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Ed Money Watch

A Blog from New America's Federal Education Budget Project

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What to Watch for in the President’s Budget Release

Published:  April 8, 2013

President Obama is scheduled to submit his fiscal year 2014 budget request to Congress this Wednesday, April 10. This year’s proposal – the president’s fifth budget request and the first of his final term – will likely include education policies from his past budgets, and certainly some new ideas. It will also show how the Obama administration would allocate fiscal year 2014 funding for every federal education program, which starts October 1, 2013.

Here are a few of topics worth keeping an eye out for on Wednesday.

  • Pre-K Initiative: President Obama proposed in his State of the Union address that the Department of Education work with states to expand access to high-quality pre-K to all four-year-olds whose families earn below 200 percent of the federal poverty line. But there were no other details in the weeks that followed, except that we could expect more information when the president’s budget was released – and according to The New York Times, that the pre-K program will be funded with an increase to the federal tobacco tax.

We have a lot of questions about the plan, like how many children is it expected to cover? How expensive will it be and for how much will states be on the hook? How will the White House ensure pre-K offerings are high-quality? We’ll be looking to the budget request for these and other details on the plan.

  • Program Consolidations: In each of President Obama’s first four budgets, he proposed consolidating 38 existing K-12 programs into just 11.  The proposed reorganization formed a basis of the administration’s Elementary and Secondary Education Act (ESEA) reauthorization – a long overdue legislative action by Congress, given that No Child Left Behind, its most recent iteration, expired in 2007. Will the administration still be pushing for ESEA reauthorization?  Will the budget include the same consolidations it has in every one of President Obama’s budgets before that?  Or will the Obama administration propose something new altogether?
  • Competitive Grants: In the American Recovery and Reinvestment Act, President Obama launched several new competitive grant programs for school districts, among them the Race to the Top and Investing in Innovation (i3) programs. The programs have been refunded each year, and in the case of Race to the Top, used to fund new versions of the competition. Obama’s past proposals include a Race to the Top round for higher education and a “First in the World” college access and completion competition – neither of which received funding.

In his State of the Union address, Obama previewed a partnership program between high schools and colleges and employers to develop classes that promote career readiness in the STEM fields.  So far, no details have emerged on the proposal. But we wonder whether President Obama’s budget request will include funding for a new Race to the Top competition – this time for high schools. And will he push for any of his other lost proposals? Or will programs like the Race to the Top-Early Learning Challenge receive another injection of federal spending instead?

  • Pell Grants: The Congressional Budget Office estimated this year that the Pell Grant program has had ample funding in recent years, such that it has accumulated a $9.2 billion surplus. That funding gives Congress and the Obama administration more time than originally estimated before big increases in temporary funding for the program run out. In other words, the president’s budget need not include any supplemental funding for the Pell Grant program in fiscal year 2014 or even 2015. But the Pell Grant program will eventually need an increase of about $6.2 billion by 2016 to continue in its current form, and given that the president’s budget covers a 10-year period, it may include a proposal to address the long-term funding challenge for Pell Grants. Of course, the president could duck the issue altogether. Last year, the president included only a one-year fix and punted on what he’d do in the longer term.
  • Student Loan Interest Rates: Last year, the president proposed extending for one year the 3.4 percent interest rate for newly issued Subsidized Stafford student loans. Congress obliged, which means that the interest rate on Subsidized Stafford student loans is set to increase this year from 3.4 percent to 6.8 percent on July 1…again. Ed Money Watch wrote last year about this interest rate increase, which would save borrowers only about $9 a month. Each one-year extension costs between $4 and $6 billion and affects a portion of loans made to about two-thirds of undergraduates. One year later, Congress is back to the same debate. The New America Foundation has proposed another interest rate option: tying rates to the 10-year Treasury note rate, plus 3.0 percentage points. The alternative would put an end to annual debate that makes little real difference to students – especially the low-income borrowers who enroll in income-based repayment. Will the president propose another one-year extension or a permanent extension? Or will he propose something bigger and longer-term?
  • Income-Based Repayment for Student Loans: In Safety Net or Windfall: Examining Changes to Income-Based Repayment for Federal Student Loans, we explored the effects of recent Obama administration changes to Income-Based Repayment for student loans. Namely, the program is set to provide graduate school borrowers with exceedingly generous benefits even if they earn a high income after they leave school. Graduate schools can now tell borrowers that they will bear little to no extra cost in borrowing more to pay ever-higher tuition – even if they expect to earn a relatively high income.

Will the Obama budget propose any corrections to this problem?  Or will he propose to make it worse? Each year the president has proposed making loan forgiveness a tax-free event under Income-Based Repayment. Such a policy would make the benefits of the program for high-debt (and high-income) graduate students even more generous, regressive, and expensive. To be sure, we agree that the loan forgiveness should be tax-free and recommend the change – but only after the program’s benefits for high-debt and high-income borrowers with graduate and professional degrees are scaled back.

Look for answers to these and other questions over the next several weeks as we read the president’s budget request and publish our analyses. Check out Early Ed Watch, Ed Money Watch, and Higher Ed Watch for details.


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