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Congress Passes Budget Bills, Leaving

Congress Passes Budget Bills, Leaving
Many Higher Education Programs at Risk

Cuts in loan programs may result in higher interest rates for students, parents
By Charles Dervarics

Despite widespread opposition from many higher education groups, Congress is finishing work on 2006 budget bills that will leave most higher education programs with either level funding or cutbacks next year.

The biggest changes are likely in student loan programs, where a sharply divided House of Representatives and Senate have approved $12.7 billion in cutbacks that will force many students to pay higher interest rates. Lawmakers also dropped earlier plans to increase the maximum Pell Grant, and small across-the-board cutbacks may end up slicing funds from college work-study and other programs that had expected at least level funding for 2006.

The greatest concerns for students are the loan provisions, which are likely to increase interest rates in both the Stafford loan program and the Parent Loan for Undergraduate Students (PLUS) program. The cuts are part of a large and controversial package of budget reductions that left the Senate evenly divided. Vice President Dick Cheney, the president of the Senate, cut short a visit to the Middle East to cast the deciding vote, squeaking the bill through the Senate 51-50. The bill had earlier passed the House by a 212 to 206 margin.

“At a time when the entire country believes we need to make higher education more affordable, Congress is trying to balance the budget on the backs of students,” says Jasmine Harris, legislative director for the United States Student Association. It is particularly troubling that student loans are taking a disproportionate share of all the budget cuts in this deficit reduction bill, she says.

“Conservatively speaking, this bill generates 70 percent of its cuts from student loan borrowers,” agrees Luke Swarthout, a higher education associate with the State Public Interest Research Group. And loan lenders can pass any of their new costs on to students, he adds. “This bill is truly an outrage to lower- and middle-class families that hope to send their children to college.”

The legislation makes a major change in current law by denying students a chance to lock in low long-term fixed interest rates for key loans. As a result, Harris says, the average interest rate on Stafford Loans will increase from 4.7 percent to 6.8 percent next year. Average rates on PLUS loans may jump about 1 percentage point, to 8.5 percent.
“This is unfair and inadequate,” she says. Also troubling is Congress’ goal to use the savings for additional tax cuts. “Some of this savings will go toward providing tax cuts for the wealthiest Americans.”

The House and Senate agreed to plow some of the $12.7 billion in savings into new programs. For example, Congress would spend $3.7 billion to help low-income but high-achieving students and to reward students with high GPAs during the first year of college. But the net loss to financial aid programs will make it harder for many families to afford college, Harris says.

Those supporting the measure, however, say it will provide many gains.
“On balance, I believe it is a positive first step in restoring fiscal responsibility on behalf of all Americans, from students and families to workers and retirees,” says Rep. John Boehner, R-Ohio, chairman of the House Committee on Education and the Workforce.

In addition to a new grant program for students, the bill would lower some loan fees and increase student and family loan limits. It also provides for a simpler financial aid application process, Boehner says.

But the deficit reduction bill would cut funds for Medicaid, child support enforcement and foster care, among other programs. In the Senate, five moderate Republicans broke with their party to oppose the measure, resulting in the 50-50 vote eventually broken by Cheney.

While garnering most of the recent attention on Capitol Hill, the deficit reduction legislation is just one of several major bills affecting education spending. House and Senate negotiators also have approved
a separate spending bill funding U.S. Department of Education activities for 2006.

As part of that bill, the federal government’s main HBCU program would receive $240.5 million, up nearly $2 million from current funding. HBCU graduate programs would get $58.5 million, an increase of $468,000. Hispanic-serving institutions would receive $95.8 million, up nearly $800,000 from current funding.

But the maximum Pell Grant for needy students would remain at $4,050 for another year. Earlier in 2005, the House had proposed a $50 increase in the grant, but that plan did not survive the final House/Senate negotiations.

Many other financial aid and higher education programs would receive only level funding next year, as lawmakers cited severe budget constraints. Among those falling into this category include:

-TRIO programs: $836.5 million;
-Work-study: $990 million;
-Tribal colleges: $23.8 million;
-Supplemental education grants: $779 million; and
-Leveraging Educational Assistance Partnerships (LEAP): $65.6 million.

For LEAP, the freeze represents a victory of sorts. The White House had called for termination of the program last winter.

Elsewhere, Howard University will receive a $1 million increase, for a total of $239.8 million.

Congress also approved an increase for the federal program that allows Washington, D.C., residents to pay in-state tuition rates at public colleges nationwide. The D.C. Tuition Assistance Grant program would receive $33 million next year, up from $25 million, due to increased demand. The program also provides some support for Washington, D.C., high school graduates who attend certain private institutions.

But while lawmakers have endorsed all of these funding recommendations for 2006, there is still one obstacle — unique to Congress — that may prove costly. That barrier may come in the form of a proposed across-the-board budget cut that would apply to virtually all federal education programs.

Designed to find additional budget savings with little political pain, House and Senate leaders in separate legislation are seeking a 1 percent across-the-board cut to most federal programs. As a result, work-study would lose about $4.5 million, while HBCUs, TRIO and other programs would lose a small amount of money. Across-the-board reductions are generally more palatable to lawmakers than having to vote separately to slice funds from individual program budgets.

Such a cut would trim the federal budget by nearly $9 billion, says the Center on Budget and Policy Priorities, a Washington, D.C., think tank. Only veteran’s health care is likely to be exempt from that reduction.

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