U.S. Department of Education: Promoting Educational Excellence for all Americans

A r c h i v e d  I n f o r m a t i o n

FY 2003 Budget Summary - February 4, 2002


 
D. Student Financial Assistance


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Overview

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:

  • Funding for the Pell Grant program would increase by $549 million to an all-time high of $10.9 billion to increase access to postsecondary education for students from the neediest families. The Administration is also proposing a $1.3 billion supplemental in 2002 to address serious problems caused by the underfunding of the 2002 appropriation. The request also proposes to avoid similar problems in the future by authorizing the Secretary of Education to adjust the maximum Pell Grant award to reflect the latest program cost estimates. Under current estimates, the 2003 request would maintain the 2002 maximum grant of $4,000 for nearly 4.5 million students.

  • Student financial aid available would expand to $54.9 billion, excluding the consolidation of existing student loans, an increase of $2.8 billion or 5 percent over 2002. The number of recipients of grant, loan, and work-study assistance would grow by 339,000 to 8.4 million students and parents.

  • Loan forgiveness for highly qualified math, science, and special education teachers serving low-income communities would be expanded from $5,000 to a maximum of $17,500. Schools in these communities often are forced to hire uncertified teachers or assign teachers who are teaching "out-of-field." This proposal would help these schools recruit and retain highly qualified math, science, and special education teachers.

  • To improve accountability and ensure the efficient, cost-effective delivery of nearly $70 billion in Federal student aid, the Administration is proposing to consolidate more than $900 million in administrative funding, currently split among 3 separate accounts, into a new discretionary Student Aid Administration account. Most of these funds support payments to private-sector contractors or guaranty agencies that help administer the student loan programs.


Student Aid Summary Tables


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Budget Authority
($ in millions)

 200120022003
Request
Pell Grants1$8,756.0$10,314.0$10,863.0
Supplemental Grants691.0725.0725.0
Work-Study1,011.01,011.01,011.0
Perkins Loans160.0167.5167.5
Leveraging Educational Assistance Partnerships255.067.00.0
Loan Forgiveness for Child Care Providers1.01.01.0
Federal Family Education Loans3-1,659.53,781.24,124.3
Federal Direct Loans4-557.8-731.3-613.2
TOTAL 8,457.715,335.416,278.6

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.



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Aid Available to Students1
($ in millions)

 200120022003
Request
Pell Grants$9,581$10,708$10,840
Campus-based Programs:
Supplemental Grants875918918
Work-Study1,2151,2151,215
Perkins Loans1,1951,2021,202
Subtotal Campus-based Programs3,2853,3353,335
Leveraging Educational Assistance Partnerships2135171 0
Loan Forgiveness for Child Care Providers11
Federal Family Education Loans24,69426,53128,513
Federal Direct Loans10,63511,40412,231
Consolidation Loans317,01516,97812,184
TOTAL65,34569,12767,104

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.



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Number of Student Aid Awards
(in thousands)

 200120022003
Request
Pell Grants$4,284$4,444$4,499
Campus-based Programs:
Supplemental Grants1,1691,2271,227
Work-Study970970970
Perkins Loans711715715
Subtotal Campus-based Programs2,8502,9122,912
Leveraging Educational Assistance Partnerships1135171 0
Loan Forgiveness for Child Care Providers000
Federal Family Education Loans6,3556,8117,216
Federal Direct Loans2,7632,8423,003
Consolidation Loans685674483
TOTAL17,07317,85418,114

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.

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Number of Postsecondary Students Aided by Department Programs
(in thousands)

 200120022003
Request
Unduplicated Count7,6618,0648,403

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Tax Benefits for Postsecondary Students and Their Families

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.


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Pell Grants

 200120022003
Request
BA in millions$8,756.0$10,314.01$10,863.0
Program costs ($ in millions)9,872.010,730.010,863.0
Aid available ($ in millions)9,58110,70810,840
 
Recipients (in thousands)4,2844,4444,499
Maximum grant$3,750$4,000$4,0002
Average grant$2,299$2,409$2,409

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.


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Campus-Based Programs

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.


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Supplemental Educational Opportunity Grants

 200120022003
Request
BA in millions$691.0$725.0$725.0
Aid available (in millions)875918918
 
Recipients (in thousands)1,1691,2271,227
Average award$748$748$748

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.



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Work-Study

 200120022003
Request
BA in millions$1,011.0$1,011.0$1,011.0
Aid available (in millions)1,2151,2151,215
 
Recipients (in thousands)970970970
Average award$1,252$1,252$1,252

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.



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Perkins Loans
(BA in millions)

 200120022003
Request
Federal Capital Contributions$100.0$100.0$100.0
Loan Cancellation Payments60.067.567.5
 
Loan volume ($ in millions)1,1951,2021,202
Number of borrowers (in thousands)711715715
Average loan$1,681$1,681$1,681

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.



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Leveraging Educational Assistance Partnerships

 200120022003
Request
BA in millions$55.0$67.0
Aid available ($ in millions)1135.0171.0
 
Maximum grant$5,000$5,000
Recipients135,000171,000
Average grant$1,000$1,000

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.



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Loan Forgiveness for Child Care Providers

 200120022003
Request
BA in millions$1.0$1.0$1.0
Aid available in millions1.01.01.0
 
Recipients757575
Average grant$13,333$13,333$13,333

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.



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Federal Family Education Loans and Direct Loans

 200120022003
Request
Federal Family Education Loans
New Loan Subsidies (BA)$3,068.3$3,781.2$4,124.3
Re-estimate of Prior Loans1-4,727.8    —    —
Federal Administration248.048.8    —
TOTAL, FFEL Program BA-1,611.53,830.04,124.3
 
FFEL Liquidating Account
New Budget Authority3-1,063.8-744.8-625.2
 
Direct Loans
New Loan Subsidy (BA)4-1,039.0-731.3-613.2
Re-estimate of Prior Loans1481.2
Federal Administration2770.0780.0    —
TOTAL, New Budget Authority212.248.7-613.2

TOTAL, Student Loans (BA)
-2,463.13,133.92,885.9

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.



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New Loan Volume
(in millions)

 200120022003
Request
Federal Family Education Loans
New loans$24,694$26,531$28,513
Consolidation loans 9,2558,3356,877
    Subtotal, FFEL33,94934,86635,390
 
Direct Loans
New loans10,63511,40412,231
Consolidation loans7,7608,6435,307
    Subtotal, Direct Loans18,39520,04717,538
TOTAL52,34454,91352,928


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Number of Loans
(in thousands)

 200120022003
Request
Federal Family Education Loans
New loans$6,355$6,811$7,216
Consolidation loans 315314 226
    Subtotal, FFEF6,6707,1257,442
 
Direct Loans
New loans2,7632,8423,003
Consolidation loans370360257
    Subtotal, Direct Loans3,1333,2013,261
TOTAL9,80310,32610,703

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.


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Basic Loan Program Components

Both FFEL and Direct Loans feature four types of loans with similar fees and maximum borrowing amounts:

  • Stafford Loans are subsidized, low-interest loans based on financial need. The Federal Government pays the interest while the student is in school and during certain grace and deferment periods. The interest rate varies annually and is capped at 8.25 percent. For July 1, 2001 through June 30, 2002, the rate for borrowers in repayment has been set at 5.99 percent.

  • Unsubsidized Stafford Loans are offered at the same low rates as subsidized Stafford Loans, but the Federal Government does not pay interest for the student during in-school, grace, and deferment periods.

  • PLUS Loans are available to parents of dependent undergraduate students at slightly higher rates than Stafford or Unsubsidized Stafford Loans, and the Federal Government does not pay interest during in-school, grace, and deferment periods. The interest rate varies annually and is capped at 9 percent. The 2001-2002 rate is 6.79 percent.

  • Consolidation Loans allow borrowers with multiple student loans who meet certain criteria to combine their obligations and extend their repayment schedules. The rate for both FFEL and Direct Consolidation Loans is based on the weighted average of loans consolidated rounded up to the nearest 1/8th of a percent.


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The 2003 Request

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.


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Student Aid Program Management

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


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This page was last updated 02/04/02 (smj)