U.S. Department of Education: Promoting Educational Excellence for all Americans
Inside Budget Summary
and Background Information
Summary of the 2004 Education Budget
Elementary and Secondary Education
Special Education and Rehabilitative Services
Vocational and Adult Education
Student Financial Assistance
Higher Education Programs
Institute of Education Sciences
Programs Proposed for Elimination
Departmental Management
Appendix 1
Appendix 2 PDF Icon Excel
Fiscal Year 2004 Education Budget Summary and Background Information
February 3, 2003

Archived  Information

Section II. D.  Student Financial Assistance

Overview

The 2004 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 nearly $1.9 billion, 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 2004 budget:

  • A $1.9 billion increase for the Pell Grant program, for an all-time high total of $12.7 billion, to retire a shortfall related to the 2002-2003 award year while maintaining a $4,000 maximum award for over 4.8 million students.

  • The request assumes that the significant surge in the Pell Grant applicant growth rate over the past few years will begin to level off in 2003-04 and return to levels consistently seen prior to 2001-02. However, if applicant growth rates remain at unusually high levels, projected Pell Grant program costs would significantly increase above the budget estimates.

  • The budget assumes Internal Revenue Service matching of student aid application income data with applicant tax data would reduce Pell Grant overawards and save an estimated $638 million in 2003 and 2004. These savings would significantly reduce existing funding shortfalls in the Pell Grant program.

  • Student financial aid available would expand to $62.3 billion, excluding the consolidation of existing student loans, an increase of $3.1 billion or 5 percent over the level supported in the 2003 President's Budget. The number of recipients of grant, loan, and work-study assistance would grow by 386,000 to 9.2 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 over $80 billion in Federal student aid, the Administration is proposing to consolidate nearly $950 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

Budget Authority ($ in millions) 2002 2003
Request
2004
Request
 
Pell Grants1 $11,314.0 $10,863.0 $12,715.0
Supplemental Grants 725.0 725.0 725.0
Work-Study 1,011.0 1,011.0 1,011.0
Perkins Loans 167.5 167.5 67.5
Leveraging Educational Assistance
  Partnerships 2
67.0
Loan Forgiveness for Child Care Providers 1.0 1.0
Federal Family Education Loans3 4,311.7 3,421.8 6,272.1
Federal Direct Loans4 -721.9 4,102.8 -865.9
Total
16,863.3

20,292.1

19,924.7

1Amount for 2002 includes proposed supplemental appropriation of $1.0 billion.
2Includes $37 million in 2002 for Special LEAP.
3Budget authority requested for FFEL does not include the liquidating account.
4For Direct Loans, the value of estimated future repayments and collections on defaults will exceed estimated default costs and in-school interest subsidies. Therefore, no new B.A. is required. The 2003 figure is positive because of a $4.6 billion upward re-estimate largely attributable to revised interest rate estimates for prior cohorts.

Aid Available to Students ($ in millions)1 2002 2003
Request
2004
Request
 
Pell Grants $11,600 $11,460 $11,385
Campus-based programs:
  Supplemental Grants 918 918 918
  Work-Study 1,218 1,218 1,218
  Perkins Loans 1,265 1,265 1,137
Subtotal, Campus-based programs
3,401

3,401

3,273
 
Leveraging Educational Assistance
  Partnerships2
171
Loan Forgiveness for Child Care Providers 1 1
Federal Family Education Loans 28,606 31,536 33,945
Federal Direct Loans 11,689 12,763 13,636
Consolidation Loans3 31,538 24,411 19,097
Total
87,006

83,572

81,336

1Shows 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.
2Reflects 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.
3New FFEL and Direct Loans issued to consolidate existing loans.

Number of Student Aid Awards
(in thousands)
2002 2003
Request
2004
Request
 
Pell Grants 4,812 4,866 4,873
Campus-based programs:
  Supplemental Grants 1,189 1,189 1,189
  Work-Study 1,073 1,073 1,073
  Perkins Loans 707 707 635
Subtotal, Campus-based programs
2,969

2,969

2,897
 
Leveraging Educational Assistance
  Partnerships1
171
Loan Forgiveness for Day Care Providers2
Federal Family Education Loans 7,274 7,919 8,415
Federal Direct Loans 2,908 3,086 3,259
Consolidation Loans 1,090 911 713
Total awards
19,224

19,751

20,157

1Reflects 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.
2Due to the limited funding level available for this demonstration program in 2002 and 2003, recipients are projected to total fewer than 100. No funding is requested in 2004.

Number of Postsecondary Students Aided by Department Programs

 2002 2003
Request
2004
Request
 
Unduplicated Count (in thousands) 8,385 8,855 9,241

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 2004 students and families will save an estimated $2.9 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; $3.0 billion under the Lifetime Learning tax credit, which allows a credit of up to $2,000 for undergraduate and graduate tuition and fees; $2.9 billion under a new above-the-line deduction of up to $4,000 annually in higher education expenses; and $660 million in above-the-line deductions for interest paid on postsecondary student loans.

Pell Grants

  2002 2003
Request
2004
Request
 
B.A. in millions $11,314.01 $10,863.0 $12,715.0
Program costs ($ in millions) 11,624.0 11,484.0 11,410.0
Aid available ($ in millions) 11,600.3 11,459.6 11,385.3
 
Recipients (in thousands) 4,812 4,866 4,873
Maximum grant $4,000 $4,000 $4,000
Average grant $2,411 $2,355 $2,336

1Includes supplemental appropriation of $1.0 billion.

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 requests $12.7 billion to support Pell Grants in 2004. In recent years, the number of Pell Grant applicants and recipients has grown much faster than historical trends would predict (as has college enrollment overall). Specifically, from 2000 to 2002, the number of Pell recipients increased by nearly 25 percent, compared with 5 percent growth from 1997 to 1999. After never growing by more than 2.6 percent for any award year from 1995-96 to 2000-01, the number of valid Pell Grant applicants grew by 8.6 percent in 2001-02 and a projected 10.2 percent in 2002-03 (see table). These increases primarily result from an influx of independent students (generally, independent students are older and do not depend on parents or guardians to pay for college).

This table shows the growth in valid applicants for Pell Grants reported for award years 1995-96 through 2001-02 and estimates for award years 2002-03 through 2004-05.

As a result of this unexpected growth, as well as a $700 increase in the maximum grant from 2000 to 2002, Pell Grant appropriations for the past few years have been insufficient to fully cover annual program costs. Funding for 2004 is requested to retire the shortfall related to the 2002-2003 award year while maintaining a $4,000 maximum award for the growing numbers of students eligible for Pell Grants for undergraduate education and job training. (This request assumes a small portion of 2004-2005 program costs would be funded from the 2005 appropriation.)

The Budget assumes that the significant surge in the applicant growth rate that began with the 2001-02 award year will begin to level off in 2003-04 and return to levels consistently seen prior to 2001-02. It is important to note, however, that if applicant growth rates continue at their unusually high levels, projected Pell Grant program costs would significantly increase above the budget estimates. As shown in the following table, if applicant growth stayed at 10 percent over award years 2003-04 and 2004-05, programs cost would increase by more than $1.4 billion.

This table shows the estimated cost effects for academic years 2003-04 and 2004-05 for various projected applicant growth rates.

Campus-Based Programs

The Supplemental Educational Opportunity Grant, Work-Study, and Perkins Loan programs are collectively referred to as the "campus-based" programs; grants in these programs are made directly to participating institutions, which have considerable flexibility to package awards to best meet the needs of their students.

Supplemental Educational Opportunity Grants

  2002 2003
Request
2004
Request
 
B.A. in millions $725.0 $725.0 $725.0
Aid available (in millions) 918 918 918
 
Recipients (in thousands) 1,189 1,189 1,189
Average award $772 $772 $772

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 according to a statutory formula. The program also requires a 25 percent institutional match. 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.

Work-Study

  2002 2003
Request
2004
Request
 
B.A. in millions $1,011.0 $1,011.0 $1,011.0
Aid available ($ in millions) 1,218 1,218 1,218
 
Recipients (in thousands) 1,073 1,073 1,073
Average award $1,135 $1,135 $1,135

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 according to a statutory formula, and individual award amounts to students are determined at the discretion of institutional financial aid administrators. At the request level, over 1 million students would receive more than $1 billion in award year 2004-05.

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.

Perkins Loans
(B.A. in millions)

  2002 2003
Request
2004
Request
 
Federal Capital Contributions $100.0 $100.0
Loan Cancellation Payments 67.5 67.5 $67.5
 
Loan volume ($ in millions) 1,265 1,265 1,137
Number of borrowers (in thousands) 707 707 635
Average loan $1,790 $1,790 $1,790

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 over $7 billion represent nearly 40 years of Federal capital contributions, institutional matching funds, repayments on previous loans, and reimbursements for cancellations.

The request includes no funding for new Perkins Loan Federal Capital Contributions. These funds are no longer necessary, as repayments of existing Perkins Loans into Federal revolving funds held at institutions will continue to support more than $1 billion in new Perkins Loans each year. In addition, given the existence of the Federal Family Education Loan and Ford Direct Student Loan programs, as well as the current interest rate environment, additional Federal capital contributions are not needed to assure the availability of affordable loan aid.

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 Cancellations reimburse 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 expansions of eligibility by the Higher Education Amendments of 1992 and 1998.

Federal Family Education Loans and Direct Loans
($ in millions)

Federal Family Education Loans 2002 2003
Request
2004
Request
 
  New Loan Subsidies (B.A.) $4,311.7 $6,401.6 $6,272.1
  Re-estimate of Prior Loans1 -2979.9
Total, FFEL Program B.A.
4,311.7

3,421.8

6,272.1
 
Direct Loans
  New Loan Subsidy (B.A.)2 -721.9 -488.1 -865.9
  Re-estimate of Prior Loans1 4,590.9
Total, New Budget Authority
-721.9

4,102.8

-865.9
 
 Total, Student Loans (B.A.) 3,589.8 7,524.6 5,406.2

1Under 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 long-term projections. In 2003, 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.
2No new budget authority is required for Direct Loans because the value of future repayments will exceed default costs and in-school interest subsidies.

New loan volume ($ in millions)

  2002 2003
Request
2004
Request
Federal Family Education Loans
  New loans $28,606 $31,536 $33,945
  Consolidation loans 22,693 16,986 12,999
Subtotal, FFEL
51,299

48,522

46,944
Direct Loans
  New loans 11,689 12,763 13,636
  Consolidation loans 8,845 7,425 6,098
Subtotal, Direct Loans
20,534

20,188

19,734
 
Total 71,833 68,710 66,678

Number of loans (in thousands)

  2002 2003
Request
2004
Request
Federal Family Education Loans
  New loans 7,274 7,919 8,415
  Consolidation loans 726 572 436
Subtotal, FFEL
8,000

8,491

8,851
Direct Loans
  New loans 2,908 3,086 3,259
  Consolidation loans 364 339 277
Subtotal, Direct Loans
3,272

3,425

3,536
 
Total 11,272 11,916 12,387

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. These two programs meet an important Department goal by helping ensure student access to and completion of high-quality postsecondary education. Competition between the two programs and among FFEL lenders has led to a greater emphasis on borrower satisfaction and resulted in better customer service to students and institutions.

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.

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, 2002 through June 30, 2003, the rate for borrowers in repayment has been set at 4.06 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 2002-2003 rate is 4.86 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.

In recent years, a combination of historically low interest rates and aggressive marketing have resulted in dramatic increases in Consolidation loan volume, which grew from $12 billion in fiscal year 2000 to $32 billion in fiscal year 2002. Higher interest rates and a diminished pool of potential consolidators in future years are expected to reduce Consolidation loan volume to $19 billion in 2004.

The 2004 Request

For 2004, the Administration is proposing 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 $52 million in additional subsidy for new loans made in fiscal year 2004, plus $147 million for existing loans. Over the next 10 years, the policy will cost an estimated $696 million.

Student Aid Program Management

The Administration proposes to centralize its request for $947.0 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 2004 request represents a $15.0 million, or 1.6 percent, increase over the amount supporting student aid administrative activities in 2003. The largest portions of this increase are $6.8 million for growth in central support costs such as enhanced security and the relocation of a number of regional offices; $4 million to support increases in personnel compensation associated with the 2.0 percent cost-of-living adjustment scheduled for January 2004; and $3.0 million for improvements to the Department's financial management system.

Primary responsibility for administering the student aid programs lies with the Office of Postsecondary Education and the performance-based Federal Student Aid (FSA). FSA 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.

Vocational and Adult Education Table of contents Higher Education Programs

For further information contact the ED Budget Service.

This page last modified—September 15, 2006 (jer).

Technical questions about the Web site: webmaster@ed.gov