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

Fiscal Year 2010 Budget Summary — May 7, 2009

 

Section III. D.  Student Financial Assistance

Overview

The President's 2010 Budget makes a historic commitment to increasing college access and success by expanding financial aid while making it simpler, more reliable, and more efficient. Under the Budget, the Department of Education will administer over $129 billion in new grants, loans, and work-study assistance in 2010a 32 percent increase over the amount available in 2008to help more than 14 million students and their families pay for college.

More specifically, the request would establish a Pell Grant maximum of $5,550 for the 2010-11 academic year and then index the maximum grant to grow faster than inflation in future years (at a rate equal to the consumer price index plus 1 percentage point). The Budget would also make Pell Grant funding mandatory, rather than discretionary, to eliminate uncertainty and end the practice of "backfilling" billions of dollars in Pell shortfalls. These changes would result in a 2-year increase in funding for Pell Grants (from the 2008-09 school year to the 2010-11 school year) of $10.4 billion, or 57 percent. The number of recipients would rise by nearly 1.5 million, or 24 percent, over the same period.

The Budget also asks Congress to end entitlements for financial institutions that process Federal postsecondary student loans to students and parents. The Federal Family Education Loan (FFEL) program relies on excessive subsidies and no longer is capable of playing its historical role of raising private capital to help finance Federal student loan programs. As a result, FFEL needlessly costs taxpayers billions of dollars and subjects students to uncertainty because of turmoil in the financial markets. The request would address these problems by making all new loans through the direct lending program. Direct lending takes advantage of low-cost and stable sources of capital so students are ensured access to loans and provided high-quality servicing by using competitive, private-sector providers to process loans and payments. Using direct lending to originate and service all new postsecondary student loans would save an estimated $21 billion over 5 years, savings that would be reinvested in student aid through the expanded Pell Grant program.

In addition, the request proposes to expand and modernize the Perkins Loan program so that it would provide $6 billion a year in new loan volume—six times the current Perkins volume—for up to 2.7 million students at roughly 2,700 additional postsecondary education institutions. The loans would have the same low 5 percent interest rate and allowed loan amounts (both undergraduate and graduate) as in the current Perkins program. Institutional loan forgiveness costs on existing loans, currently supported by discretionary appropriations, would be fully funded from the Federal share of Perkins Loan collections. To make loans more broadly available and help finance the expanded Pell Grant, interest on the loans would accrue while students are in school. The Department would service Perkins Loans along with other Federal loans, with estimated overall savings totaling $3.2 billion over 5 years.

Finally, the proposed College Access and Completion Fund would invest $2.5 billion in mandatory funding over 5 years to build a Federal-State-local partnership to improve college success and completion, particularly for students from disadvantaged backgrounds. This initiative would provide flexible funding to States and national entities to help expand the knowledge base about what works in increasing college enrollment and graduation and disseminate these best practices.

Student Aid Summary Tables

Budget Authority ($ in millions)

  2008   2009   2010
Request
 
 
Pell Grants
   Discretionary funding $14,215.0 1 $17,288.0 1  
   Mandatory funding 2,041.0   2,090.0   $28,654.1 1
Subtotal, Pell Grants
16,256.0
 
19,378.0
 
28,654.1
 
 
Supplemental Educational
   Opportunity Grants
757.5   757.5   757.5  
Work-Study 980.5   980.5   980.5  
Leveraging Educational Assistance
    Partnerships
63.9 2 63.9 2 63.9 2
Academic Competitiveness Grants 395.0 3 73.0 3 1,386.0 3
College Access and Completion Fund     500.0  
TEACH Grants 7   -1.5   -2.4  
Federal Family Education Loans -1,977.4 4 -24,573.8 4 -2,729.1 4
Federal Direct Loans 4,075.3 5 -6,593.4 5 -13,847.3 5
Perkins Loans 64.3   67.2   -497.7 6
Total
20,622.1
 
-9,848.7
 
14,765.8
 
 
Recovery Act appropriation 7            
 
Pell Grants   16,283.0   -7,522.9  
Work-Study   200.0    
Total
 
16,483.0
 
-7,522.9
 

   1Amount for 2010 reflects proposed rescission of $3.030 billion in mandatory funds appropriated under the College Cost Reduction and Access Act, $831 million in mandatory Recovery Act funds, and $7.5 billion in discretionary Recovery Act funds that will be reclassified as mandatory.
   2Includes $33.9 million in 2008, 2009, and 2010 for Special LEAP or, beginning in 2009, Grants for Access and Persistence, which will replace Special LEAP after a 2-year transition period.
   3Amount for 2008 reflects a rescission of $525 million in unneeded, unobligated balances; amount for 2009 reflects postponement of $887 million in 2009 funding until 2010; amount for 2010 reflects availability of 2009 delayed funding and proposed cancellation of $511 million in unneeded prior-year balances.
   4Budget authority requested for FFEL does not include the Liquidating account. The 2008 amount includes a net upward re-estimate of $990.0 million primarily related to revised economic assumptions and a net downward modification of $2.5 billion reflecting the impact of new legislation, primarily the College Cost Reduction and Access Act, on existing loans. The 2009 amount includes a net downward re-estimate of $16.0 billion primarily related to revised interest rates. The 2009 amount also includes a $2.6 billion downward modification to reflect the impact of new legislation, primarily the Ensuring Continued Access to Student Loans Act, on existing loans. (Re-estimates and modifications reflect the impact of changes on an outstanding FFEL portfolio of over $440 billion.)
   5For 2008, the Direct Loan amount includes a net upward re-estimate of $584.5 million primarily related to revised assumptions related to revised interest rates and assumptions related to income-contingent repayment. The 2008 amount also includes a $4.1 billion upward modification to reflect the effect of the College Cost Reduction and Access Act on existing loans. The 2009 amount includes a net upward re-estimate of $119.4 million primarily related to revised interest rates. (Re-estimates and modifications reflect the impact of changes on an outstanding Direct Loan portfolio of nearly $120 billion.)
   6Amount for 2010 reflects proposal to shift Perkins Loan to a mandatory credit program.
   7Reflects proposals to reclassify and rescind unneeded Pell Grant balances in 2010, as is shown more fully under the discussion of the Pell Grant program below.

Aid Available to Students ($ in millions)

  2008   2009   2010
Request
 
 
Pell Grants $18,181.4   $25,329.0   $28,616.1  
Supplemental Educational
   Opportunity Grants
958.8   958.8   958.8  
Work-Study 1,170.8   1,417.3   1,170.8  
Leveraging Educational Assistance
    Partnerships
161.6 1 161.6 1 161.6 1
Academic Competitiveness Grants 372.0   554.0   608.0  
SMART Grants 221.0   331.0   337.0  
New Student Loans:            
   Federal Family Education Loans 57,296.0   63,979.7   38,293.1  
   Federal Direct Loans 18,213.0   21,835.7   53,366.6  
   Perkins Loans 1,103.4   1,103.4   5,769.2  
   TEACH Grants 25.0   50.0   75.0  
Subtotal, Student Loans
76,637.4
2
86,968.7
2
97,503.9
2
             
Total
97,703.4
3
115,745.3
3
129,356.2
3

   1Reflects only the LEAP program's statutory State matching requirements.
   2In addition, consolidation loans will total $15 billion in 2008, $17 billion in 2009, and $20 billion in 2010.
   3Shows 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.

Number of Student Aid Awards
(in thousands)

  2008   2009   2010
Request
 
 
Pell Grants 6,116.0   7,022.0   7,590.0  
Supplemental Educational
   Opportunity Grants
1,258.3   1,258.0   1,258.0  
Work-Study 780.6   944.9   780.6  
Leveraging Educational Assistance
   Partnerships
161.6 1 161.6 1 161.6 1
Academic Competitiveness Grants 488.0   783.0   865.0  
SMART Grants 78.0   127.0   131.0  
New Student Loans:2            
   Federal Family Education Loans 12,697.8   14,185.4   9,092.7  
   Federal Direct Loans 3,729.9   4,536.4   10,670.0  
   Perkins Loans 494.6   494.6   2,585.9  
TEACH Grants 8.0   17.0   25.0  
             
Total awards
25,812.6
 
29,530.0
 
33,160.0
 

   1Reflects only the LEAP program's statutory State matching requirements.
   2In addition, consolidation loans for existing borrowers will total 495,000 in 2008, 480,000 in 2009, and 531,000 in 2010.

Number of Postsecondary Students Aided by Department Programs

  2008 2009 2010
Request
 
Unduplicated Count (in thousands) 11,587 13,284 14,174

Tax Benefits for Postsecondary Students and Their Families

In addition to the Department of Education's 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 2010, students and families will save an estimated $3.9 billion under the new American Opportunity Tax Credit, which allows a partially refundable credit of up to $2,500 for tuition and fees during the first 2 years of postsecondary education; $2.5 billion under the Lifetime Learning tax credit, which allows a credit of up to $2,000 for undergraduate and graduate tuition and fees; and $1.3 billion in above-the-line deductions for interest paid on postsecondary student loans.

Pell Grants

  2008 2009 2010
Request
 
B.A. in millions      
   Discretionary $14,215 $17,288
   Mandatory 2,041 2,090 $3,030
   Proposed rescission -3,030
   Proposed new mandatory 28,654
      Total
16,256

19,378

28,654
       
Recovery Act      
   Discretionary funding 15,640
   Mandatory funding 643 831
   Proposed rescission -831
   Reclassification of unneeded balances:    
      From discretionary -7,523
      To mandatory 7,523
   Proposed rescission of balances -7,523
      Total

16,283

-7,523
       
Program costs ($ in millions) 18,212 25,364 28,654
Aid available ($ in millions) 18,181 25,329 28,616
       
Recipients (in thousands) 6,116 7,022 7,590
Maximum grant      
   Discretionary $4,241 $4,860
   Mandatory add-on 490 490
      Total
4,731

5,350

5,550
Average grant 2,970 3,611 3,770

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 President's Budget proposes to establish a Pell Grant maximum of $5,550 for the 2010-11 academic year and then index the maximum grant to grow faster than inflation in future years (at a rate equal to the consumer price index plus 1 percentage point). The Budget would also make Pell Grant funding mandatory, rather than discretionary, to eliminate uncertainty and end the practice of "backfilling" billions of dollars in Pell shortfalls. The Budget requests $28.7 billion in mandatory funding for FY 2010 to fully fund $28.6 billion in Pell Grants to nearly 7.6 million students. The request would consolidate Pell Grant funding by rescinding 2010 resources available under the College Cost Reduction and Access Act and the Recovery Act.

If enacted, the President's request would result in a 2-year increase (from the 2008-09 school year to the 2010-11 school year) of $10.4 billion, or 57 percent, in funding for Pell Grants. The number of recipients would rise by nearly 1.5 million, or 24 percent, over the same period.

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. While the budget request proposes to restructure the Perkins Loan program to make loans directly to students, participating institutions would continue to have extensive flexibility in determining student eligibility and award levels.

Supplemental Educational Opportunity Grants

  2008 2009 2010
Request
 
B.A. in millions $757 $757 $757
Aid available ($ in millions) 959 959 959
 
Recipients (in thousands) 1,258 1,258 1,258
Average award $762 $762 $762

This program provides grant assistance of up to $4,000 per academic year to undergraduate students with demonstrated financial need. The $757 million request would leverage $201 million in institutional matching funds to make available a total of $958 million in grants to an estimated 1.3 million recipients.

Program funds are allocated to institutions according to a statutory formula and require 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

  2008 2009 2010
Request
 
B.A. in millions $980 $980 $980
Recovery Act 200
 
Aid available ($ in millions) 1,171 1,417 1,171
 
Recipients (in thousands) 781 945 781
Average award $1,500 $1,500 $1,500

The Work-Study program provides grants to participating institutions to pay up to 75 percent of the wages of eligible undergraduate and graduate students working part-time to help pay their college costs. The school or other eligible employer provides the balance of the student's wages. At the request level, nearly 800,000 students would receive a total of nearly $1.2 billion in award year 2010-11. 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. The Recovery Act appropriated $200 million for Work-Study, which was used to increase allocations for the 2009-2010 award year.

Perkins Loans

  2008 2009 2010
Request
 
B.A. in millions $64 $67 -$498
Aid available ($ in millions) 1,103 1,103 5,769
 
Recipients (in thousands) 495 495 2,586
Average award $2,231 $2,231 $2,231

The Perkins Loan program provides long-term, low-interest loans to undergraduate and graduate students with demonstrated financial need at roughly 1,700 institutions. Total assets of over $8 billion represent over 40 years of Federal capital contributions, institutional matching funds, repayments on previous loans, and Federal reimbursements for loan cancellations.

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 $5,500 for undergraduate students and $8,000 for graduate and professional students.

The request proposes an expanded, modernized Perkins Loan program with $6 billion a year in new loan volume—six times the current Perkins volume—reaching up to 2.6 million students at as many as 2,700 additional postsecondary education institutions. Loan volume will be allocated among degree-granting institutions using a method to be determined in consultation with Congress. The Administration intends for this new formula to encourage colleges to control costs and offer need-based aid to prevent excessive indebtedness. Instead of being serviced by the colleges, the loans would be serviced by the Department of Education along with other Federal loans. The loans would have the same low 5 percent interest rate and allowed loan amounts (both undergraduate and graduate) as in the current Perkins program. Institutional loan forgiveness costs on existing loans, currently supported by discretionary appropriations, would be fully funded from the Federal share of Perkins Loan collections. To make the loans available to more students and help finance the expanded Pell Grant, interest on the loans would accrue while students are in school. Overall, this proposal will save $3.2 billion over 5 years.

Leveraging Educational Assistance Partnerships

  2008 2009 2010
Request
 
B.A. in millions $63.9 $63.9 $63.9
Aid available ($ in millions) 162.0 162.0 162.0
 
Recipients (in thousands) 162 162 162
Average award $1,000 $1,000 $1,000

The Leveraging Educational Assistance Partnership (LEAP) program encourages State investment in need-based grant and work-study assistance to eligible postsecondary students. Federal contributions leverage a minimum dollar-for-dollar match from the State. Appropriations in excess of $30 million are reserved for the new Grants for Access and Persistence (GAP), created by Congress in 2008 to replace the Special LEAP program. During a 2-year transition period beginning with the 2009-2010 award year, States can choose to participate in either Special LEAP or GAP; for 2009-2010, all States have chosen to participate in Special LEAP. Under GAP, States may expand partnerships with institutions, private and philanthropic organizations, and community groups to encourage low-income students to attend and complete a higher education; provide need-based grants to encourage access and persistence; provide early notification to low-income students of their eligibility for need-based aid; and encourage participation in early intervention, mentoring, and outreach programs. The Federal share of these new activities cannot exceed 66.66 percent.

Academic Competitiveness Grants/SMART Grants

  2008 2009 2010
Request
 
B.A. in millions $395.0 $73.0 $1,386.0
 
Rescission of unneeded balances 525.0
Postponement of authority to 2010 887.0
Cancellation of unneeded balances 511.0
 
Academic Competitiveness Grants      
 
   Recipients (in thousands) 488,000 783,000 865,000
   Aid available to students ($ in 000s) $372,000 $554,000 $608,000
   Maximum grant      
     First-year student $750 $750 $750
     Second-year student $1,300 $1,300 $1,300
   Average grant $768 $787 $762
 
SMART Grants
 
   Recipients 78,000 127,000 131,000
   Aid available to students ($ in 000s) $221,000 $331,000 $337,000
   Maximum grant $4,000 $4,000 $4,000
   Average grant $3,194 $3,291 $3,176

These programs award need-based Academic Competitiveness Grants (ACG) to first- and second-year undergraduates who complete a rigorous high school curriculum, and National Science and Mathematics Access to Retain Talent (SMART) Grants to third- and fourth-year undergraduates majoring in physical, life, or computer sciences, mathematics, technology, engineering, or a critical foreign language. All funding is mandatory, so annual discretionary appropriations are not required.

Academic Competitiveness Grants are awarded to students who are eligible for a Federal Pell Grant. First-year applicants, who may receive up to $750, also must be first-time undergraduates who have completed a rigorous secondary school program and are enrolled or accepted for enrollment in a 2- or 4-year degree-granting institution. Second- year ACG applicants qualify for an award of up to $1,300 if they have completed a rigorous program and maintained a cumulative grade point average of at least 3.0 during their first year as an undergraduate.

SMART Grant applicants must maintain a cumulative GPA of at least 3.0 in the coursework required by their major to qualify for up to $4,000 for their third and fourth years of undergraduate study. SMART Grants, in combination with the Federal Pell Grant and other student financial assistance, may not exceed the student's cost of attendance.

Participation trends during the first 3 years of these programs indicate future funding will substantially exceed the amounts needed to support anticipated grant awards. Congress rescinded $525 million in unneeded ACG/SMART balances in 2008 and delayed the availability of $887 million from 2009 to 2010. The Administration proposes to cancel an additional $551 million in unneeded balances in 2010. The ACG/SMART programs expire after 2010.

TEACH Grants

  2008   2009   2010
Request
 
 
BA in millions $7.0   -$2.0 1 -$2.0 1
 
   Recipients 8,000   17,000   25,000  
   Aid available to students ($ in 000s) $25,000   $50,000   $75,000  
   Maximum grant $4,000   $4,000   $4,000  
   Average grant $3,125   $2,941   $3,000  

   1Negative numbers indicate projected revenue from loan repayments exceed projected costs.

The TEACH Grant program, which began operations on July 1, 2008, awards annual grants of up to $4,000 to eligible undergraduate and graduate students who, within 8 years of graduation, agree to serve as a full-time mathematics, science, foreign language, bilingual education or other English language program, special education, or reading teacher at a high-need school for not less than 4 years. For students who do not fulfill this service requirement, grants are converted to Direct Unsubsidized Stafford Loans, with interest accrued from the date the grants were awarded.

For budget and financial management purposes, this program will be operated as a loan program with 100 percent forgiveness of outstanding principal and interest upon completion of a student's service requirement. The Administration currently estimates approximately 80 percent of participating students will not complete the required service and thus will have their grants converted to Direct Unsubsidized Stafford Loans. Consistent with the requirements of the Credit Reform Act of 1990, budget authority for this program reflects the estimated net present value of all future non-administrative Federal costs associated with awards in a given fiscal year.

College Access and Completion Fund

  2008 2009 2010
Request
 
BA in millions $500.0

The request would invest $500 million in 2010 and $2.5 billion over 5 years in this initiative to build a Federal-State-local partnership to improve college success and completion, particularly for students from disadvantaged backgrounds. This time- limited, mandatory program would make flexible grants for States and national entities to undertake innovative programs designed to increase postsecondary enrollment and completion, with an emphasis on efforts that produce data for evaluation and improvement. This effort will expand the knowledge base about what works in increasing college enrollment and graduation and disseminate these best practices. States would be able to use a portion of the funds to continue college outreach and information activities now supported through FFEL program subsidies.

Federal Family Education Loans and Direct Loans

  2008   2009   2010
Request
 
 
   Federal Family Education Loans            
   New Loan Subsidies (BA) -$503.0 1 -$5,980.6 1 -$2,729.1 1
   Net Modification of Existing Loans -2,464.3 2 -2,640.4 2  
   Net Re-estimate of Prior Loans 990.0 3 -15,952.7 3  
     Total, FFEL Program BA
-1,977.4
 
-24,573.8
 
-2,729.1
 
 
   Direct Loans            
   New Loan Subsidy (BA) -652.5 4 -6,712.5 4 -13,847.3 4
   Net Modification of Existing Loans 4,143.3 2    
   Net Re-estimate of Prior Loans 584.5 3 119.4 3  
     Total, New Budget Authority
4,075.3
 
-6,593.4
 
-13,847.3
 
     Total, Student Loans (BA)
2,097.9
 
-31,167.2
 
-16,576.4
 

   1Total includes amount for Consolidation Loans, but does not include the Liquidating Account, which deals with costs associated with loans made prior to 1992.
   2Under Credit Reform, costs or savings related to the impact of policy changes on existing loans are reflected in the current year. Amounts for 2008 reflect the impact on existing loans of the College Cost Reduction and Access Act; amounts for 2009 reflect the impact of the Ensuring Continued Access to Student Loans Act.
   3 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 long-term projections. In 2008 and 2009, Direct Loans re-estimates primarily reflect revised interest rate assumptions, and in 2008, revised assumptions related to income-contingent repayment. FFEL re-estimates are driven primarily by updated interest rate, deferment and forbearance, enter repayment, and teacher loan forgiveness assumptions, with interest rates by far the largest single factor. Re-estimates and modifications reflect the impact of changes on outstanding portfolios of over $440 billion for FFEL and nearly $120 billion for Direct Loans.
   4Total includes amount for Consolidation Loans.

New loan volume (in millions)

  2008   2009   2010
Request
 
 
   Federal Family Education Loans $57,296   $63,980   $38,293  
   Direct Loans 18,213   21,836   53,367  
     Total
75,509
1
85,816
1
91,660
1
 
Number of New loans (in thousands)            
 
   Federal Family Education Loans 12,698   14,185   9,093  
    Direct Loans 3,730   4,536   10,670  
     Total
16,428
1
18,721
1
19,763
1

   1In addition, Consolidation Loans for existing borrowers will total $37 billion and 495,000 loans in 2008, $17 billion and 480,000 loans in 2009, and $20 billion and 531,000 loans in 2010.

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 FFEL program makes loan capital available to students and their families through private lenders. State and private nonprofit guaranty agencies 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 75 percent of new student loan volume.

Under the Direct Loan 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 25 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:

Ensuring Continued Access to Student Loans

Due to significant disruptions in the credit markets, in early 2008, FFEL lenders began expressing concerns that there would be insufficient capital to make FFEL loans to all eligible recipients for the 2008-2009 academic year. In response, Congress enacted the Ensuring Continued Access to Student Loans Act (ECASLA), which provided the Department of Education with authority to purchase student loans. Using this authority, the Department established several programs intended to ensure the availability of student loans. Through the Loan Participation Interest program, the Department purchased a 100-percent interest in any eligible Federal student loan originated during the academic year by a FFEL lender; in other words, the Department provided all of the funds for the loan. On or before September 30, 2009, the lender can either purchase back from the Department its interest in a loan (paying the Department a yield of the Commercial Paper rate plus 50 basis points) or sell the entire loan to the Department in return for a fixed amount to cover the lender's expenses (such as origination and servicing). Between this program and the Direct Loan program, over 60 percent of Federal student loan volume in the 2008-2009 academic year will be financed through capital provided by the Department of Education. The Department also established a Loan Purchase program committing to purchase any eligible loans originated by a FFEL lender during the academic year for face value plus a fixed amount to cover expenses.

Given the continued concerns around capital liquidity, the ECASLA authority was extended for the 2009-2010 academic year. The Administration has announced it will replicate the Loan Participation and Loan Purchase programs. In addition, the Department will support an Asset-Backed Commercial Paper Conduit. A conduit facilitates financial transactions similar to those involved in a typical securitization: investors purchase commercial paper (backed by student loan assets) which mature and are reissued. Interest on the commercial paper is paid from student loan repayments and any net gain on the reissuance. Though the hope is the conduit will provide liquidity to FFEL lenders without Federal intervention, the Department, using its ECASLA authority, will serve as a buyer-of-last-resort in cases when the conduit is unable to refinance maturing commercial paper.

Fiscal Year 2010 Budget Request

The Administration asks Congress to reform the Federal postsecondary student loan programs by originating all new loans using Federal capital, eliminating unnecessary subsidies to private financial institutions, and ensuring the continued availability of Federal loans for students. The request would take advantage of low-cost and stable sources of capital available under Direct Loans so that students are ensured access to loans and provided high-quality servicing by using competitive, private-sector providers to process loans and payments. Moreover, this proposal would save $21 billion over 5 years, savings that would be reinvested in student aid through the expanded Pell Grant program.

Career, Technical, and Adult Education  Table of contents  Higher Education Programs

For further information contact the ED Budget Service.

This page last modified—May 7, 2009 (mjj).