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Forecasting the Higher Education Climate in Washington

In March, Congress approved a budget resolution that set the stage for the rest of its work this year. Almost everything else that happens in Washington this year-including spending on student aid and scientific research and reauthorization of the Higher Education Act-will be influenced by this action.

The budget resolution is a fiscal blueprint that outlines how Congress will deal with the fiscal 2006 budget that President Bush submitted in February 2005. Among other things, a budget resolution can (and, in this case, does) mandate cuts in entitlement spending; it can call for tax increases or tax cuts; and it can make assumptions about spending levels for individual programs, such as Pell Grants or research at the National Institutes of Health.

This year, Congress prepared the budget resolution against a background of mounting concern about federal budget deficits. As a result, Congress agreed to minimize domestic spending and also called for changes in entitlement programs to further cut federal spending. Both developments have huge implications for federal support for higher education.

More Money Unlikely

The hopes for higher student aid spending were raised early this year when President Bush called for a $ 100 increase in the maximum Pell Grant in each of the next five years. Even more promising, the Senate, as part of its budget resolution, recommended a $450 increase in the maximum Pell Grant. When the final budget resolution appeared, it urged the $100 increase for the coming year that the president had proposed. While far less than advocates wanted, this increase, if approved, would represent the first increase in the maximum Pell Grant since 2001.

The budget resolution does not set funding levels for individual programs; it only makes recommendations. Actual funding decisions are made by one of the 10 appropriations subcommittees in the House and Senate. In the case of higher education priorities, like student aid and scientific research, it is the Labor, Health and Human Services (HHS), Education Subcommittee that is most important.

Problems appeared as soon as the total amount of discretionary spending (some $843 billion) was allocated among the appropriations subcommittees. The Labor, HHS, Education Subcommittee was actually given less money than it had received for the current fiscal year. Not only does the subcommittee start with less money, but it also faces a number of daunting challenges. First, this subcommittee must begin to pay some of the costs associated with the Medicare Prescription Drug bill; in FY 2006, its share will total almost $1 billion. Second, in his budget, the president proposed eliminating a large number of politically popular social programs (such as TRIO, GEAR UP, and Vocational Education) and the subcommittee must find the funds to continue these worthwhile initiatives. Finally, increasing costs in existing programs must be covered. For example, thanks to the continuing surge in participants, the cost of funding the Pell Grant program next year is expected to be $834 million higher than it is at present, even without increasing the maximum award.

The bottom line is that higher education advocates now worry that the total amount of money provided for student aid and scientific research is unlikely to show a significant increase. For example, the maximum grant may well be frozen for the fourth year in a row-the longest period without a change in the program's history. Funding for Supplemental Grants and College Work Study also is likely to remain unchanged. TRIO, GEAR UP, and Perkins Vocational Education all appear likely to be restored, but increases for any of these programs seem doubtful. Funding for the Perkins Loan and the Leveraging Educational Assistance programs may well be eliminated. We will be fortunate if support for the National Institutes of Health increases at all above last year's level.

It's not that higher education is being singled out-all interest groups that follow the appropriations process are bracing for what looks like some of the most constrained spending bills since the 1980s. But by any measure, such funding levels would be a great disappointment, especially in light of the president's budget proposal and the Senate's early interest in sharply increasing the maximum Pell Grant.

But politics is not without irony. Even if the maximum Pell Grant does not increase, the Pell Grant program itself may well receive the largest single increase in the huge Labor, HHS, Education spending bill. To the casual observer, it may appear that student aid has done very well in the House bill. To the experts, however, our inability to boost the maximum Pell Grant significantly is decidedly bad news.

Higher education's funding priorities in other subcommittees may not fare much better. The only bright spot on the horizon we know of is the National Science Foundation, which is slated for an 11.4 percent gain under the House bill. Whether the Senate will concur remains to be seen.

Cutting Student Loans

The budget resolution also requires cuts in entitlement spending. The House Education and the Workforce Committee and the Senate Health, Education, Labor, and Pensions (HELP) Committee have been instructed to cut a total of $29.9 billion over the next five years from the mandatory (or entitlement) programs under their jurisdiction. Exactly how they make the spending cuts is up to the committees-the only restriction is that they must come from mandatory rather than discretionary spending.

Unfortunately, these committees have only a small number of entitlement programs to consider and some of these (like child nutrition and vocational rehabilitation) are politically untouchable. Most observers believe that the spending cuts are likely to be divided between the student loan program and the Pension Benefit Guaranty Corporation (PBGC). But even that assumption is debatable; United Airline's recent decision to default on its pension obligations significantly increased the costs facing the PBGC. The likelihood that other airlines will do the same thing has created pressure to minimize any changes that may affect PBGC.

Indeed, about the only thing all observers agree on is that the student loan program is going to get whacked. When considering the student loan program, Congress faces a basic choice: It can cut subsidies to the lenders or it can change the terms and benefits facing borrowers in a way that reduces federal costs. It's a hard choice. The lenders (quite reasonably) never want to see cuts and always warn of problems (such as fewer services to borrowers) if their subsidies are reduced. Even more important, no member of Congress ever runs for office by promising to reduce student loan benefits for low-income students.

Congress ultimately will decide how to save money by looking at a huge number of possible legislative changes and determining which combination of changes is likely to maximize savings while minimizing damage to the loan program. Like almost everything else in Washington these days, it's a complex process that is largely hidden from outsiders.

The burden for making the cuts in all mandatory spending programs will fall most heavily on the Republicans. Democrats are unlikely to help the Republicans reduce spending, given that they opposed the budget resolution that mandated the changes.

All entitlement spending cuts must be finalized by September 16. At that point, the work of the various committees will be compiled into a single measure and sent to the floor of the House and Senate for approval. Any differences between the House and Senate packages must be resolved and then the final package will be sent to the president for his signature.

Remember Reauthorization?

Reauthorization of the Higher Education Act has been overshadowed lately by the discussions about reconciliation and appropriations. Both House and Senate committees continue to work on their legislative proposals, and a number of hearings have been held. In the House, the reauthorization proposal is HR 609, introduced in February by Congressmen John Boehner (R-OH) and Howard "Buck" McKeon (R-CA). This bill is almost identical to the reauthorization proposal that they were working on in the last Congress. Committee members and staff have continued to meet with interest groups to talk about possible modifications, but no legislative language has been forthcoming.

The Senate HELP Committee has yet to introduce a reauthorization proposal, but Republican and Democratic staff are both working on ideas that might be incorporated into legislation. Ironically, given that, to date, the House has been much more anxious to move reauthorization forward, the Senate HELP Committee has now announced that it hopes to approve a reauthorization proposal this summer. This is a very optimistic timetable, and it's not clear that they can accomplish it. But it is clear that the Senate Committee is deeply engaged in developing a reauthorization proposal and that's a welcome development.

The biggest question facing both the House and Senate committees as they near the July 4th recess is whether to move the reconciliation cuts to the student loan program before reauthorization or to proceed simultaneously with both efforts. Because reconciliation will significantly affect the student loan program, one school of thought holds that the committees should identify and approve the cuts and then proceed to reauthorize the programs. But another line of thinking is that the committees should not wait to reauthorize the programs, because doing so would inevitably push reauthorization off until sometime in 2006.

As with everything else in Washington, one can find people who strongly support both scenarios. And, as with everything else, in today's rapidly changing and highly partisan atmosphere, nobody has a reliable crystal ball.

Update: As this issue went to press, the House Labor, HHS, Education Subcommittee chaired by Congressman Ralph Regula (R-OH) approved its spending plan for the coming fiscal year. With one exception, higher education fared about as expected. Supplemental Grants, College Work Study, Leveraging Educational Assistance, TRIO, and GEAR UP all will be funded at last year's levels. No new funds were provided for the Perkins Loan Program and the National Institutes of Health received a very modest increase. The unexpected (and welcome) development was that the Committee recommended a $50 increase in the maximum Pell Grant. Obviously, in light of continuing enrollment growth and inflationary pressures, we would have preferred to see increases in all our programs. However, given the exceptionally difficult funding situation, higher education has fared quite well so far.

TERRY HARTLE is senior vice president at the American Council on Education.

Copyright American Council on Education Spring 2005
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