Wednesday, July 13, 2011

Debt Ceiling Negotiations Could Impact Student Aid Funding

If you or anyone you know are considering starting school soon, you may want to act FAST! Serious cuts are coming to Federal Student Aid programs in the near future. Our classes start in late July, so take advantage of Federal Financial Aid before its too late (if you qualify).

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Debt Ceiling Negotiations Could Impact Student Aid Funding

Negotiations between the White House and congressional leaders on a package that would raise the debt ceiling and lower the national deficit could directly impact student aid funding for fiscal year (FY) 2012.

This week, President Obama will continue to meet with congressional leadership to negotiate a deficit reduction package that would include enough spending cuts to convince Republicans to raise the debt ceiling before the Aug. 2 deadline when the U.S. could begin defaulting on its debt. The group’s discussions are primarily at the macro level and have remained highly confidential. However, it has been reported that student aid funding, particularly the Pell Grant program, has been discussed. Obama and Congressional leaders are looking to cut the deficit by as much as $4 trillion, so it is possible that FY 2012 student aid funding could be impacted by the deal.

Negotiations are reportedly at an impasse. Democrats want a plan that spares entitlement programs like social security and increases revenue through taxes. Meanwhile, Republicans have vowed to turn down any deal that contains tax increases. The group must come to agreement before July 22 to give them enough time to pass the package through the legislative process before Aug. 2.

The Pell Grant program faces an $11 billion shortfall for award year 2012-13, making it a key budget target during deficit reduction talks. In his FY 2012 budget request, President Obama proposed plugging part of that shortfall through the Pell Protection Act (PPA). The plan would lower the cost of the Pell program and other student aid programs to maintain the maximum Pell award and pay down the program deficit. The elimination of Year-Round Pell, a component of the PPA, was included in the final FY 2011 budget and reduces the cost of the Pell program, but an $11 billion shortfall remains.

If a deal is struck on a bill to raise the debt-ceiling and reduce the deficit, the traditional budget process -- used to set student aid spending levels -- could be circumvented. In a traditional appropriations process, House and Senate Labor, Health, Human Services and Education (Labor-HHS) appropriations subcommittees draft and vote on a bill to determine funding levels for student aid programs. If Obama administration and Congressional leaders agree to reduce student aid funding as part of a larger deficit reduction package it could override the traditional process.

The U.S. House of Representatives is proceeding with the traditional appropriations process. The House Labor-HHS Subcommittee plans to debate legislation on July 26 that would include spending levels for 2012-13 student aid programs. House appropriators have not released any details or legislative language, but they working within the constraints of the House Budget Resolution that passed in April. This resolution called for dramatic cuts to student aid and would reduce Pell spending to pre-stimulus levels and repealing entitlement Pell funding provided by the Healthcare & Education Reconciliation Act (HCERA).

The Senate is behind in the appropriations process and has not passed a budget resolution. However, Chairman of the Senate Budget Committee Kent Conrad (D-ND) recently released a draft budget resolution that highlighted the importance of education and called for the protection of its funding.

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