Budget Counsel Reference Directory

Title V of the Budget Control Act of 2011

Summary

The Budget Control Act of 2011 (Pub. L. 112-25) from the 112th Congress was a law increasing the statutory limit on the public debt, but it also included a substantial number of budget process reforms: These included the reestablishing statutory limits on discretionary spending for ten years (through fiscal year 2021) and the creation of a Joint Committee on Deficit Reduction (known as “the Supercommittee”). Even though it did not reduce the deficit through tax increase or spending reductions, it did include a title related to the Federal student aid programs. A summary of the changes made in that tile is set out below. 

Summary of the amendments to federal student aid programs

Federal Student Aid Programs

The Budget Control Act of 2011 (BCA; P.L. 112-25) also makes changes to two of the federal student aid programs authorized under Title IV of the Higher Education Act of 1965, as amended (HEA; P.L. 89-329):

  • The William D. Ford Federal Direct Loan (DL) program and
  • The Federal Pell Grant program.

Federal Direct Loan Program (Student Loans)

The William D. Ford Federal Direct Loan (DL) program is the primary federal student loan program administered by the U.S. Department of Education (ED).[100]The program makes available loans to undergraduate and graduate students and the parents of dependent undergraduate students to help them finance their postsecondary education costs. Several types of loans are offered through the DL program: Subsidized Stafford Loans and Unsubsidized Stafford Loans for undergraduate, graduate, and professional students; PLUS Loans for graduate students and the parents of dependent undergraduate students; and Consolidation Loans through which borrowers may combine their loans into a single loan. The primary difference between Subsidized and Unsubsidized Stafford Loans is that with Unsubsidized Stafford Loans borrowers are responsible for paying the interest that accrues while they are in school, and during grace and deferment periods, whereas with Subsidized Stafford Loans the interest that accrues during these periods is paid by the government. DL program subsidy costs are mostly funded with mandatory appropriations, and administrative costs are mostly funded with discretionary appropriations.

The BCA eliminates the availability of Subsidized Stafford Loans to graduate and professional students for periods of instruction beginning on or after July 1, 2012, which corresponds to the beginning of award year 2012-13. After that date, graduate and professional students will be able to substitute amounts they previously would have been able to borrow using Subsidized Stafford Loans with Unsubsidized Stafford Loans. According to ED, during award year 2010-11, 1.47 million graduate and professional students borrowed $10.8 billion in Subsidized Stafford Loans; 1.34 million graduate and professional students borrowed $15.1 billion in Unsubsidized Stafford Loans; and 0.34 million graduate and professional students borrowed $6.4 billion in PLUS Loans.

Also, effective for DL program loans first disbursed on or after July 1, 2012, the BCA
eliminates the authority of the Secretary of Education to offer one of two repayment incentives to borrowers of DL program loans. At present, two types of repayment incentives are offered:

  • Borrowers of Stafford Loans currently receive a 0.5% up-front interest rebate that partially offsets a 1% origination fee; and borrowers of PLUS Loans receive an up-front interest rebate of 1.5% that partially offsets a 4% origination fee. If a borrower who receives an up-front interest rebate fails to make the first 12 monthly loan payments on time, the rebated amount is added back to the borrower’s loan principal, increasing the loan amount that must be repaid. The BCA eliminates authority for the Secretary to offer this benefit.
  • Borrowers who repay DL program loans using automatic electronic debit currently receive a 0.25 percentage point reduction in their interest rate. The BCA retains authority for the Secretary to offer this benefit.

CBO estimates the changes in the DL program would reduce direct spending by $9.6 billion over the FY2012-FY2016 period and by $21.6 billion over the FY2012-FY2021 period. Approximately $17 billion of these savings would be directed to the Pell Grant program for future use, while $4.6 billion would go towards deficit reduction.[101]

Federal Pell Grant Program

The Federal Pell Grant program is the single largest source of federal grant aid supporting postsecondary education students.102 The program provided over $34.7 billion to approximately 9.5 million undergraduate students in FY2010.[103]

The Pell Grant program is currently funded with three types of spending:

  • Annual discretionary appropriations bills that provide most of the funding for the program and typically specify the base discretionary maximum grant level for the program in a given award year;
  • Mandatory appropriations provided in “such sums as necessary” for the purposes of funding annual increases to the base discretionary maximum grant level each year, as specified in the HEA, under existing statutory parameters; and
  • Additional specific amounts in mandatory appropriations provided in previous legislation[104] that are available for general use for a specific time period and may be used to pay for obligations associated with provisions that primarily affect discretionary spending in the program.

The BCA provides additional mandatory funding for the Pell Grant program for general use in FY2012 and FY2013, as depicted in the last category above. The BCA provides an additional $10 billion in mandatory funding for FY2012, and an additional $7 billion in mandatory funding for FY2013, for a total of an additional $17 billion.[105]

These additional appropriations would reduce the amount of discretionary appropriations required in FY2012 and FY2013. Despite the availability of the additional funds provided in the BCA, Congress would need to provide an additional $1.3 billion over the FY2011 discretionary funding amount to maintain the current award levels and eligibility parameters in FY2012.[106] Congress could also consider revising the program’s award rules, eligibility parameters, and aid levels in order to reduce costs in the program, and therefore, reduce the amount of additional appropriations needed in FY2012. Other than providing additional mandatory funding, the BCA does not make any other changes to the Pell Grant program.

100. For a description of the DL program, see CRS Report R40122, Federal Student Loans Made Under the Federal Family Education Loan Program and the William D. Ford Federal Direct Loan Program: Terms and Conditions for Borrowers, by David P. Smole.

101. CBO Analysis of the FY2011 Budget Control Act, Letter to Hon. John Boehner and Hon. Harry Reid, dated August 1, 2011. See:
http://www.cbo.gov/ftpdocs/123xx/doc12357/BudgetControlActAug1.pdf.

102.  For a description of the Federal Pell Grant program, see CRS Report R41437, Federal Pell Grant Program of the Higher Education Act: Background, Recent Changes, and Current Legislative Issues, by Shannon M. Mahan.

104 For example, $13.5 billion in additional mandatory appropriations were provided for general use in the program for FY2011 in the SAFRA Act, passed as part of the Health Care and Education Reconciliation Act of 2010 (HCERA; P.L. 111-152).

105. Per the HEA, these funds are available on October 1 of each applicable fiscal year and remain available through the end of each succeeding fiscal year. For example, the additional $10 billion provided for FY2012 will be available for use between October 1, 2011 and September 30, 2013.

106. Based on estimates provided by CBO in April 2011.


References

CRS – The Budget Control Act of 2011: Legislative Changes to the Law and Their Budgetary Effects, CRS Report R43411 (Congressional Research Service, September 2015), pp. 34-36.

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 [BCR §295b]