AGB Alert: Federal Student Aid Likely Target of Budget and Debt-Ceiling Negotiators

As you are probably aware, the White House and Congressional leaders are in serious negotiations about reducing levels of federal spending, deficit reduction, and raising the federal debt ceiling – the statutory limit on the country’s borrowing authority. The House of Representatives is scheduled to act on student-aid spending by the end of July, and the deadline for action on the debt ceiling is August 2.

With widespread concern that increasing annual federal deficits and the cumulative national debt (now over $14 trillion) will harm long-term economic growth and national prosperity, White House and Congressional negotiators are wrestling with potentially large cuts to discretionary programs, defense spending, and entitlement programs such as Social Security and Medicare. They are also considering whether to raise new federal tax revenues. Federal student-aid programs (Pell Grants, Student Loans, and Supplemental Opportunity Grants) are not exempt or protected in these negotiations and are among the many programs that the negotiators are discussing for potential reduction.

Regardless of when negotiators reach an agreement on extending the debt ceiling or whether such an agreement is long or short term, the potential exists for substantial reductions in federal student aid. The Pell Grant program, the cornerstone of federal student-aid programs, may be the most vulnerable. Currently, it serves more than 9 million students and costs $35 billion. At some institutions two-thirds or more of the student body is Pell supported. Changes in the other aid programs are also possible, most notably student loans. Elimination of the “in-school interest subsidy,” which exempts low-income students from accumulating interest on their loans while in school, is on the table.

If reduced levels of student aid are of concern to you, your students, and your institution, you may wish to send a message to your congressional representatives and senators expressing concern. This would best be done in coordination with your president and other board leaders. The message can be direct but simple: Briefly explain the importance of current federal student-aid programs to your institution and your students, stating, for example, the impact steep federal aid reductions could have on student access and enrollment, as well as retention and completion.

The potential impact of cuts in federal student-aid programs on your student body and on your institution should guide your decision to act. These questions may help:

• What percent of our student body receives Pell Grants? What is the average award?
• How might our low-income and middle-income students be affected if aid was reduced?
• What percent of our students receive federal loans and other federal grant support?
• Could our institution replace lost funding from other sources if federal programs were substantially reduced?
• What effect might student-aid reductions have on our enrollment and institutional budget?

Please feel free to call me if I can assist you on this important issue.

Sincerely,

Richard D. Legon
President, Association of Governing Boards of Universities and Colleges