FY 2003 Budget Summary - February 4, 2002
D. Student Financial Assistance
The 2003 budget reflects President Bush's commitment to equal access to a quality postsecondary education for all Americans. The request would increase funding for the Pell Grant program, the foundation of Federal need-based student financial assistance, by more than $500 million, and more than triple loan forgiveness benefits for highly qualified math, science, and special education teachers in schools serving low-income populations.
Following are the highlights of the Administration's 2003 budget:
1 Amount for 2002 includes proposed supplemental appropriation of $1.276 billion. These supplemental funds are to be completely offset by a rescission of funds for unrequested earmarks and low-priority programs in the fiscal year 2002 appropriations for the Departments of Labor, Health and Human Services, and Education. The specific rescissions from each agency would be determined by congressional appropriations action.
2 Includes $25 million in 2001 and $37 million in 2002 for Special LEAP.
3 Budget authority requested for FFEL does not include the liquidating account. The 2001 figure is negative because of a $4.7 billion downward re-estimate largely attributable to revised default collection estimates in prior cohorts reflecting actual trends in default recoveries that exceed earlier experience.
4 For Direct Loans, the value of future repayments and collections on defaults will exceed default costs and in-school interest subsidies. Therefore, no new BA is required.
1 Shows total aid generated by Department programs, including Federal Family Education Loan capital, Perkins Loan capital from institutional revolving funds, and institutional and State matching funds.
2 Reflects only the LEAP program's statutory State matching requirements. State maintenance-of-effort and discretionary contributions above the required match significantly increase the number of grant recipients, the amount of available aid, and the average award.
3 New FFEL and Direct Loans issued to consolidate existing loans.
1 Reflects only the LEAP program's statutory State matching requirements. State maintenance-of-effort and discretionary contributions above the required match significantly increase the number of grant recipients, the amount of available aid, and the average award.
2 Due to the limited funding level available for this demonstration program, annual recipients are projected to total fewer than 100.
In addition to Department of Education grant, loan, and work-study programs, significant support for postsecondary students and their families is available through tax credits and deductions for higher education expenses, including tuition and fees. For example, in 2003 students and families will save an estimated $4.1 billion under the HOPE tax credit, which allows a credit of up to $1,500 for tuition and fees during the first 2 years of postsecondary education; $2.4 billion under the Lifetime Learning tax credit, which allows a credit of up to $2,000 for undergraduate and graduate tuition and fees; $2.3 billion under a new above-the-line deduction of up to $3,000 annually in higher education expenses; and $640 million in above-the-line deductions for interest paid on postsecondary student loans.
1 Includes proposed supplemental appropriation of $1.276 billion. These supplemental funds are to be completely offset by a rescission of funds for unrequested earmarks and low-priority programs in the fiscal year 2002 appropriations for the Departments of Labor, Health and Human Services, and Education. The specific rescissions from each agency would be determined by congressional appropriations action.
2 Subject to change based on future estimates of program costs and available funding.
The Pell Grant program helps ensure financial access to postsecondary education by providing grant aid to low- and middle-income undergraduate students. The program is the most need-focused of the Department's student aid programs, with individual awards varying according to the financial circumstances of students and their families.
The Administration proposes $10.9 billion to support Pell Grants in 2003, an increase of $549 million over the 2002 appropriation level. The 2002 appropriations bill created a serious fiscal problem by underfunding the Pell Grant program. While the Act mandated a Pell Grant maximum award of $4,000, it disregarded the Administration's requests to provide resources for the Pell Grant program commensurate with the maximum award. The Act provided only enough funds to pay for a maximum award of $3,600, creating a shortfall of nearly $1.3 billion. To eliminate this shortfall, the Budget includes a 2002 supplemental appropriation of $1.276 billion to fully fund the $4,000 maximum award in academic year 2002-2003. The proposed supplemental funds for Pell Grants are to be completely offset by a rescission of funds for unrequested earmarks and low-priority programs in the fiscal year 2002 appropriations for the Departments of Labor, Health and Human Services, and Education. The Administration will provide Congress with a listing of such programs and expects that Congress will select from this list in enacting a cancellation to offset the Pell Grant shortfall.
Pell Grant costs are highly dependent on volatile applicant and economic trends, making it difficult to project the required funding level for a given maximum award at the time of the appropriation, which may be nine or more months prior to the affected academic year. Accordingly, the Administration is proposing that the Secretary of Education use the most recent program cost projections to set the maximum award for each upcoming academic year immediately prior to the publication of the Pell Grant payment schedule, which must occur by February 1 each year. Under current estimates, the Administration's request for 2003 would maintain the Pell Grant maximum award at $4,000 for academic year 2003-2004, the highest level ever and a full $700, or 21 percent, above the level only three years earlier. Nearly 4.5 million students would receive awards under this request, an increase of 55,000 over 2002.
The Supplemental Educational Opportunity Grant, Work-Study, and Perkins Loan programs are collectively referred to as the "campus-based" programs because participating institutions are provided with funding that they are responsible for administering on their own campuses. These programs allow financial aid administrators considerable flexibility in the packaging of financial aid awards to best meet the needs of their students.
The Supplemental Educational Opportunity Grant (SEOG) program provides grant assistance of up to $4,000 per academic year to undergraduate students with demonstrated financial need. The $725 million request would leverage $193 million in institutional matching funds to make available a total of approximately $918 million in grants to an estimated 1.2 million recipients.
SEOG funds are allocated to institutions on the basis of a statutory formula, and a 25 percent institutional match is required. Awards are determined at the discretion of institutional financial aid administrators, although schools are required to give priority to Pell Grant recipients and students with the lowest expected family contributions.
The Work-Study program provides grants to participating institutions to pay up to 75 percent of the wages of needy undergraduate and graduate students working part-time to help pay their college costs. The school or other eligible employer provides the remaining 25 percent of the student's wages. Funds are allocated to institutions on the basis of a statutory formula, and individual award amounts to students are determined at the discretion of institutional financial aid administrators.
The program encourages institutions to use Work-Study funds to promote community service activities. Institutions must use at least 7 percent of their Work-Study allocations to support students working in community service jobs, and such activities must include at least one reading tutor or family literacy project. In addition, the Department waives the 25 percent employer-matching requirement for students who work as reading or math tutors.
The Perkins Loan program provides long-term, low-interest loans to undergraduate and graduate students with demonstrated financial need at 2,000 institutions. Total assets of $7.2 billion represent nearly 40 years of Federal capital contributions, institutional matching funds, repayments on previous loans, and reimbursements for cancellations.
As in past years, most funding for new loans will come from the repayment of outstanding loans to the program's institutional revolving funds. The $100 million request and the resources from borrower repayments on the outstanding loan portfolio to institutional revolving funds will be sufficient to provide over $1.2 billion in new Perkins loans to 715,000 students.
Perkins Loan borrowers pay no interest during in-school, grace, and deferment periods, and are charged 5 percent interest during the principal repayment period. Annual borrowing limits are $4,000 for undergraduate students and $6,000 for graduate and professional students.
Perkins Loan Cancellation reimburses institutional revolving funds for borrowers whose loan repayments are canceled in exchange for undertaking certain public service employment, such as teaching in Head Start programs, full-time law enforcement, or nursing. Cancellations have increased significantly in recent years due to the expansion of eligibility by the Higher Education Amendments of 1992 and 1998.
1 Reflects only the LEAP program's statutory dollar-for-dollar State matching requirement for BA up to $30 million and the two-to-one State matching requirement under Special LEAP for BA in excess of $30 million. State maintenance-of-effort and discretionary contributions above the required match, which are not reflected, significantly increase the number of grant recipients, the amount of available aid, and the average award.
The Loan Forgiveness for Child Care Providers Program was authorized under the Higher Education Amendments of 1998 to encourage more highly trained individuals to enter and remain in the early child care profession. Under this demonstration program, Stafford and Unsubsidized Stafford Loan borrowers under the Federal Family Education Loan (FFEL) and the William D. Ford Direct Loan (Direct Loan) programs who have earned degrees in early childhood education and worked for two full years as child care providers in low-income communities may have a portion of their loan obligation forgiven on a first-come, first-served basis. Additional forgiveness is awarded for each consecutive year of service, up to the total of the borrower's outstanding balance after five full years. The Department will evaluate the effectiveness of this program in achieving its statutory goals.
1 Under Credit Reform, the subsidy amounts needed for active loan cohorts are re-estimated annually in both Direct Loans and FFEL to account for changes in actual data compared to projections. In 2001, the Direct Loans re-estimate primarily reflects lower interest rate projections leading to lower repayment estimates, while the FFEL re-estimate is largely attributable to revised default collection estimates in prior cohorts reflecting actual trends in default recoveries that exceed earlier experience.
2 No funds are requested for loan administration in 2003, as these costs would be part of the proposed discretionary Student Aid Administration account.
3 This account reflects costs associated with loans made prior to 1992. Budget authority is negative because collections on those loans will exceed default and in-school interest costs.
4 No new budget authority is required for Direct Loans because the value of future repayments of interest and collections on defaults will exceed default costs and in-school interest subsidies.
The Department of Education operates two major student loan programs: the Federal Family Education Loan (FFEL) program and the William D. Ford Federal Direct Loan (Direct Loan) program. The Administration is committed to maintaining both student loan delivery systems, allowing individual institutions to choose which best meets their needs and the needs of their students.
The FFEL program makes loan capital available to students and their families through some 3,500 private lenders. There are 36 active State and private nonprofit guaranty agencies which administer the Federal guarantee protecting FFEL lenders against losses related to borrower default. These agencies also collect on defaulted loans and provide other services to lenders. The FFEL program accounts for about 70 percent of student loan volume.
The Direct Loan program was created by the Student Loan Reform Act of 1993. Under this program, the Federal Government uses Treasury funds to provide loan capital directly to schools, which then disburse loan funds to students. The Direct Loan program began operation in academic year 1994-95 and now accounts for about 30 percent of new student loan volume.
Both FFEL and Direct Loans feature four types of loans with similar fees and maximum borrowing amounts:
The 2003 budget request for student loans reflects the proposal to expand loan forgiveness for mathematics, science, and special education teachers. Currently, teachers in qualified low-income schools who were new borrowers as of October 1998 and teach for five consecutive years are eligible for up to $5,000 in loan forgiveness. The Administration proposes to substantially increase the amount of forgiveness up to $17,500 for math, science, or special education teachers who meet the definition of highly qualified included in the No Child Left Behind Act and serve in high-need schools. This proposal is estimated to cost about $45 million in additional subsidy for new loans made in fiscal year 2003, plus approximately $36 million for prior cohorts. Over the next 10 years, the policy will cost an estimated $243 million.
The Administration proposes to centralize its request for $936.4 million to administer the Federal student aid programs within a unified new discretionary Student Aid Administration account. The current student aid administration budget structure—split among multiple mandatory, discretionary, and subsidy accounts—hinders the increased accountability for reducing costs and improving financial controls that are at the foundation of the Secretary's Blueprint for Management Excellence.
The 2003 request represents a $17.9 million, or 2.0 percent, increase over the amount supporting student aid administrative activities in 2002. Nearly 85 percent of this increase—$15 million—is related to statutorily mandated increases in account maintenance fee payments to FFEL guaranty agencies. The balance of the increase supports the assumption by the Department of future retirement expenses previously funded centrally through the Office of Personnel Management. Apart from these two activities, overall spending on student aid administration will decline by $664,000.
Primary responsibility for administering the student aid programs lies with the Office of Postsecondary Education and the performance-based Office of Student Financial Assistance (SFA). SFA was created by Congress in 1998 with a mandate to modernize student aid delivery and management systems, improve service to students and other student aid program participants, reduce the cost of student aid administration, and improve accountability and program integrity. Most student aid administrative funding supports payments to guaranty agencies and to private contractors that service Direct Loans, process student loan applications, and disburse and account for student aid awards to students, parents, and schools.
The Administration is in the process of developing an activity-based budget formulation process for the unified Student Aid Administration account. Such a process would allocate the Department's student aid management expenses to specific business processes to more accurately determine the cost of individual activities or programs, budget administrative funds to each business process, set cost reduction targets, and easily compare actual performance to budget targets.
For further information contact the ED Budget Service
C: Vocational and Adult Education
E: Higher Education Programs
This page was last updated 02/04/02 (smj)