National Association of Student Financial Aid Administrators Student Aid & the Federal Budget

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1 National Association of Student Financial Aid Administrators Student Aid & the Federal Budget Slide NASFAA

2 Agenda Budget 101: Nuts and Bolts Student Aid & the Federal Government Current Budget Politics Budget Politics Dictating Policy Sequestration Budget Update What happened in FY 2016? Where are we going in FY 2017? NASFAA and the Federal Budget Slide NASFAA

3 Budget 101: Federal Spending Other Mandatory 17% Medicaid 9% Interest 6% Discretionary Defense 15% Non-defense Discretionary 12% Dept. of Education 3% Medicare 14% Social Security 24% Slide NASFAA

4 How the Process Should Work President Proposes Budget Congress Passes Budget Resolutions Appropriations Subcommittees Draft Spending Bills Full Appropriations Committee Approves Draft Bills Appropriations Bills Pass House and Senate President Signs Appropriations Bills Into Law by October 1 Slide NASFAA

5 Step 1: President s Budget Request Preparation begins in the fall with the Office of Management & Budget (OMB) Released in early February Sent to Congressional Budget Committees President s budget request is a policy document, rather than a line by line funding request In fact, more text than numbers in the budget request President Proposes Budget Congress Passes Budget Resolutions Appropriations Subcommittees Draft Spending Bills Full Appropriations Committee Approves Draft Bills Appropriations Bills Pass House and Senate President Signs Appropriations Bills Into Law by October 1 Slide NASFAA

6 Step 2: Budget Resolution Congressional Budget Committees review president s budget request and typically make opinion statements Committees then draft budget resolutions Budget resolutions are nonbinding policy documents that serve as a marker for where each chamber stands in terms of high level budget priorities Again, not many numbers in resolution, more text President Proposes Budget Congress Passes Budget Resolutions Appropriations Subcommittees Draft Spending Bills Full Appropriations Committee Approves Draft Bills Appropriations Bills Pass House and Senate President Signs Appropriations Bills Into Law by October 1 Slide NASFAA

7 Step 3: Appropriations Process Appropriators are the funders; they assign dollar values to specific programs Federal spending is broken down into 12 separate spending categories by topic area = 12 separate appropriation subcommittees Appropriations bills must be cleared through each chamber s appropriations applicable subcommittee and full committee. Then, the bills go to the floor. If passed, the bill must be reconciled with the other chamber s version. President Proposes Budget Congress Passes Budget Resolutions Appropriations Subcommittees Draft Spending Bills Full Appropriations Committee Approves Draft Bills Appropriations Bills Pass House and Senate President Signs Appropriations Bills Into Law by October 1 Slide NASFAA

8 Step 4: New Fiscal Year The federal fiscal year (FY) runs from October 1 through September 30 All appropriations bills must be passed and signed by the President by October 1 or the federal government cannot continue to operate. Lack of action on setting spending levels by October 1 can lead to a government shutdown. President Proposes Budget Congress Passes Budget Resolutions Appropriations Subcommittees Draft Spending Bills Full Appropriations Committee Approves Draft Bills Appropriations Bills Pass House and Senate President Signs Appropriations Bills Into Law by October 1 Slide NASFAA

9 How the Process Should Work President Proposes Budget Congress Passes Budget Resolutions Appropriations Subcommittees Draft Spending Bills Full Appropriations Committee Approves Draft Bills Appropriations Bills Pass House and Senate President Signs Appropriations Bills Into Law by October 1 Slide NASFAA

10 Why is this problematic? Operating outside of the established process creates an incredible amount of unpredictability this unpredictability is particularly problematic for financial aid offices Late action from Congress can have ripple effects on the Department of Education, particularly in the context of prior-prior year (PPY). Failing to complete the budget process does not allow for committee experts to thoughtfully and carefully debate spending levels for the issues they are most well versed in, leaving little time for the democratic process Slide NASFAA

11 Student Aid & the Budget Funding for student aid falls into the Labor, Health, Human Services, and Education Appropriations Subcommittee (Labor-H) This is always a very complex bill because so many important programs share the same pot of funds. Ø Because of that, the Labor-H is often one of the last bills to go through the appropriations process. Most student aid funds are forward funded meaning they fun the following award year Ø Ex: FY 2017 funds the award year Slide NASFAA

12 Student Aid & the Budget The federal budget includes both mandatory and discretionary spending. Student aid programs fall into both categories. Mandatory Spending: governed by formulas or criteria set forth in enacted law, rather than by periodic appropriations. Student Loans TEACH Grant Iraq-Afghanistan Service Grant Add-on Pell Funding Discretionary Spending: governed by annual or other periodic appropriations Pell Grant FSEOG FWS Perkins FCCs Slide NASFAA

13 Current Trends of Budget Politics Overarching Theme of Deficit Reduction When a new policy idea is discussed, the first question asked is How much will it cost? and what other item in the budget will offset any new cost? Budget Politics Dictating Policy E.g. Perkins Loan Program extension; Elimination of grad school subsidy; reduction in Pell Grant semester eligibility Sequestration Ten year cutting mechanism, impacting nearly all of the Title IV programs Slide NASFAA

14 Is Sequestration Still In Effect? No, sequestration was suspended in the twoyear budget agreement passed in October. The agreement raises the caps for FY16 and FY17. However, without action, sequestration will go back into effect for FY18. Sequestration is a cutting mechanism designed to achieve roughly $1 trillion dollars in savings over a decade through dramatic budget caps on discretionary programs. Slide NASFAA

15 Where did we end up for FY16? All 12 spending bills passed out of committee for first time since 2009 House passed 6/12 bills; Senate passed 0/12 Democrats blocked bills in the Senate to force negotiation on sequestration Confederate flag controversy halted bills in the House Because Congress could not agree on spending levels by Oct. 1, a Continuing Resolution (CR) was necessary. Congress negotiated a 2-year budget deal then passed an omnibus bill for FY16 funding in December. President Proposes Budget Congress Passes Budget Resolutions Appropriations Subcommittees Draft Spending Bills Full Appropriations Committee Approves Draft Bills Appropriations Bills Pass House and Senate President Signs Appropriations Bills Into Law by October 1 Slide NASFAA

16 October Budget Agreement 2-year deal that raises domestic spending caps imposed under sequestration Suspends debt ceiling until March 2017 Without budget agreement, some student aid programs would most certainly see cuts Compromised top-level spending numbers cleared the way for negotiations over a FY16 funding bill or omnibus Slide NASFAA

17 FY16 Omnibus $1.1 trillion agreement Flat funds most student aid programs Increases for TRIO and GEAR UP Pell Grant maximum increases to $5,815, a $40 increase over FY15 No $370 million cut to Pell discretionary fund, as proposed in original House Labor-H bill No cuts to FWS or FSEOG, as proposed in original Senate Labor-H bill Slide NASFAA

18 Where are we now for FY17? President Obama s final Budget released in February. House Budget Resolution passed out of committee in March. Internal disagreement among Republicans about spending levels. Speaker Ryan intends to push all bills through House under regular order President Proposes Budget Congress Passes Budget Resolutions Appropriations Subcommittees Draft Spending Bills Full Appropriations Committee Approves Draft Bills Appropriations Bills Pass House and Senate President Signs Appropriations Bills Into Law by October 1 Slide NASFAA

19 Obama s FY2017 (AY 17-18) Budget Grants Maximum Pell Grant of $5,935 (+$120) Year-Round Pell, a Super Pell ($150/semester bonus), and Second-Chance Pell Continue to index Pell to inflation beyond FY17 Campus-Based Aid Level fund FSEOG and FWS (FY 2015 levels) Revise allocation formula to direct dollars to schools that enroll and graduate high number of Pell Grant students Expand/Reform the Perkins Loan Program Slide NASFAA

20 Obama s FY2017 (AY 17-18) Budget Loans and Repayment REPAYE would be only IDR option for all borrowers PSLF cap at $57,500 Simplification of tax credits Consolidation of teacher grant and forgiveness programs (including TEACH Grants) into a single loan forgiveness program with a cap of $25,000 beginning in 2021 Slide NASFAA

21 Obama s FY2017 (AY 17-18) Budget Access and Affordability Proposals America s College Promise ($60 billion/10 yrs) Ø Now includes 2 years free at HBCUs and MSIs College Opportunity Bonus Program ($5.7 billion/10 yrs) Ø Rewards colleges that enroll and graduate low-income students Other Items of Note Student Aid Enforcement Unit Return to 85/15 ratio from current 90/10 Rule for proprietary schools Slide NASFAA

22 House Budget Resolution $6.5 trillion in spending cuts over 10 years Freeze Pell maximum for 10 years and eliminate mandatory inflation add-on Eliminate Administrative Cost Allowance (ACA) Switch to fair value scoring of federal student loans Eliminate in-school interest subsidy Phase out TEACH Grants Slide NASFAA

23 House Budget Resolution Slide NASFAA

24 Fair Value Scoring: What Is It? Fair-value scoring builds in certain market risk penalties that ultimately result in higher cost estimates for federal credit programs But valuing federal credit programs like the market would value them at ignores fundamental sector differences The federal government does not perceive or value risk the same way as a private lender would, nor should it. The current scoring method has been accurate within 1% over the last decade Adding these phantom costs to the model will make the process less accurate, comparable, and transparent. Good news: January 2016 GAO report found current method of estimation more appropriate than a fair value approach for budget estimates Slide NASFAA

25 Fair Value: Why Does It Matter? Phantom costs Revenue of $135 billion vs. cost of $88 billion Increased deficits with no changes to underlying programs Higher costs of borrowing Higher interest rates and fees Reduced benefits (IBR and forgiveness provisions) Elimination of subsidized loans CBO estimates will cost the average student $3,800 Roughly 15% increase in student debt Slide NASFAA

26 What s Next? Appropriations process to begin in mid-april, but Labor-H action will come at the end of the process (if at all). Bipartisan interest in increasing NIH funding, which will impact student aid programs because that money will have to be found within the Labor-H pool Pell Grant Program surplus tempting for appropriators Best Case Scenario: Flat-funding to student aid and other higher education programs. Continued disagreement among House Republicans over top-line spending levels At this point, Senate Democrats not expected to block spending bills due to 2-year budget agreement that raised caps on domestic programs. Slide NASFAA

27 NASFAA and the Federal Budget NASFAA s Policy and Federal Relations Team continuously monitors how student aid programs fare in the federal budget and frequently publishes updates in Today s News. NASFAA regularly advocates for healthy funding levels to the administration and to Congress. Slide NASFAA

28 NASFAA Funding Coalitions NASFAA holds membership in several coalitions that advocate for student aid programs in the federal budget. Slide NASFAA

29 NASFAA Online Resource Federal Budget & Appropriations Page Interactive chart on the federal budget process Budget and appropriations news archive from Today s News Slide NASFAA

30 Slide NASFAA