Economy

Congress Proposes Cuts to College Funding

May 11th 2015

By:
Sarah Gray

Last Tuesday, Senate Republicans passed a budget resolution that outlines sizable cuts to funding for higher education and student loan repayment programs. This is the first House of Representatives and Senate joint budget resolution in five years. This joint resolution was only possible due to the fact that Republicans took over the Senate after the 2014 election, giving the party control of both branches of Congress. The next hurdle for Republicans is to turn this framework -- an outline that slashes $5 trillion in spending over the next ten years -- into legislation.

The plan is unlikely to pass in the Senate as the bill would need six Democratic votes to break a filibuster, but what it says about Congress' priorities is alarming. The cuts, if they pass, would deeply impact current and future college students as well as former college students who are currently repaying student loans. Here are four ways that the budget makes college less affordable:

1) Cuts to Pell Grants.

The budget eliminates mandatory funding for Pell Grants, which are college grants that help low-income undergraduates attend college. Unlike student loans, these grants do not have to be repaid. Currently, over 8 million middle- and low-income students and families benefit from Pell Grants.

Despite the fact that current funding for Pell Grants is at a surplus -- one that will be used up by 2017 -- the maximum award for Pell Grants is $5,775 per school year. This award covers only a fraction of the cost of college.

Currently, Pell Grants pull from both mandatory and discretionary funding. If mandatory funding is cut, it would be up to lawmakers to use the discretionary funding to make up for the loss. In March, Jennifer Wang, Policy Director at Young Invincibles, told ATTN: that she's worried about what's happening to Pell Grants. "I'm always worried about the Pell Grant because until those funds are mandatory and not discretionary, we're going to have Pell shortfall, and there are going to be some people who don't think the Pell Grant is worth the investment," she explained.

In a release about the cuts, the Committee for Education Funding explains that the elimination of mandatory funds thusly:

"Currently mandatory dollars both fund an increase in the Pell maximum award above $4,860, as well as help fund a portion of the $4,860 maximum. While the budget assumes these costs will be picked up on the discretionary side of the budget, that is virtually impossible since as noted above the budget slashes NDD funding. Thus, the Pell maximum could be chopped from $5,775 to $4,860 – a cut of $915 or 15.8 percent."

2) Stafford loans.

Stafford loans are also set to take a hit in the newly passed budget. Stafford loans are a type of student aid for low- and middle- income undergraduate students. Through these loans students receive in-school subsidies, where the government pays off the loan's interest while the student is still in school. The Republican budget "also assumes that appropriators will abolish the in-school interest subsidy on Stafford student loans," the Chronicle of Higher Education reports.

According to the Washington Post, at the end of last year, 28 million students received these loans. Eliminating the in-school subsidy means that students will have to pay back the interest that the government will no longer be shouldering. This places "$34.8 billion onto the backs of students by increasing their loan payments," according to the Committee for Education Funding.

Students from less well-off families will be hurt the most by cuts to both Stafford loans and Pell Grants, as these two programs help make college more affordable for low-income families. If cut, the burden would be placed on these families, and students might not receive or continue their college education.

"I also think this is an issue that is very important for students of color because more than 60 percent of African American undergrads and half of Latino undergrads rely on Pell Grants to attend school," Wang told ATTN: in March. "So this is a huge economic concern, but also one that affects already underrepresented young people."

3) Pay As You Earn (PAYE) payment plans.

The Republican budget also rolls back the Pay As You Earn (PAYE) payment plan, President Obama's expanded student loan program, which became law in December of 2012 and was then extended via executive order in June of 2014.

Income-based repayment plans -- including PAYE -- make paying back loans easier by reducing the amount of money paid per month, based on income. The goal is to reduce the number of borrowers who default on their loans, a problem that 20 percent of student loan holders fall into.

The Pay As You Earn plan allows borrowers struggling with payments to reduce their monthly payment to 10 percent of their discretionary income over a period of 20 years. After 20 years, the loans would be forgiven.

"For example," a White House press release explained, "a 2009 graduate earning about $39,000 a year as a fourth year teacher, with student loan debt of $26,500, would have his or her initial monthly payments reduced by $126 under the President’s Pay As You Earn plan compared with monthly payments under the standard repayment plan and would see a reduction in annual loan payments of over $1,500."

The removal of the Pay As You Earn plan would increase the amount paid back per month for as many as 2 million borrowers, who have enrolled in income-based plans.

4) The Public Service Loan Forgiveness plan.

The Public Service Loan Forgiveness plan, also introduced by President Obama, would be eliminated. That incentivizes graduates (and loan holders) to go into public service jobs by forgiving student loans after 10 years working in public service or "120 qualifying payments."

What does this budget plan mean?

These cuts will not automatically go into effect. In fact, as discussed, it's unlikely the cuts would even pass the Senate right now, let alone survive President Obama's veto pen.

Regardless, the outline of cuts is worrisome. It displays Congress' willingness to balance the budget at the expense of low-income students and student borrowers.