Federal Policy Update
To:        AASCU Presidents and Chancellors
From:   Ed Elmendorf, Sr. VP of Government Relations and Policy Analysis
             Robert Moran, Director of Federal Relations and Policy Analysis
             Thomas L. Harnisch, Policy Analyst
Re:       Debt-Ceiling Compromise
Date:    August 2, 2011
*** Information Advisory ***
President Obama and Congressional leaders agreed to a compromise plan late Sunday that will raise the nation’s debt limit and simultaneously outline a path to spending reductions over the next decade. The legislation was passed by the House on Monday by a vote of 269-161 and the Senate today by a vote of 74-26. It will be signed by President Obama later today avoiding a default by the nation. The measure includes key provisions for student financial aid programs.
AASCU would like to thank members who reached out to their congressional delegation in order to protect funding for the Pell Grant program. The compromise legislation provides strong financial backing to the Pell Grant program in the near-term and preserves the maximum award at $5,550.  
The legislation includes the following:
General Provisions:
  • The plan would reduce budget deficits “up front” by $917 billion between 2012 and 2021 through discretionary spending caps.
  • It creates a joint, bipartisan deficit reduction committee to find an additional $1.5 trillion in deficit reduction from all potential funding sources, including tax and entitlement reform, by December 23rd.
  • If the committee fails to reach an agreement that achieves at least $1.2 trillion in deficit reductions, automatic across-the-board cuts in discretionary spending of $1.2 trillion will be enacted. This will include 50% from defense spending and 50% from non-defense accounts. Social Security, Medicaid, Veterans Benefits, and other essential benefits will be exempt from automatic cuts. The Pell Grant program is exempt from cuts, but other ED programs will be eligible for budget reductions.
  • The plan will give the President immediate authority to raise the debt ceiling by $400 billion, with an additional $500 billion subject to resolutions of disapproval by the House and Senate. The President will be allowed to raise the debt ceiling by another $1.2-$1.5 trillion in accordance with the actions of the joint deficit committee.
  • The legislation will require each legislative chamber to vote on a balanced budget amendment between October and December.
Education-Related Provisions:
Pell Grants:
  • The bill would provide $10 billion for FY2012 and $7 billion for FY2013 for the Pell Grant Program. Those funds would supplement annual program appropriations while not completely eliminating the funding gap.
  • The maximum Pell award will remain at $5,550 for academic year 2012-2013.
  • The funding is paid for in savings derived from changes to student loan programs.
Student Loans:
  • The bill would eliminate the in-school interest subsidy on subsidized student loans for graduate students, but exempts students who are enrolled in a course of study necessary to obtain a degree or certificate and those students enrolled in a program for a professional credential or certification from a State that is required to be an elementary or secondary school teacher.
  • The bill would end nearly all borrower incentives offered by the Secretary to encourage on-time repayment of federal student loans. Currently, the Secretary offers a .5% rebate of the origination fee to borrowers who have 12 on-time loan payments which would not longer be offered. The Secretary may continue to offer a reduced interest rate to borrowers who enroll in electronic payment.
  • The projected 10 year savings from these two provisions is $21.6 billion of which $4.6 billion will be devoted to deficit reduction.  
However, key challenges remain for the higher education community on Capitol Hill in the coming months ahead. The joint deficit committee, set to convene later this year, is charged with finding $1.5 trillion in federal budget cuts from discretionary and mandatory spending accounts, entitlement reform, and tax reform.  This could mean that education programs like Perkins Loans, TRIO and GEAR-UP programs, and other higher education accounts could be targeted for cuts, including Pell Grant Program reform proposals. The joint committee is operating under the following expedited timeline:

August 16, 2011: Appointment of the 12 member committee, including co-chairs.
October 14, 2011: Deadline for any House or Senate Committee to submit recommendations of deficit reductions to the joint committee.
November 23, 2011: Deadline for joint committee to adopt a package of savings.
December 2, 2011: Joint committee submission of report and legislative language to the President, House, and Senate.
December 23, 2011: Both chambers of Congress must have acted on the joint commission’s legislative proposal.
If you have any questions, please do not hesitate to contact Robert Moran, AASCU Director of Federal Relations, at moranr@aascu.org or call (202) 478-4653.

Other Resources:
Text of Budget Control Amendment (U.S. House Rules Committee, Education Programs on Page 71) 
CBO Analysis on Budget Control Act (Congressional Budget Office, 8/1/2011)
Budget Fact Sheet (The White House, 8/1/11)
Short-Term Stability, But… (Inside Higher Ed, 8/1/11)

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