Over the last few days the U.S. House and Senate have each released separate proposals to raise the national debt ceiling. Both proposals include impacts to higher education.

Financial Aid

An analysis by the National Association of Student Financial Aid Administrators shows many similarities between the House and Senate proposals as they relate to student financial aid.

Both plans provide additional mandatory funding for the Pell Grant program for FY12 and FY13.  Senator Reid’s plan proposes $10.5 billion in FY12 and $7.5 billion in FY13 and Representative Boehner’s plan identifies $9 billion in FY12 and $8 billion in FY13.

In addition both plans eliminate the graduate student Stafford Loan interest subsidy. The savings from this are applied to the Pell Grant. The impact of this falls on graduate and professional students in programs beginning on or after July 1, 2012 who will not be able to receive a subsidized Federal Direct Stafford Loan. A subsidized stafford loan does not accrue interest as long as a student is in school at least half time, or during any future deferment periods.

The one major difference between the two proposals is the inclusion of language in the House proposal to eliminate the Direct Loan Repayment Incentives, including the Interest Rate Reduction for Electronic Debit Account Repayment and Up-Front Interest Rebate.

Federal Appropriations

Both the House and Senate proposals would establish caps on annual appropriations for the next 10 years. In addition both proposals would include enforcement rules with regard to these caps.  Identified as “sequestration” the caps would be enforced by across-the-board spending cuts.  In other words if the caps are exceeded then Congress would imlement across-the-board spending cuts in the area in which the cap was exceeded. The caps are divided between defense and non-defense spending.

The proposed caps in each proposal are similar.

Both of these elements would squeeze education funding over the next decade as nearly all federal education programs are funded through the annual appropriation process. Though, as noted above, both proposals take steps to fund the Pell Grant program and mitigate the squeeze that appropriation caps would have on the program these efforts are only for a two-year period.

What’s Next

As August 2 looms both the U.S. House and Senate are moving forward with their proposals, though it is expected that no real movement will occur until a compromise is agreed upon. If Congress is unable to reach an agreement by August 2 there is speculation that a short-term debt ceiling increase will be passed.