Legislative Update: What the Debt Deal Means for Student Aid

Last night, President Obama and congressional leaders reached an agreement on a debt ceiling/deficit reduction plan. If approved by the full House of Representatives and Senate, the deal would provide a short-term reprieve to Pell Grants. A key piece of the deal is $17 billion toward the funding of the Pell Grant program in FY 2012 and FY 2013.

From the beginning of negotiations, Pell funding was included in bills offered by both House Speaker John Boehner (R-Ohio) and Senate Majority Leader Harry Reid (D-Nev.). While this infusion of funds sidesteps a massive cut to the Pell Grant maximum for the 2012-13 award year, it is unfortunately paid for through the elimination of the in-school interest subsidy for graduate student loans.

The deal trumps House Budget Committee recommendations to prohibit using mandatory savings from student loan provisions to pay for Pell Grant increases. It also lists Pell Grants as an essential program for low-income individuals that would be protected in the event of an automatic across-the-board cut to meet deficit reduction targets.

However, we still have lots of work to do this year. Even with the additional funding, Pell Grants will need an additional $1.3 billion in this fall’s appropriations process to maintain the $5,550 maximum grant. Funding for the other student aid programs – SEOG, Federal Work-Study, Perkins, TRIO, GEAR UP, graduate programs -- and for university research and the National Institutes of Health also needs to be approved this fall. These decisions will be made under the new spending cap set in the debt bill. The cap is $24 billion more than the House-passed budget, but $7 billion below last year’s total spending level.

The other part of the deal we will need to watch is the Special Joint Committee, which is charged with protecting another $1.5 trillion in cuts. The outcome is likely to be a big budget reconciliation bill, which is likely to target the undergraduate in-school interest subsidy for elimination.

We appreciate all that NAICU members, students, and other student aid advocates have done over the last six months to let Congress know the importance of federal student aid for low-income students and the nation. We look forward to more action in the fall.

--> What the Deal Means for Student Aid 

• Provides $17 billion for the Pell Grant program in FY 2012 and FY 2013
• Eliminates the in-school interest subsidy for graduate and professional student loans to pay for Pell and provide some deficit reduction
• Leaves a $1.3 billion gap in Pell Grant funding for FY 2012
• Protects Pell Grants in the event of automatic cuts.

--> We Still Have Our Work Cut Out for Us

• Pell Grants need an additional $1.3 billion in this fall’s appropriations process
• SEOG, Perkins, FWS, TRIO, GEAR UP, graduate programs and research/NIH need to be funded in this fall’s appropriations process
• Undergraduate in-school interest subsidy will be a target for elimination in the Joint Congressional Committee deliberations this fall

--> Basics of the Debt Ceiling and Deficit Reduction Deal

• Increases debt ceiling by $900 billion immediately, to avoid default.
• Cuts spending now by $1 trillion.
• President can request an additional $1.2 - $1.5 trillion increase in early 2012.
• Sets discretionary spending caps at $1.043 trillion for FY 2012. (That is $24 billion more than the House Budget Resolution, $7 billion less than last year.)
• Sets discretionary spending caps at $1.047 trillion for FY 2013.
• Creates a firewall between defense and non-defense spending.
• Creates a Joint Congressional Special Committee to consider $1.5 trillion in additional cuts to be presented by Thanksgiving, and voted up or down before Christmas this year. (An additional $300 billion in savings will be realized through lower interest payments.)
• If deficit reduction is less than $1.2 trillion, an automatic across-the-board cut will be applied equally to defense and non-defense spending, to make up the difference.
• Requires House and Senate to vote on the Constitutional Balanced Budget Amendment between October 1 and December 31, 2011.
• Amends Congressional Budget Act of 1974 for budget enforcement procedures.