Unanswered Questions on Bush’s Higher Education Budget

Hold on to your seats. Yesterday was Budget Day in the nation’s capital (oh-boy!), and Higher Ed Watch has some friendly questions for the Bush administration about its Fiscal Year 2009 spending plans:

Student Loans

(1) In the President’s Fiscal Year 2009 budget, the Federal Family Education Loan (FFEL) program and the Direct Loan program show similar per loan costs for 2008 and 2009, with the FFEL program showing a slight cost advantage for the first time. However, page 364 of the Budget Appendix notes that costs are higher for the Direct Loan program, because it holds nearly 100 percent of student loans that have defaulted (under FFEL and Direct Loans) and have been rehabilitated through consolidation.

Can per loan program costs be accurately compared when high-default risk FFEL loans are dumped into the Direct Loan program? If OMB and the Department of Education corrected cost estimates for this bias, how would the costs change? Which program would be cheaper for taxpayers if costs were controlled for borrower differences?

(2) Federal funds held by state guaranty agencies used to pay loan default claims under the Federal Family Education Loan (FFEL) program nearly doubled to $1.1 billion in 2007 from $579 million in 2006. Are the federal funds held by guarantee agencies in excess of what is needed to pay default claims, and if so, would the administration recommend recalling those funds?

(3) The budget proposes a change in the eligibility rules for the new Loan Forgiveness for Public Service Employees program created under the College Cost Reduction and Access Act last year. Borrowers who pursue public service careers and begin loan repayment after October 1, 2007 are eligible to have the remaining balance of their loans forgiven after 10 years. The benefit is available to Direct Loan borrowers and Federal Family Education Loan (FFEL) borrowers who refinance into direct lending.

The budget request would limit eligibility to new borrowers who take out loans after October 1, 2009. If the proposal is enacted, how many borrowers now eligible for public service loan forgiveness will lose eligibility? And what types of shifts in the loan volume does the administration foresee between direct lending and the program that the administration cites as the need for the change in eligibility rules?

(4) The loans for short-term training proposal would create a new and relatively small loan program, subsidizing $362 million in loans in 2009 to help dislocated and unemployed workers obtain training. Given the administrations overarching goal of reducing smaller and duplicative education programs, why not use existing student loan programs for this goal instead of establishing a new program administered by two agencies (the Departments of Labor and Education)?

Grants

(5) The budget includes a $652 million cancellation of the $960 million Congress has made available for the Academic Competitiveness and SMART Grant programs, citing insufficient program participation rates. Why are participation rates not high enough to use all available funding, and does the administration recommend any action to increase participation? Also, the programs expire after the 2010-11 academic year. Does the administration have a position on whether they should be extended?

Tax Benefits

(6) The administration is proposing a new higher education tax credit worth up to $1,000 annually on contributions to 529 college savings plans, while maintaining other overlapping higher education tax benefits. Four years ago the administration wanted to “revise and simplify” rules regarding the three largest existing higher education tax credits. Why has the administration abandoned the goal of simplification, and what steps will be taken to ensure the 529 credit does not make the interaction between the higher education tax credits more confusing?

Bonus Question

Did the family of Sen. Claiborne Pell (D-RI) consent to his name being attached to the Bush administrations latest private school voucher proposal? Were they even asked?

For all of the New America Foundation’s Federal Education Budget Project’s questions on the FY09 Bush Education Budget, click here.