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What Happens to Higher Education Funding When the Supercommittee Fails?

Published:  November 21, 2011

The Joint Select Committee on Deficit Reduction (the supercommittee), which is charged with finding ways to cut the budget deficit over 10 years by at least $1.2 trillion, looks set to miss its deadline. The Budget Control Act of 2011, the law that increased the debt ceiling and created the supercommittee, set November 23rd as the date by which the committee must vote on a deficit cutting bill. With two days to go, no such vote is expected to happen. What might become of federal education programs in the wake of a supercommittee failure?

Today the Washington Post highlighted key K-12 education programs that would see their fiscal year 2013 funding trimmed in the absence of a supercommittee compromise. But the article doesn’t mention federal programs for higher education. Make no mistake, higher education programs, like Pell Grants and student loans, would also be affected by a supercommittee failure.

First off, remember that the Budget Control Act allows a full year to pass after Congress fails to adopt a bill to reduce the deficit before it imposes spending cuts and caps. These cuts and caps occur as a sort of fallback plan meant to automatically reach the 10-year, $1.2 trillion deficit reduction goal that the supercommittee was supposed to achieve. Under this fallback plan, the law requires that the president issue “sequestration” orders in January 2013 to cut enacted appropriations and many programs on the mandatory (non-appropriations) side of the budget for fiscal year 2013. For each future year, the law imposes stricter limits on total appropriations spending and makes subsequent cuts to mandatory programs through sequestration.

If lawmakers let those fallback steps proceed (Congress and the president can pass a law that shuts off the cuts) all federal education programs will be affected, not just K-12 programs.

Consider how the sequestration rules would treat the $100 billion in new student loans the federal government makes each year. Under the sequestration order, the U.S. Department of Education would be required to increase the origination fees charged to students who take out loans. The fee increase operates like a spending cut since it reduces the overall cost of the program. No one at the agency has said how much it might have to charge in origination fees under the sequestration order, but some increase, likely less than half a percentage point, would be required under law. (Federal Stafford loans currently charge a 1 percent origination fee and PLUS loans charge a 4 percent origination fee.)

The Pell Grant program is exempt from sequestration, so the Department of Education wouldn’t be forced to cut funding already provided for the program in any year. But there is some confusion about this exemption and the White House Office of Management and Budget hasn’t tried to clear it up yet. Specifically, the sequestration rules and exempt programs identified in the Budget Control Act originated in a 1985 budget law. Under that law, Pell Grants were subject to sequestration if triggered. But in 2010, Congress exempted Pell Grants from sequesters when the president signed a new pay-as-you-go law. Since the 2010 PAYGO law applies only to mandatory (non-appropriations) funding, some have interpreted the Pell Grant exemption to only apply to the portion of the Pell Grant program funded with mandatory funding. However, the exemption added in 2010 references the very beginning of the Pell Grant statute, not any specific funding source for the program. That suggests that the entire program – both its appropriations and mandatory funding – are exempt from cuts under sequestration.

But an exemption from cuts is not an exemption from constraints.

The fallback scenario under the Budget Control Act also further ratchets down spending caps for total appropriations spending by about 7 percent. That reduction comes on top of the limits already in place under the Budget Control Act. This shrinking-pie effect will make it all but impossible for Congress to provide the $32 billion needed annually to maintain today’s maximum Pell Grant of $5,550.

Now that the supercommittee looks certain to fail, all eyes are on whether Congress and the president will allow the Budget Control Act’s automatic cuts and spending caps to proceed in 2013. Higher education funding (and K-12 funding) has more riding on that decision than most people realize.

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