President’s FY2018 Budget Slashes Funding for Financial Aid
The president’s fiscal year 2018 budget proposal cuts funding for college grants, student employment and student loans. This will cause a decline in college affordability.
Impact of the Budget Proposal on College Grants
Although the budget proposal continues support for year-round Pell Grants, it flat funds discretionary funding for the Pell Grant and cuts $3.9 billion in the funding surplus from previous years. This potentially puts funding for the Pell Grant in future years at risk. The maximum Pell Grant will remain unchanged at $5,920 in 2018-19. The year-round Pell Grant program, also known as summer Pell, will allow students in accelerated degree programs to obtain one and a half Pell Grants per year.
The budget proposal eliminates the Federal Supplemental Educational Opportunity Grant (FSEOG). This cuts $731.7 million in total funding. The FSEOG program previously provided more than 1.5 million students with grants that averaged about $500 per year.
The AmeriCorps national service program, which allows students to earn education awards through volunteer service, is eliminated, a $386 million cut.
Impact of the Budget Proposal on Student Employment
Funding for the Federal Work-Study (FWS) program will be cut almost in half, from $987.8 million to $500 million. The number of recipients will be cut from 633,700 to 332,600 and the average award will decrease from $1,726 to $1,665.
The allocation formula for FWS funds will be changed to target the money at students with greater financial need.
Impact of the Budget Proposal on Student Loans
The budget proposal eliminates the five current income-driven repayment plans with a new income-driven repayment plans. The income-driven repayment plans that will be eliminated include:
- Income-Sensitive Repayment (ISR) – 4 percent to 25 percent of AGI for one year at a time
- Income-Contingent Repayment (ICR) – 20 percent of discretionary income for 25 years
- Income-Based Repayment (IBR) – 15 percent of discretionary income for 25 years
- Pay-As-You-Earn Repayment (PAYER) – 10 percent of discretionary income for 20 years
- Revised Pay-As-You-Earn Repayment (REPAYER) – 10 percent of discretionary income for 20 years (undergraduate students) or 25 years (graduate students)
The new income-driven repayment plan will base monthly payments on 12.5 percent of discretionary income for 15 years (undergraduate students) or 30 years (graduate students). The forgiveness is not tax-free. The cap on monthly payments at the standard 10-year repayment amount would be eliminated, allowing monthly payments to increase without bound as income increases.
The new income-driven repayment plan also would include a marriage penalty, basing income on the combined income of a married borrower and the borrower’s spouse, even if the couple files separate income tax returns. This repayment plan increases the monthly payment, but reduces the repayment term for undergraduate students and increases the repayment term for graduate students. It is the equivalent of an 87.5 percent increase in borrowing costs for graduate students.Graduate students will pay twice as much on their federal student loans as undergraduate students.
The budget proposal eliminates Public Service Loan Forgiveness. Public service loan forgiveness forgives the remaining debt, tax-free, for borrowers who work a full-time public service job for 10 years while repaying their loans in an income-driven repayment plan or standard repayment in the Direct Loan program. For example, a social worker with an MSW will now have to repay their federal student loans for 30 years instead of 10 years, and the monthly payments will increase by 25 percent.
The budget proposal eliminates subsidized Federal Stafford loans for undergraduate students. Congress previously eliminated subsidized Federal Stafford loans for graduate students in July 2012. All new loans to all students would be unsubsidized. Undergraduate borrowers with financial need could previously receive up to $23,000 in subsidized Federal Stafford loans. More than half of undergraduate students graduate with more than $10,000 in subsidized Federal Stafford loans each year. The federal government pays the interest on subsidized loans during the in-school, grace and deferment periods, saving borrowers thousands of dollars in interest over the life of their loans.
The Federal Perkins Loan program will be not be extended beyond its September 30, 2017 expiration.
The changes apply to new borrowers as of July 1, 2018 who do not have federal loans from prior to that date.
Other Proposed Cuts to Student Aid
The budget proposal cuts funding for the Federal TRIO programs by $90 million, yielding $808.3 million in funding. It eliminates funding for the Educational Opportunity Centers and the McNair Post Baccalaureate Achievement program.
The budget proposal cuts funding for the Gaining Early Awareness and Readiness for Undergraduate Program (GEAR UP) by $103.1 million, leaving $219 million in funding.
Funding for the Graduate Assistance in Areas of National Need (GAANN) program is cut 80%, by $23.5 million, from $29.2 million to $5.8 million.
The budget proposal eliminates the Child Care Access program, which previously had $15.1 million in annual funding.