The Biggest Losers in FY 2018 Higher Ed Budget Request

Blog Post
Pamela Au /
May 23, 2017

Update 5/23/2017, 4:30 PM: This post was updated to reflect that both HBCUs and MSIs largely avoided any budget cuts.

The Trump administration today released its full fiscal year 2018 budget request to Congress -- and it has particularly harsh implications for low-income college students and families. While the budget request is typically largely ignored by lawmakers and no doubt destined to collect dust on a shelf somewhere, it nonetheless can serve as a list of offerings to Congress for future budget cuts; and it details publicly the Trump administration’s priorities. With a $22 billion increase to defense spending offset by a $57 billion cut to non-defense spending (including an overall 13 percent--more than $9 billion--cut to the Department of Education), it seems clear those priorities don’t lie with low-income students.

One of the largest missed opportunities in the budget, for instance, is an extension of a policy that linked the size of the maximum Pell Grant award to inflation, allowing it to grow each year and helping to maintain the value of a Pell Grant as college costs and living expenses continue to rise. That policy is set to expire this year, meaning the Pell Grant’s purchasing power will continue to dwindle unless Congress explicitly plans for an increase. (It won’t.) But despite over $100 billion in savings to student loan programs in the budget, Secretary DeVos wouldn’t divert those dollars to this important policy that benefits low-income students. Instead, the Trump Administration would reallocate them to the defense budget and to overall savings.

Nor does the budget seek to offer any other proposals to make college more affordable, increase access for low-income and underserved students, or improve college completion rates or other student outcomes. There’s no accountability plan, no incentives for colleges to improve, and not even a commitment to providing students and their families with better data to help them make smart choices about where to go to college. In short, there are deep cuts made to federal financial aid programs, but there’s little to cheer--no positive vision for improving higher education or helping more people to earn high-quality college degrees.

The Losers

All told, the White House reports that budget cuts add up to $143 billion in savings through the student loan programs alone. But while the cuts Secretary DeVos proposes to make within the Department of Education are the low-hanging fruit of budget money--if you were looking for $100 billion or more in cuts, these would be the first places to look--they’re also seemingly unnecessary and excessive. The dollars aren’t reinvested into any student aid programs, or diverted to pay for key accountability efforts. Instead, they go simply to savings, and to increasing the budget for defense spending. Here’s who would lose most from those deep cuts:

  • Low- and middle-income borrowers: The budget request would eliminate the in-school interest subsidy on Subsidized Stafford loans for new borrowers. Now that interest rates for all undergraduate loans--Subsidized and Unsubsidized--are aligned, effectively the only difference between the two loan types is that Subsidized Stafford loans don’t accrue interest while in school. Eliminating that benefit will have a minimal impact on borrowers’ monthly payments when spread out over the life of a loan, and does nothing to make college more affordable on the front end; it’s strictly a back-end benefit, where borrowers have access to other options, like income-based repayment, to manage their loans. And it is a lot of money -- nearly $40 billion in savings over 10 years, according to the newly released estimates. Still, it’s a benefit targeted to low-income borrowers (82 percent of Subsidized Stafford loans for independent students go to those with less than $40,000 in family income, and over 40 percent of Subsidized Stafford loans for dependent students do), and its elimination would mean those students leave school with larger loan balances to repay than they’d have without the change.

  • Public servants of tomorrow: The Twitterverse was in a tizzy last week when it leaked that the Department of Education budget would propose eliminating Public Service Loan Forgiveness (PSLF), and reporters at the Washington Post said it wasn’t clear if the elimination would be retroactive. (It’s not: The budget proposal clearly calls for eliminating the program strictly for new borrowers.) Proposals to reform the program aren’t new; the Obama Administration proposed to cap forgiveness at $57,500 of borrowers’ remaining balances, a reform that weighed in at $6.7 billion in savings. But this plan would go far beyond that, eliminating it altogether moving forward, for savings of around $27 billion. Whether or not PSLF provides much value as an incentive for public service isn’t yet clear, which is part of why PSLF is an easy target for budget cuts. The program is too nascent to be linked to any driving force in encouraging more young people to work in public service jobs. Its implementation is on track to be a complete nightmare, between servicing errors, ambiguities built into the legislation about who qualifies, and allegations that the program will primarily benefit graduate students. And borrowers who wind up in low-paying public service jobs will still have income-based repayment plans to fall back on as a way to ensure their loan payments remain affordable.

  • Working students: While the skinny budget released in March called for significant cuts to Federal Work-Study, few imagined the cuts would be this deep. The DeVos team proposes to cut nearly $490 million out of the program--effectively slashing it in half. While the Work-Study program allocates dollars to schools on a wildly unfair and archaic formula, and institutions often go further up the income chain to provide work-study opportunities for graduate and middle-income students as well as low-income students, studies have shown that students receiving Work-Study are more likely to graduate and find jobs after college--especially low-income students at public colleges. Reforming how the program is allocated and increasing its funding makes more sense than reducing it by half, given who the program is shown to help.

  • Career and technical education: President Trump was elected on a wave of popular frustration with the global and increasingly knowledge-based economy that American workers now face. Though his statements on economic policy have focused primarily on trade deal renegotiations, tax cuts, and deregulation, he has also touted reinvestment in the training and education modern workers need to find durable, well-paying jobs. From the budget request released today, which proposes a cut of nearly $168 million to state career and technical education (CTE) grants (about a 15 percent cut), those declarations appear to have been little more than lip service. The proposed cuts are a shock: Prominent Republicans, employers, and business community advocates have come out strongly in support of CTE as a necessary response to the pressures of globalization and automation, and a recent reauthorization bill for the Perkins Career & Technical Education Act passed unanimously out of the House education committee. The proposed cuts to CTE funding are likely to emerge in the Congressional appropriations bill for FY 2018 in a tamer form, if at all, and are tempered by a proposed $20 million to fund a national program aimed at developing and expanding CTE in STEM fields. That’s a poor consolation in a budget request that otherwise signals a lackluster commitment to workforce development as well as a confusing disregard for the universally supported Perkins bill, which toes the Republican line by putting state and local governments firmly in control of their own education and retraining funds.

The Winners

Not everyone had it quite as rough. Though “lucky” is a relative term in a budget with such deep cuts to higher education, some groups certainly made out better than others in the request. The biggest winner of all remains the defense industry, which saw proposed increases of billions of dollars in their own budget. But within the higher education space, the more modest winners include, for instance:

  • Undergraduates: The budget clearly favors undergraduate students over graduate students. From the inclusion of year-round Pell (though Congress beat them to the punch, taking the wind out of those sails), to maintaining the current maximum Pell Grant, to a new income-based repayment plan that’s better for undergrads, it’s clear the Administration plans to put its money strictly in the undergraduate student basket. And that’s not necessarily a problem; undergraduates are far more likely to struggle to repay their debt, experience unemployment, and wind up in low-paying jobs, particularly if they don’t graduate, than grad students are.

    But the favoring of undergrad students is extreme. For instance, take that new income-based repayment plan (which Secretary DeVos proposes to make the only income-based option for new borrowers). As then-candidate Trump proposed during the campaign, the new IBR plan would set payments at 12.5 percent of income for 15 years -- likely a better deal for students than the current “10 percent for 20 years” plan, since those last five years of repayment are probably the highest-earning of a person’s career. But they make up for the more generous IBR plan by making it a dramatically worse plan for graduate student borrowers; instead of the 10 or 15 percent for 20 or 25 years for which grad students are currently eligible, they’ll pay 12.5 percent--for thirty years. That may go to the extreme of advantaging undergraduates over graduate students; thirty years is comparable to a mortgage on a house, and effectively guarantees graduate borrowers will pay lots more in interest, probably without ever receiving forgiveness. And according to the budget proposal, this change would save $76 billion (far more than the nearly $49 billion expected savings from the Obama Administration’s proposal to go to a single IBR plan that would set payments at 10 percent of income for 20 years for undergrads and 25 years for grad students). The bulk of those extra $27 billion in savings, then, are probably largely on the backs of graduate students.

  • HBCUs and MSIs: Historically black colleges and universities and minority-serving institutions may not consider it a win, exactly, but both managed to hold onto level funding for their programs in a budget that doled out deep cuts to many education programs. Other programs, like GEAR UP, saw some cuts or were eliminated altogether; and there was one exception to the MSI programs' avoiding the knife: the Aid for Institutional Development Strengthening Institutions program (SIP) was eliminated. Holding their own while the rest of the higher education budget crumbles around them surely counts as a win for HBCUs and MSIs.

  • Evidence buffs and evaluators: In perhaps the biggest surprise of the FY 2018 budget request, the Department proposed to repeal the ban on randomized control trials within the TRIO programs. The ban was put in place in 2008 to help TRIO grantees steer clear of rigorous evaluations that might prove some of them ineffective; and a cadre of die-hard supporters in Congress have maintained the restriction ever since. While this proposal won’t win them  any friends in the TRIO community, its lobbying association (the Council for Opportunity in Education), or on the Hill--especially in conjunction with the elimination of the TRIO McNair and Educational Opportunity Centers programs--it’s a smart move that would yield useful information about the best ways to serve low-income students and strengthen the college access pipeline.

All in all, this year’s higher ed budget request tries to make the case for slashing-and-burning all but the most essential programs--and even those rarely got more than last year’s funding. No doubt, Congress will reject these cuts, which would have massive implications for their constituents and for the economic future of the country. But it’s hardly inspiring to know someone with such a bleak vision for higher education is at the helm within the U.S. Department of Education.