President’s FY 2016 Budget Maintains Student Aid Funding and Hints at HEA

The release of the president’s budget on February 2 kicked off the FY 2016 budget and appropriations process for the year. For education, the budget includes $3.6 billion more than last year, maintains funding for the student aid programs, and hints at what the Administration might support during the reauthorization of the Higher Education Act (HEA), scheduled for consideration this year.

Following are the highlights of the student aid funding proposals, all of which would need to proceed through the budget and HEA reauthorization to be enacted:

Pell Grants: The maximum grant for FY 2016 is requested at $5,915. To make this possible, the budget proposes $29 billion in FY 2016 appropriations to maintain the $4,860 baseline portion of the grant, and an additional $29 billion over 10 years to extend the mandatory add-on. Together this would ensure scheduled increases in the maximum grant continue at inflation rates for the program’s 8.4 million recipients. The Administration’s proposal to continue the Pell Grant increases is particularly significant because the original add-on was paid for by the conversion to direct loans and will now expire. The new funding stream is paid for by savings created by the expansion of income-based repayment on student loans (see below). Congress would need to enact legislation to support this proposal.

Campus-based aid: The budget proposes to reform and redistribute funding for the campus-based aid programs, including Supplemental Educational Opportunity Grants (SEOG), Federal Work Study (FWS), and Perkins Loans. Level funding for SEOG and FWS would be reallocated to institutions based on their levels of Pell Grant recipient enrollment and completion, net price by sector, and a “quality education such that graduates can repay their educational debt.” The Administration aims to target funding of the programs more equitably to institutions serving low-income students, rather than institutions that have participated in the programs for decades. This proposal was also part of last year’s budget.

For the Perkins Loan program, the budget includes the familiar proposal to continue with the sunset of the current Perkins Loan program, and reinvent a new unsubsidized Perkins Loan as a direct loan program. This new loan program would provide $8.5 billion in loans to more than 730,000 students, which is more than double the current participation. Institutional participation, like SEOG and FWS, would be based on levels of Pell Grant recipient enrollment and completion, net price by sector, and a “quality education such that graduates can repay their debt.” Budgetary savings from this proposal would be reinvested in the Pell Grant extension.

Pay As You Earn: The Administration plans to make all student borrowers eligible for an income-driven loan repayment plan by the end of 2015. This would be achieved by expanding eligibility for the Pay As You Earn (PAYE) plan. Currently, only some borrowers, depending on when they borrowed, are eligible for the plan which caps payment at 10 percent of a borrower’s discretionary income and forgives the remaining balance after 20 years of payments. PAYE is the most generous of the income-driven repayment plans and details of its expansion are to be worked out during negotiated rule-making sessions that begin later this month. Ultimately, the Administration aims to work with Congress to make this the only income-driven repayment plan targeted to the neediest borrowers whose first loan is originated on or after July 1, 2016. The Administration proposes to use any savings from an expanded PAYE to index the maximum Pell Grant to inflation after 2017.

FAFSA Simplification: The Administration proposes to reduce the number of data elements on the Federal Application for Federal Student Aid (FAFSA), by removing those that pertain to assets and untaxed income. The determination of eligibility for federal student aid would rely primarily on income data reported to the IRS. In conjunction with the IRS retrieval tool, used by the majority of applicants, the FAFSA would be reduced by 30 questions, including those related to savings, investments, and net worth. The changes would be done in conjunction with changes to the Expected Family Contribution to prevent students from receiving lower aid awards.

Congress is also interested in simplifying the FAFSA. Sen. Lamar Alexander (R-TN) has proposed that only adjusted gross income and family size be used to determine aid eligibility.

NAICU supports reasonable simplification, but is concerned that a too severe restriction in financial and family data might force states and institutions to use supplementary forms to provide their aid. This could be costly and confusing for students. The National Association of Student Financial Aid Administrators also expressed concern about “over-simplification” of the FAFSA in a recent article in Inside Higher Education.

Proposed Changes to Pell Grants: In addition to its specific Pell funding proposals, the Administration proposes several changes to students’ eligibility for Pell Grants. To limit aid to students who are not progressing academically, the Department of Education would strengthen academic progress requirements to encourage students to complete their studies on time. It would also prevent additional Pell disbursements to recipients who repeatedly enroll and obtain aid, but do not earn any academic credits. On the other hand, the Administration also proposes to expand the eligibility of ability-to-benefit students who are enrolled in eligible career pathways programs to receive maximum, not just partial, Pell Grants. Also, the Iraq and Afghanistan Service Grants would be moved into the Pell Grant program to protect them from sequestration.

For information on the budget and funding
please contact Stephanie Giesecke

For information on the proposed changes to student aid
please contact Maureen Budetti