The Obama administration just released its budget proposal for Fiscal Year 2014, and the Twittersphere tweeted and retweeted all over itself, highlighting budget details and how they might affect certain programs. This blog post won’t look at the overall budget (or even all education issues) but instead will focus on its impact on higher education. Although not every one of these proposals will actually come to be, it’s still worth fleshing out the juiciest higher education highlights (details on pages 82-84 of that link).
Provide $1 Billion for Race to the Top Focused on Curbing College Tuition
Proposing a higher ed Race to the Top (RTTT) competition isn’t entirely new. The Obama Administration also included it in its budget proposal last year; however, it failed to make the final cut. With college affordability in arguably no better shape a year later, there is hope that a higher ed RTTT may actually happen this year.
Create a First in the World Fund to Spur Innovation to Boost College Affordability
The proposal sets aside $260 million to incentivize new ways of delivering higher education and increasing postsecondary access and affordability. This seems to be geared toward exploring more ways to build on massive open online courses (MOOCs) and community organizations focusing on college access issues. The idea here has also been proposed before, but it has likewise not been funded.
Boosting Campus-Based Aid Programs Based on Enrollment and Graduation Rates Among Low-Income Students
This proposal directs more than $10 billion toward Supplemental Educational Opportunity Grants (SEOG), Federal Work Study, and Perkins Loans. Part of this boost includes a $150 million increase for the Federal Work Study program to double the number of participants over five years. Perhaps most interestingly, this idea proposes reforms that would tie the amount of campus-based aid to institutions’ efforts to enroll and graduate low-income students.
Lock In Student Loan Interest Rates at Market-Based Rates
Current student loan interest ranges from 3.4% to 6.8%, depending on the program. The proposal suggests tying interest rates to the government’s cost of borrowing, which means interest rates would likely be tied to 10-year Treasury notes and include additional rates of 0.93% for subsidized Stafford loans, 2.93% for unsubsidized Stafford loans, and 3.93% for loans for parents and graduate students. The rate on new loans would be set each year based on the market rate.
Maintain Pell Grant Maximum Award at $5,645 Through 2015-16
As the Department of Ed’s document of highlights notes, the Pell Grant maximum award has increased by $915 since 2008, which is welcome news for low-income and lower-middle-income undergraduate students. As I’ve written before, part of the challenge of maintaining Pell Grant funding is ensuring fiscal sustainability for its long-term viability.
Provide Funding for Further Research on Student Aid for Postsecondary Education
The proposal calls for $9 million for upgrades to the National Student Loan Data System (NSLDS) to improve federal data on postsecondary students. It also proposes $8 million for more frequent surveys of postsecondary students to gather data on who receives student aid, enrollment patterns, and graduation rates for those who receive federal financial aid. Finally, it includes $67 million for research and evaluation of federal student aid.
Of these main higher ed highlights, the one that will get the most noise is likely the proposal tying student loan interest rates to market-based interest rates, as Libby Nelson of Inside Higher Education noted:
https://twitter.com/libbyanelson/status/322019199897722880
More interesting, though, is the second half of her tweet, which predicts that the campus-based aid idea of tying funding to outcomes for low-income students might actually receive the most pushback. In considering all of these proposals, I would have to agree with this assessment, because institutions rely heavily on these aid programs to retain their students.
Aside from the Pell Grant highlight (which doesn’t propose anything new), none of the other proposals are as closely tied to direct student funding as the campus-based aid programs. By this, I mean that the RTTT and First in the World competitions would both provide additional funding that institutions and states would not already have received under current budget formulas.
The budget also calls for making the American Opportunity Tax Credit (AOTC) permanent, which would provide up to $2,500 for higher education costs. The threshold for eligibility is higher, which includes more middle-income households (who tend to benefit more from tax credits like this anyway), and it allows for book expenses and is available for the first four years of college.
While other areas of the Obama budget might have clear winners and losers, it’s hard to say whether higher ed is a winner or loser IF (and it really is only an “if”) all of these proposals are ultimately funded (which is entirely unlikely). In this scenario where each proposal is indeed funded, I would probably lean slightly toward higher ed being more of a loser than winner, given that student loan interest rates will likely increase using market-based rates, and campus-based aid programs might become more limited if tied to low-income student outcomes while college tuition is likely to continue to rise. On this last point though, the goal of the higher ed-focused RTTT is to contain tuition increases, but I have a hard time seeing enough substantial funding from states to offset the increases that have occurred in recent years.
Instead, I probably share more of the sentiment that Rep. George Miller (D-CA), the senior Democrat of the House Education and the Workforce Committee, expressed in his statement on the Obama budget: while it rightly focuses its proposals on addressing college affordability, some of the deeper-rooted issues may be best resolved through reauthorization of the Higher Education Act (which Congress is supposed to reauthorize this year). While I do hope that the renewal of the HEA can provide long-term solutions for student loans, student aid programs, and college affordability, the question is whether Congress will actually reauthorize it on-time (they delayed the last reauthorization from 2003 to 2008).
Whether through the final budget for Fiscal Year 2014 or the reauthorization of the HEA, it’s clear that college affordability should be a priority to ensure that all students have the chance to pursue postsecondary education if they so desire.
