What does federal health care legislation have to do with student financial aid legislation? Quite alot in Washington D.C.

Though it remains far from certain, though the odds are increasing, Congress continues to consider merging the Student Aid and Fiscal Responsibility Act (SAFRA) (H.R. 3221) into the health care legislation. 

The practice of budget reconciliation which has become synonymous with passing federal health care legislation can only be used once per budget cycle.  Budget reconciliation allows policymakers to pass legislation with only a majority of lawmakers instead of the 60 votes required under the regular Senate rules.  Though 50 is still a majority vote in Congress, in the Senate it takes 60 votes to avoid a filibuster a tactic that policymakers can use to disallow a bill to go to the floor for a straight up and down vote.

To make a long story a bit shorter, Congress cannot use budget reconciliation both to pass health care legislation and student financial aid legislation, a tactic which seems necessary for both because of the contentious policies included in both bills.

In the last few days the student financial aid bill (SAFRA) has become lighter in content so as to not discourage policymakers from supporting the health care legislation.  How a stripped-down student financial aid bill would look if passed has become clearer over this time.

• The bill would fall short of the Obama admininstration’s original proposal to transform the student aid programs.
• Pell Grants would remain the legislation’s top priority, though because of the program’s rapidly escalating costs, the value of the maximum grant would rise less than originally planned.
• Community colleges would get little or none of the nearly $10 million they would have been slated to receive.
• Historically black, hispanic, and otehr colleges would likely benefit
• Some of the savings from the loan overhaul may be used to help pay for health care reform.

More specifically, several cuts have been made to ensure that the costs of SAFRA are under the $61 billion over 10 years ceiling budget.

• $8 billion for early childhood education
• $4 billion for school modernization
• $12 billion over 10 years for the American Graduation Initiative, grant and construction funds for community colleges.
• No plan to revamp Perkins Loan program.
• While a majority of funding will go to Pell, the bill removes the idea of adding 1% point to increase the grant annually and reduce the maximum grant to $6,400 by 2019 rather than $6,800.

So what happend? A lot.

Sen. Conrad (ND-D), Chair Senate Budget Committee, decided to use the more recent and lower estimate provide by the Congressional Budget Office (CBO) ($67 billion). The Obama Administration had counted on generating $87 billion in revenue over 10 years by switching to direct lending. 

The Administration had won support for this controversial move to direct lending by planning to spread the expected savings to a wide range of priorities including boosting funds for the Pell Grant and establishing it as an entitlement; creating a new grant program for community colleges; expanding and remaking the Perkins Loan Program, and creating a new $3 billion Access and Completion Fund to reward states and institutions that found ways to increase degree production.

However since the release of the Obama Administration’s proposal many institutions have self-selected to move to the direct loan program which reduced the potential savings planned by the Administraiton to support other education initiatives.

At the same time the number of students eligible for the Pell Grant dramatically increased the projected costs of the administration’s plan to increase the maximum Pell Grant award and tie future increases to the Consumer Price Index plus 1%.  These developments have also created a massive shortfall in the Pell Grant program (approx. $19 billion) that Congress must find a way to cover.

In addition, last spring Congress passed a budget resolution that the health care legislation reduce the deficit. There is concern that on its own, health care legislation cannot produce enough bugetary savings to meet this requirement. So a major element for Democrats to incorporate the student loan provisions into the health legislation is the fact that they could use some of the billions generated by the loan changes to meet deficit reduction requirements.  As a result even less money is likely to be available for students and colleges should SAFRA pass.

So what is next. The CBO will release a revised accounting of the budget bill early this week to make clear the exact cost and savings of the legislation.