the “new Perkins” program created budgetary savings. The answer was because of the creation of a new Direct Loan Program, to which the commenter responded, “so you mean from the students?” Department officials indicated they would not describe the savings in such terms, but that yes, the budgetary savings came from the conversion to Direct Lending. In fact, the “savings” are the government’s calculation of what the net earnings (profits) for the government would be from a new Direct Loan Program, with loan payments going to the Treasury.
The FY 15 Budget & Higher Education
The Department of Education offers the following summary of the FY2015 Education request: “The President”s budget reflects the Obama administration”s commitment to the Pell Grant program and fully funds the maximum award of $5,830 in 2015. The proposal also would help borrowers manage their debt by extending Pay As You Earn to all student borrowers and reforming its terms to ensure that benefits are targeted to the neediest borrowers; reform campus-based aid to promote affordability, quality and outcomes; and support the development and refinement of the new college ratings system.”
Below are some additional highlights, as identified by the White House:
• College Opportunity and Graduation Bonus (10-year budget, $7 billion): To reward colleges that successfully enroll and graduate a significant number of low- and moderate-income students on time and encourage all institutions to improve their performance, the new College Opportunity and Graduation Bonus program would provide an annual grant to eligible institutions based on their number of on-time graduates that receive Pell Grants. This new initiative would support innovations, interventions, and reforms to further increase college access and success, such as providing additional need-based financial aid, enhancing academic and student support services, and implementing technology-based or other accelerated learning opportunities.
• State Higher Education Performance Fund ($4 billion): These competitive state grants would encourage systemic efforts to make higher education more affordable and increase college access and success, particularly for low-income students. State grantees would adopt strategic higher education reform policies and provide federal and state resources to public colleges and universities based on their performance. State policies would promote alignment with the K-12 system; ensure seamless transitions to higher education for all students; build strong postsecondary pathways from the workforce system; and empower students and families with clear, relevant information about the return on investment of enrolling at different colleges and universities. Funds could be used to support and scale up effective and innovative practices that improve access and success at public colleges and universities while reducing cost per degree. States would receive up to four years of funding, and would match their federal grants, dollar-for-dollar, for a total of $8 billion in four years.
• College Success Grants ($75 million): This new competitive program aims to support the implementation of sustainable strategies, processes and tools, including those based on technology upgrades, to reduce costs and improve outcomes for students. Grants would go to Historically Black Colleges or Universities and other Minority-Serving Institutions. Funded activities could include partnering with school districts and schools to provide college recruitment, awareness, and preparation activities; establishing high-quality dual-enrollment programs that allow students to earn college credit while still in high school; providing comprehensive student support services; and reducing the need for remedial education.
• First in the World Fund ($100 million): Building on fiscal year 2014 appropriations of $75 million, this program invests in cutting-edge innovative strategies and practices that improve educational outcomes and make college more affordable for students and families.
• Pay As You Earn (PAYE) Expansion: To make sure that students and families have an easy-to-understand insurance policy against unmanageable debt now and in the future, the budget proposes to extend PAYE to all student borrowers, regardless of when they borrowed. The budget also would reform PAYE to safeguard the program for the future and ensure that program benefits are targeted to the craps neediest borrowers.
The FY 15 Budget & TCPA Reform
The President’s budget request also calls on Congress to reform the Telephone Consumer Protection Act (TCPA) to allow the Treasury Department to employ the use of autodialers in the collection of delinquent debts. The provision would only apply to government debts. According to the budget, the efficiencies gained from allowing the use of autodialers to contact mobile phones in the collection of government debts would save $120 million over a ten-year window.
On multiple occasions, the Administration has called for this change to the TCPA for the collection of government debts and COHEAO supports such a change for both private and public debts. The acknowledgement of the issue in the President’s budget request certainly lends credence to the notion that the TCPA desperately needs to be updated, but thus far, it has yielded few results in the way of legislative or regulatory change. COHEAO is continuing its efforts to support TCPA reform.
Conclusion
It is important to remember the budget request is simply that, a request. With a few exceptions, Congress must approve these plans put forward by the Administration for them to become law. An excellent example is the proposed conversion from Perkins Loans to Direct Lending. This proposal has been a part of every budget request of President Obama’s. Since 2009-2010, Congress has shown no interest in the passing the Administration’s proposal. Notably, proposals to change the campus-based programs, including the conversion of Perkins Loans to Direct Lending, were not specifically highlighted in the budget materials. They were the top item on last year’s list.
Given that the Mid-Term Elections are only a few months away, the new spending proposals, including those related to higher education, have very slim prospects for passage. However, they do present the Administration an opportunity to put out policy markers on various aspects of HEA reauthorization.
In addition, some of the provisions cutting spending on certain programs may also become “pay-fors” to offset the costs of other legislation. An example in the higher education budget is the Administration’s call to institute new safeguards within the Pay As You Earn (PAYE) program (income based repayment). These safeguards include capping Public Service Loan Forgiveness (PSLF) at $57,500 and extending the payment term before forgiveness to 25 years for borrowers with more than $57,500 in debts. The President’s budget envisions these reforms as a means for paying for expanding PAYE. Republicans in Congress are not likely to seek to expand PAYE to all borrowers, but they are likely to agree with the President’s argument that the program is lacking safeguards and in need of serious reforms.
Additional Information:
• Overview for President Obama’s FY2016 budget: http://www.whitehouse.gov/omb/budget
• Department of Education FY2015 budget higher education page: http://www.ed.gov/college
• Department of Education FY 2015 summary: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2015/assets/education.pdf
• Department of Education FY 2015 appendix: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2015/assets/edu.pdf
