Last week President Obama signed into law legislation that will increase the federal debt limit and reduce long-term budget deficits.
The Budget Control Act (BCA) of 2011 consists of both known and unknown impacts to higher education.
What is Known
The BCA impacts student aid in three major ways. First the legislation amends the Higher Education Act of 1965 to directly appropriate $10 billion in additional funds for Pell Grants in FY 2012 and $7 billion in FY 2013. These funds will supplement the portion of Pell Grants funded through annual discretionary appropriations. In addition, the bill eliminates the in-school loan interest subsidy for graduate and professional students and the Direct Loan repayment incentives.
What is Unknown
What remains unclear is the impact to higher education with regard to the near-term and long-term reductions to discretionary spending.
In the near-term the Act implements approximately $1 trillion in deficit reduction through the establishment of 10 year spending caps. The caps are established on discretionary spending through 2021. For Fiscal Years 12 and 13 the Act specifies spending limits for security and non-security spending, however in the following years the law only specifies the total.
The FY12 discretionary total is slightly less than FY11 spending levels (-$7 billion overall) but significantly more than provided in the House budget resolution. For non-security programs the FY12 spending level is -$2 billion compared to FY11 spending levels.
In the longer-term the Act creates a joint, bipartisan committee made up of 12 members of Congress to develop legislation to acheive at least $1.5 trillion in future deficit reduction by the end of November. The Committee’s legislation, which can include entitlements and revenues, must be voted on by the end of December.
Enactment of the Committee’s recommendations would permit President Obama to request an increase in the debt limit up to the amount of deficit reduction up to $1.5 trillion. The request would be subject to a congressional disapproval vote.
If the Committee’s efforts fail to achieve at least $1.2 trillion in deficit reductions by January 15, 2012 automatic across-the-board spending cuts would be applied to discretionary and certain mandatory federal programs, including Medicare. The automatic reductions would be equally split between defense and non-defense spending. If the reductions total less than $1.2 trillion over 10 years are implemented in alignment with the Committee’s efforts then across-the-board cuts would be used to cover the difference.
At this time it remans unknown what the composition of the Committee’s recommendations will be, but they will likely include some combination of program eliminations, consolidations and reductions. For higher education, discretionary reductions could impact several key programs, including Perkins Loans, the Supplemental Educational Opportunity Grant and TRIO programs.