Now, what does all this have to do with higher education policy and student financial assistance? Well, surprisingly, student financial assistance tends to play a significant role in budget reconciliation. The federal student loan programs are mandatory spending programs. Funds made available for mandatory spending programs are not controlled by annual decision of Congress but are automatically obligated by virtue of previously enacted laws. As Congress wrestles to bring spending in control, the student loan programs, like other mandatory spending programs are on there on the table, available to be picked over.

Congress does not attempt to undertake reconciliation every year – the last time they completed a budget reconciliation was in 1997, nearly a decade ago. Both chambers of Congress have passed the budget reconciliation (Deficit Reduction Act of 2005), agreeing to cut the budget by approximately $39 billion over a five year period. The voting on this contentious issue was very close, but the bill is on its way to the Presidents desk for signature. The Senate passed the bill on December 21, 2005 in a 51-50 vote when Vice President Cheney had to cast a rare tie-breaking “yea” vote. The House narrowly passed the bill on February 1, 2006 in a 216-214 vote.

During this budget reconciliation go-round, higher education contributed to these overall savings with nearly 1/3 of all savings in the bill coming from the student loan programs (approximately $12.6 billion over 5 years). Initial cuts to the student loan program totaled about $22.4 billion, but about $5.9 billion of those amounts were pumped back into the student loan programs and other programs designed to assist students pay for post secondary study.

A number of the changes made to the federal student financial aid programs impacting students directly are listed below. The changes listed do not represent all that were included in the budget reconciliation package:

-- Changes the interest rates on students loans from a variable interest rated (capped at 8.25%) to a fixed rate of 6.8% (effective 7/1/06). Current rates for students are about 5.3% (please check Department of Education’s website for information regarding specific loan or type of loan).

-- Ends the practice of in school consolidation of loans and eliminates joint consolidation. It also requires that borrowers consolidating their loans receive more information about the fees, length of payment, impact on loan benefits, etc.

-- Increases the loan limits on first and second year loans to $3,500 and $4,500 respectively and for graduate students to $12,000 enabling them to borrow more money than before through the guaranteed student loan programs.

-- Allows government to seize 15% up from 10% of the wages of borrowers who have defaulted on their loans.

-- Extends eligibility to the PLUS loans to graduate and professional students and increases the rate on PLUS loans to 8.5% (up from 7.9%).

-- Makes permanent the teacher loan forgiveness program authorized in 1998 and extends the program to those teaching at private elementary and secondary schools.

-- Makes changes to the need analysis formula (the federal statutory formula used to determine eligibility for student financial aid) in a way that will make federal student financial aid more available to more students.

-- Includes new Academic Competitiveness (undergraduate first and second year) and SMART grants (undergraduate third and fourth year) created to encourage low-income/Pell-eligible, full time students to study physical, life or computer science, math, technology, engineering or foreign languages deemed critical to national security. Increasing awards ($750 first year; 1,500 second year and 4,000 for both the third and fourth years). Requires students to have completed a rigorous, federally approved high school curriculum maintain a B average.

-- Creates an “Academic Competitiveness Council” which will identify overlap in federal math and science education programs.

-- Modifies the “drug possession” provisions adopted in 1998 allowing aid to be withheld only from students who have been convicted of possessing or selling drugs while in school.

These represent just a small part of the changes that were made to higher education programs in the Deficit Reduction Act of 2005. Still, even when one considers all the changes that were incorporated, it is no where near the comprehensive changes included in the complete reauthorization proposals put forward by either the House or Senate in their Higher Education Act reauthorization bills (HR 609 or S 1614). The fate of the rest of those changes including ones made to programs like the Teacher Quality program, accreditation, and international education to name just a few is uncertain. These programs are currently extended though March.

APA had recommended and won the inclusion of changes to the Title II program relating to teacher education such as adoption of an APA recommended definition for “teaching skills,” and inclusion of elements of the APA recommended “Academic Teaching Center” model.

It is very uncertain whether or not Congress will take up these bills, pass them in their respective bodies and conference these bills, sending one reauthorization package to the President for his signature.

Further information:
www.ed.gov for information about federal student financial aid programs
www.congress.gov for text of Deficit Reduction Act of 2005/S. 1932
http://www.insidehighered.com/news/2006/01/12/hea for news article from Inside Higher Education related to Budget Reconciliation

Loans

Stafford Loans: Both the Federal Family Education Loans (FFEL), Direct Loans and Parent Loans for Undergraduate Students (PLUS) programs each are part of the Stafford student loan programs. These loans include both subsidized version and an unsubsidized version. Information about current loan limits can be found at: http://www.studentaid.ed.gov/students/publications/student_guide/2003_2004/english/types-stafford-annualloanlimits.htm.

Subsidized Stafford Loans are student loans made on the basis of the student's financial need and other specific eligibility requirements. Stafford Subsidized loans have subsidized interest, which means that the federal government does not charge interest on these loans while borrowers are enrolled at least halftime, during the six-month grace period following graduation, or during authorized periods of deferment. Stafford Subsidized loans are available to undergraduate and graduate students while the student is in school. The borrower begins to repay the principal and interest after leaving school.

Stafford Unsubsidized Loans are made to borrowers meeting specific eligibility requirements. Interest is charged throughout the life of the loan. The borrower may choose to pay the interest charged on the loan or allow the interest to be capitalized (added to the loan principal). Stafford Subsidized and Unsubsidized Loans are available to both undergraduate and graduate students.

PLUS loans are taken out by parents for the purpose of helping to pay for their children's undergraduate education. Parents are responsible for all interest charges. The loan value may not exceed the full cost of the student's education, minus any other financial aid that the student receives. The Budget Reconciliation Act extends PLUS loans to graduate and professional students.

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