Federal Policy Update
To:       AASCU Presidents and Chancellors
From:   Ed Elmendorf, Sr. VP of Government Relations and Policy Analysis
             Bob Moran, Director of Government Relations and Policy Analysis
             Blakely Whilden, Assistant Director of Government Relations and Policy Analysis
Re:       Information Advisory: President’s Proposed Fiscal Year 2012 Budget
Date:   February 15, 2011
Information Advisory
Yesterday, the President released his budget proposal for fiscal year 2012 (FY12). Overall, it calls for a funding level of $1.116 trillion, not including a $126.5 billion request to continue operations overseas. Breaking these numbers out further yields a request for security funding at $719.4 billion and non-security, discretionary funding at $396.8 billion. Of that latter number, $77.4 billion would be directed to education programs. The following narrative highlights various higher education accounts and spending priorities. Please see President Howard’s statement about the budget here. AASCU will be in touch with you as discussions on the proposed FY12 budget develop.
Pell Grant Program
The Administration request would maintain the maximum Pell Grant award at the current $5,550 level. This would be divided into a discretionary grant of $4,860 and a mandatory add-on of $690, just like the current award. In order to sustain that award level moving forward, roughly $15 billion annually in additional discretionary funds would need to be directed into the program. Given the atmosphere of reduced spending, the President proposed an offset to reduce this funding gap. Specifically, the proposal would eliminate the Year Round Pell (YRP) Program and eliminate the in-school interest subsidy payments for students who took out loans for graduate school with the savings being directed into the program.
The YRP Program was initially designed to allow those students who wanted to complete a degree in an accelerated time frame to receive additional Pell Grant funding, sometimes referred to a second Pell Grant, during their summer course period. According to the Department of Education, students receiving YRP are not sufficiently accelerating through their degree or certificate programs so the Department has decided to eliminate the program. The estimated savings for this proposal is over $60 billion over 10 years.
The Administration budget requests a total funding level of $36.3 billion in order to maintain the $4,860 award level. The budget provides for part of this funding on the discretionary side at a level of $28.6 billion with an additional $7.7 billion being directed from savings in mandatory programs. The President and the Administration should be commended for providing most of this funding as discretionary funding.
In addition, the budget request continues funding the Supplemental Education Opportunity Grant program at its current level of $757.5 million. These grants are discretionary grants awarded by campuses to Pell eligible students in order to make college more affordable. In addition, Federal Work Study funding is maintained at $980.5 million. The Leveraging Educational Assistance Program (LEAP) is eliminated as it has been in the past several proposed Administration budgets.
Federal Loans
The President proposes savings through the various federal loan programs. Currently, some students hold both a Federal Family Education Loan Program (FFEL) loan and a Direct Loan Program (DL) loan. As a result, the student must be responsive to two or more servicers. The Administration budget proposes allowing these students to reduce the confusion of paying two or more loan holders by allowing the borrower to choose to pay the Department of Education for all loans. The borrower would not be required to consolidate their loans, but simply request the transfer of the loans. Savings from this proposal may be used to address the shortfall in the Pell Grant program.
In addition, this budget follows past Obama Administration budgets in its effort to expand the current Perkins Loan Program. Currently, the Perkins Loan Program is administered by institutions, which are required to match a portion of the funds with institutional dollars. As these loans are repaid by students, the institution is able to make additional loans with the funds. Currently, the program functions with a budget of about $6 billion, with nearly $1 billion issued in new loans each year through the revolving nature of the program. The Administration has included a proposal to recall the $6 billion minus the institutional match portion, increase the program budget to $8.5 billion and allow more institutions to award these loans. However, the loans would be completely issued and serviced by the federal government. The interest rate on a Perkins Loan would be set at 6.8%. Interest on the loans would accrue while the students are in school.  Interest does not accrue while students are in school under the current Perkins program.
Teacher Preparation
The FY12 budget request again calls for a restructuring of funding for teacher preparation programs. The proposal calls for the elimination of the current TEACH Grant program, and replaces it with the Presidential Teaching Fellows program (PTF). The Administration is requesting $185 million in mandatory funds for the PTF program for grants to states that upgrade licensure and certification requirements, hold the least effective teacher preparation programs accountable, and provide recognition to effective classroom teachers. The majority of the funds received by the state would be directed to students in these programs in the amount of up to $10,000 scholarships in order to defray the costs associated with the final year of preparation.
The budget also contains a $40 million request for the creation of Hawkins Centers of Excellence. This program is designed to increase the number of effective minority educators by expanding and improving teacher preparation programs at minority serving institutions. Awards under this program are proposed to be at least $500,000 annually for up to 5 years. The PTF program and the Hawkins Centers of Excellence would fall under the jurisdiction of the Higher Education Act accounts.
In addition, the Administration again proposes to restructure the funding for various federally funded programs for improving teaching, including the Teacher Quality Partnership Grants. Programs for teacher and leader preparation are included under Excellent Instructional Teams, which is divided into in three funding streams under the Elementary and Secondary Education accounts:
1) Effective Teachers and Leaders : These grants would be directed to states to increase teacher effectiveness and to ensure equitable distribution of high quality teachers.
2) Teacher and Leader Innovation Fund: This is a proposed competitive grant program to states and local school districts to reward and retain effective teachers in high-need schools and districts. The Teacher Incentive Fund is consolidated under this budget line.
3) Teacher and Leader Pathways: This program would support the creation or expansion of high-quality pathways, as well as promote the recruitment, preparation, and retention of effective principals and school leaders in low-performing schools. The Teacher Quality Partnership program, Teach for America, Transition to Teaching, and two other programs are consolidated under this budget line.
Higher Education Program Funding
The President requested level funding for all of the Title III and Title V programs which include funding for school improvement, Historically Black Colleges and Universities, Hispanic Serving Institutions, Predominantly Black Institutions, Asian American Pacific Islander Institutions, and Tribal Colleges and Universities. Further, the President is asking for a $67 million increase for the TRIO programs, specifically targeted to the Upward Bound program, which will be losing $57 billion in mandatory funds at the end of this fiscal year. Overall the request amounts to a $10 million increase over the previous years’ level. The GEAR-UP program is level funded at $323 million in the proposed budget.
The Administration’s proposed budget consolidates the Javits Fellowship program with the Graduate Assistance in Areas of National Need (GAANN) at a funding level of $40.7 million. The Administration estimates that 909 fellowships could be awarded under the program.
Finally, the Administration proposes a new program called College Completion Incentive Grants at a funding level of $50 million. States would compete for these funds in order to pursue methods for increasing college completion. It is anticipated that up to 25 states would receive a $2 million award, which would then provide payments to schools to encourage better outcomes for students. States would be required to set benchmarks for attainment. Every institution is eligible to receive funds, but participation by public schools is mandatory.
Higher Education Tax Proposals
The Administration proposes making permanent the American Opportunity Tax Credit (AOTC). The AOTC is a partially refundable tax credit of up to $2,500 per student per year, and benefits almost 8 million students per year. Additionally, the Administration’s budget would extend the deduction of qualified tuition and related expenses through next year. 
Additionally, the Administration proposes making the balance of loans for students taking advantage of the income-contingent (ICR) and income-based repayment (IBR) programs tax-exempt beginning January 1, 2012.
These are the major highlights of the President’s higher education funding request for FY12. The release of the budget is the beginning to a very long and sometimes tedious process that is supposed to culminate in the fall with the passage of twelve appropriation bills. Should you have any questions about the budget request or process, please do not hesitate to contact us. AASCU staff will continue to review the other funding streams in the President’s budget request, including major research accounts, and provide further information.

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