The Bush Budget, 2008

Administration's spending blueprint would increase Pell Grants -- by cutting lender profits and other aid programs.
February 6, 2007

As promised, President Bush delivered a 2008 Education Department budget proposal on Monday that would increase the maximum Pell Grant to $4,600 in the coming fiscal year and to $5,400 by 2012. And as expected, he proposed doing so partly by reshuffling funds from several other grant programs for low-income students, and partly by further cutting into the profit margins of banks and guarantee agencies in the student loan industry, drawing howls of protest from lobbyists for students and lenders alike.

Even in the best years, presidential budget requests are of uncertain value, because they mark only the starting point for a long and often tortured process of deliberation, negotiation and, sometimes, outright war. The value of the White House's 2008 budget is diminished further because Congress has yet to finish its work on the final budget for the 2007 fiscal year. That reality renders the numbers in the Bush budget for 2008, if not meaningless, at least hazier and fuzzier than usual.

The budget picture is complicated even further by the fact that the administration would seek to pay for some of its new initiatives with changes in mandatory spending programs that would require the kinds of major alterations in federal student aid law that legislators are loathe to make in the budget-setting process.

The more than $2 billion that the department would try to squeeze from lender profits to pay for the 2008 Pell Grant increase, for instance, would be possible only if Congress were to include such changes in legislation to renew the Higher Education Act, or pass a complicated budget reconciliation measure, in conjunction with the annual appropriations bills. Those prospects are dicey, casting further doubt on the likelihood that the Bush budget numbers will come to pass. (For a look at the administration's budget for academic research programs, see this related article.)

Still, in broad strokes, the Bush administration has made some important statements with its 2008 budget for higher education, many of which echo points made in last fall's report by the Secretary of Education's Commission on the Future of Higher Education. In proposing the first significant increase in the Pell Grant Program in several years, the Education Department endorsed a major call in that report for improving access to college for the country's financially neediest students, much to the satisfaction of college leaders.

At the same time, in seeking to finance that increase in part by gutting some other financial aid programs, notably the Supplemental Educational Opportunity Grant (SEOG) Program, the Bush administration has appeared to throw its weight behind the Spellings Commission's vague but persistent call for "replacing the current maze of financial aid programs" and for a "complete restructuring of the current federal financial aid system." But it has embraced that call, some college officials suggested, without having undertaken any sort of study about the best way to do so.

"These programs are created with a purpose, so before we go about eliminating them, let's figure out whether they're working or whether they're helping to address an affordability issue," said Tom Babel, vice president for student finance at DeVry Inc. "I don't think you solve issues by blowing up one program and putting money in another."

Among other major elements, the 2008 budget for the Education Department would:

  • Increase the maximum Pell Grant by $550 over the current level (or $290 over the $4,310 amount the 2007 budget plan Congressional leaders are crafting would raise it to) in 2008 and by $200 more each year until it hit $5,400, in 2012. The administration's plan would also make some programmatic changes to the Pell Grant Program, making the grants available year-round, limiting a student to 16 semesters on the grants, and eliminating a rule that awards bigger grants to students at costlier institutions (a concept known "tuition sensitivity"), among other things.
  • Pay for the Pell Grant increase in part by adding the SEOG Program (which received $770 million in 2006, the last complete budget year) to the list of student-aid programs that the Bush administration has tried to kill in recent years, joining the Perkins Loan Program and the Leveraging Educational Assistance Partnerships Program, which provides federal matching funds to states that provide need-based aid. Congress has fought to save those programs from the budget axe, and higher education lobbyists are hoping they do the same with SEOG, which provides grants of up to $4,000 to the neediest of students, most of whom also receive Pell Grants.
  • Break with recent Bush administration tradition and not seek to slash funds for the TRIO and Gear Up programs, both of which offer services aimed at encouraging low-income middle and high-school students to attend college. Although the administration has argued in past years that the programs are ineffective and that the president's signature No Child Left Behind program would better accomplish their goals, it appears to have changed its tune this year.
  • Increase by 50 percent the amount that individual students would receive in 2008 through the Academic Competitiveness Grants Program, one of two new federal programs (the other is the National Science and Mathematics Access to Retain Talent Grant Program) created last year to encourage more low-income students to enter science, math and other high-demand fields. First-year recipients in the competitiveness program would grow to $1,125 from $750, and second-year grants would reach $1,950 from the current $1,300. While the administration seeks an additional $330 million for the ACG and SMART programs in 2008, it would finance some of the increase with funds that have apparently gone unspent by colleges in the programs' first year, as they have struggled to find students who qualify under the programs' severely restrictive criteria. A department official said at a budget briefing Monday that only $140 million of the $790 million appropriated by Congress for 2006 have been tapped so far, although many colleges have not submitted their claims yet.
  • Cut spending for state grants through the Carl D. Perkins Career and Technical Education Act of 2006 to $600 million from the $1.182 billion the program is expected to receive in 2007, and eliminate the $104.8 million awarded through the Perkins act's Tech-Prep Program, which provides technical education funds to help students make the transition between high school and community colleges. The White House had proposed ending the Perkins program in recent years, and administration officials sought to portray the fact that they weren't seeking to do so this year as an advance. But advocates for work force training noted that Congress had renewed the Perkins law last year, strengthening the program's accountability provisions, and that President Bush had signed the bill renewing the law. The decision to cut the program perplexed them.
  • Raise annual loan limits for juniors and seniors by $2,000 each, which would be the first such increase in 15 years. The budget documents also suggest that the administration plans to raise the limit on what students can accumulate on loans throughout their educational careers, but the plan is mum on what the ceiling might be. (Update: Supplemental documents provided by the department Tuesday indicated that the plan would raise aggregate loan limits by $7,500, to $30,500 from the current $23,000 for dependent students and independent students with subsidized loans, and to $53,500 from $46,000 for independent students who also have unsubsidized loans. Graduate students would be able to borrow up to $73,000 in subsidized loans and $156,000 in all federal loans.)
  • Provide $25 million through the National Center for Education Statistics to "conduct a pilot study on the development of a postsecondary student level data system that is essential for computing postsecondary completion rates and measuring the true costs of higher education." This is another apparent nod to the Spellings Commission, in pursuit of the panel's call to create a "unit records" system that would help track students' progress through the educational system. Itis not clear from that language whether this proposal would include private institutions, which have severely objected to the idea. The Bush budget also would provide $25 million in new funds for awards to states to develop their own longitudinal data systems.

The Push for Pell

After a four-year drought in which the maximum Pell Grant has stayed frozen at $4,050, the administration proposed increasing that level to $4,600, which Education Secretary Margaret Spellings heralded as the biggest such increase in 30 years. The administration's proposal follows by just a few days passage by the House of Representatives of a 2007 budget bill that would increase the maximum Pell Grant to $4,310 (legislation that is expected to pass the Senate, too), which stole some of the thunder of the Bush proposal.

The fact that the White House is joining Congressional leaders in endorsing a big increase in the government's primary need-based aid program ought to have college leaders "dancing in the streets," as Becky Timmons, assistant vice president for government relations at the American Council on Education, put it at an Education Department budget briefing Monday. But they're not, she said, because the department has tied the proposed increase for the government's primary need-based aid program to cuts in others.

Particularly jarring to many college officials was the inclusion on the Bush administration's hit list this year of the Supplemental Educational Opportunity Grant Program, which the Education Department's budget plan criticized for its "outdated" formula for how funds are distributed, among other things.

The SEOG program, like the Perkins Loan Program and the Federal Work Study Program, distributes funds to campuses through a formula that is based partly on when they entered the program, which tends to favor colleges that have been in the student aid programs for a long time.

In addition, while most of the SEOG funds go to the neediest of Pell Grant recipients, they also can go to middle class students who just miss the income cutoff for Pell Grants, leading the department to complain that the grants are "not optimally allocated based on a student's financial need." Sara Martinez Tucker, under secretary of education, said at the department briefing that money is concentrated in too small a number of recipients, and that the program is proportionally much costlier to operate than the Pell program is.

But advocates of the SEOG program bristle at the idea that the program somehow fails to help needy students. Babel of Devry, which distributes about $8 million in SEOG funds to about 8,000 students each year, says all of that money goes to Pell Grant recipients. The president's proposal would have the ironic effect of replacing those grants -- which for many amount to $2,000 a year -- with Pell Grants that grow by only a few hundred dollars year, leaving many of DeVry's students worse off, Babel said. Some of those students would see their loan burden grow, but for others, he said, the loss of as much as $1,000 in aid a year could mean some of them are deterred from college altogether.

Nationally, according to an analysis by officials at the American Council on Education, 1 million of the 1.3 million SEOG recipients would receive less under the president's plan than they do under the current system.

Officials at private colleges say that the availability of SEOG funds have helped them to bring the typically higher cost of their institutions within reach of lower-income students. At the Massachusetts Institute of Technology, many students receive a federal SEOG grant of $4,000, which is supplemented by another $1,000-plus in institutional SEOG funds, says Elizabeth M. Hicks, executive director of student financial services there. Having SEOG among the full complement of federal financial aid programs, she said, helps ensure that students are "able to attend their institution of choice, and to benefit from the "wonderful diversity of higher education institutions."

"There's a legitimate, broader discussion to be had about what the purpose of all these programs are, and how many grant programs you need," said Hicks. "But I'd like to see a real discussion about that, rather than just immediately moving funds from one program to another. This looks like a quick fix to address a complex problem that needs greater discussion."

Lex O. McMillan III, president of Albright College, said at a meeting of the National Association of Independent Colleges and Universities that about one-third of his students receive Pell Grants. But he can't forget that 25 or so students at the college are in SEOG, receiving average grants of $740. "Those are important numbers," he said.

Beverly Daniel Tatum, president of Spelman College, where 40 percent of students are on Pell Grants, said she had the same reaction. Spelman puts together packages for students with a wide array of programs, not just Pell. "Taking one away to add to the other doesn't benefit us," she said.

At a breakfast meeting of presidents of the Annapolis Group, a collection of small private institutions, not a single president from the 18 present endorsed the idea of adding to Pell while cutting other programs, and several said that they were frustrated that the administration appeared to be playing programs off against one another. It shouldn't be a question of "is it this program or that program" that gets cut, but how to provide enough money to student aid generally, including "a diverse range of programs," said Leslie H. Garner Jr., president of Cornell College, in Iowa.

As the administration disturbed many college leaders and student aid lobbyists by proposing to gut the supplemental grants program to help pay for its Pell Grant proposal, it provoked the student loan industry by seeking to wring nearly $19 billion over five years by cutting subsidies for and increasing fees paid by lenders and guarantee agencies in the Family Federal Education Loan Program.

Most significantly, the department's proposal would cut the interest rate subsidy that lenders receive on student and parent loans by 0.5 percentage points, which would raise an estimated $12.4 billion through 2012. The proposal drew dire warnings from bankers that the plan would drive lenders out of the student loan program, following cuts made during last year's budget reconciliation that helped create the ACG/SMART programs. Democratic Congressional leaders have proposed additional cuts this year -- including some similar to the president's plan -- to payfor their proposal to cut the interest rate on some student loans in half by 2012.

“Student lenders cannot sustain cuts of this magnitude, which would cut margins by about 20 percent," Joe Belew, president of the Consumer Bankers Association, said in a statement Monday. "Driving away banks from this program will leave students with either a government monopoly or an oligopoly of loan providers and few if any of the benefits currently provided by competition. These include lender-paid origination fees, financial literacy and default prevention counseling, rate reductions for timely repayments, and quality customer service. Without banks in the student loan program, graduates can look forward to IRS-style quality of service."

At the department's briefing, Tucker said federal officials believed most lenders could absorb without passing the costs on to consumers. "We don't believe it's going to hurt students," she said.

For the first time since he took office, President Bush presented his budget to a Congress controlled by Democrats, and Congressional leaders gave his higher education plan mixed reviews. Sen. Edward M. Kennedy (D-Mass.), chairman of the Senate's Health, Education, Labor and Pensions Committee, praised the president's plan "to cut outrageous lender subsidies and redirect those funds into a long-overdue increase in the Pell Grant," which he said "shows how a Democratic Congress is changing the nation’s priorities."

But Kennedy said Congress "should reject" the Bush administration's plan to pay for the Pell increase with cuts to the other aid programs.

A table showing highlights of the administration's budget plan for student aid and other programs follows:

Program 2006 appropriation (000s) 2007 estimate* (000s) 2008 request (000s)
Pell Grants (discretionary) $13,045,230 $12,738,770 $13,223,000
Pell Grants (mandatory) 4,300,000 -- 2,216,000
Supplemental Educational Opportunity Grants 770,933 770,933 0
Work Study 980,354 980,492 980,492
Perkins Loan cancellations 65,471 65,471 0
Leveraging Educational Assistance Partnerships 64,987 64,468 0
Academic Competitiveness Grants 790,000 850,000 1,180,000
Institutional aid      
Strengthening Institutions 79,535 79,535 79,535
Strengthening Tribally Controlled Colleges and Universities 23,570 23,570 18,570
Strengthening Alaska Native/Native Hawaiian Institutions 11,785 11,779 0
Strengthening Historically Black Colleges and Universities 238,095 238,095 238,095
Strengthening Historically Black Graduate Institutions 57,915 57,915 57,915
Developing Hispanic Serving Institutions 94,914 94,911 94,911
Tribally controlled voc-tech institutions 7,366 7,366 7,366
Gallaudet U. 106,998 106,998 106,998
Howard U. 237,392 233,865 233,866
International education/foreign language 105,751 105,751 105,751
Advancing America Through Foreign Language Partnerships n/a n/a 24,000
Fund for Improvement of Postsecondary Education 21,989 26,085*** 21,988
Vocational and adult education    
Carl D. Perkins Act state grants 1,182,338 1,182,338 600,000
Tech Prep 104,754 104,755 0
Adult education 579,552 579,808 579,808
Student assistance      
TRIO programs 828,178 828,178 828,178
Gear Up 303,423 303,423 303,423
Graduate education      
Byrd scholarships 40,590 40,590 0
Javits fellowships 9,699 9,797 9,797
Graduate Assistance in Areas of National Need 30,067 30,064 30,064
Other offices      
Research and statistics 517,468 541,677 594,262
Office for Civil Rights 90,611 90,311 93,771
Inspector general 48,510 48,160 52,269

2007 estimate reflects figures in continuing budget resolution in effect through 2007 and not the plan approved by the House of Representatives last week


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