Federal Budget Deal What It Means for Higher Education

The announcement last week that budget negotiators in D.C. had reached a budget deal is improved news for higher education compared to the series of cuts the sector has experienced in recent years.

The budget deal would alleviate reductions to research funding and campus-based student aid programs. While no specific funding levels are proposed for higher education, funding levels are increased for non-military spending which impacts higher education and research.

If passed by the Senate, the House has already passed the deal, budget writers would have $492 billion for non-military spending. This is approximately $23 billion more than would be available if the second round of automatic cuts (sequestration) were to occur in January, but still $14 billion below the original level of non-defense funding before the cuts were implemented.

Within these dollars policymakers would have the option to restore and even increase funding to campus-based financial aid programs and federal research agencies.

To pay for the reversal of sequestration cuts, policymakers identified various sources of revenue since raising taxes or making changes to entitlement programs were off the table. With regard to higher education, revenue would be generated by making changes to payments for loan servicers.

  • Default Reduction Program – This provision reduces the compensation that guaranty agencies receive for rehabilitating a loan from the Federal Family Education Loan Program beginning July 1, 2014. ($2 billion savings over 10 years).
  • Elimination of Non-Profit Servicing Contracts – This provision eliminates the mandatory spending for payments to non-profit student loan servicers and instead ensures they will be paid with discretionary funds in the same manner as other student loan services. ($3.1 billion savings)

Representatives of servicers and guaranty agencies expressed concerns about the proposed changes. They noted that cutting the default reduction fees would likely result in fewer loan rehabilitations but also negatively impact the ability of these agencies to provide access, financial literacy, and delinquency prevention services.

Congress must pass the new budget before January 15 to avert another government shutdown.

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