Congress Proposes Cutting Student Financial Aid in FY2012 Federal Education Budget

Mark Kantrowitz

October 03, 2011

Congress Proposes Cutting Student Financial Aid in FY2012 Federal Education Budget

Changes to Need Analysis

The House legislation will reduce the Auto-Zero-EFC threshold from $31,000 to $15,000. Students with a zero EFC get a full Pell Grant. This change will significantly reduce the number of low-income students who receive the maximum Pell Grant. Some students will experience a reduction of as much as $2,700 in their Pell Grant funding.

The House legislation will restore all of the untaxed income and benefit categories that were removed by the College Cost Reduction and Access Act of 2007 (P.L. 110-84). Accordingly, the House legislation will count the additional child tax credit, welfare benefits, earned income tax credit (EITC), federal tax credit on special fuels, foreign income exclusion and untaxed social security benefits as part of the definition of untaxed income. This change will increase the length of the FAFSA by about 6 questions.

The House legislation significantly also reduces the income protection allowance for 2012-13 and subsequent years. In effect, the legislation rolls back the income protection allowance to 2008-09 levels adjusted for inflation. For example, current law provides for an income protection allowance of $6,000 for dependent undergraduate students in 2012-13. The House legislation will reduce it to $3,290, reflecting only an inflationary adjustment from the $3,080 level in 2008-09. Similarly, the House legislation will reduce the income protection allowance from $9,300 (single) and $14,960 (married) to $6,620 (single) and $10,620 (married), reflecting only an inflationary adjustment from the $6,220 (single) and $9,970 (married) levels in 2008-09.

The Senate legislation does not modify the federal need analysis formula.

Other Student Aid Funding Changes

Both the House and Senate versions of the legislation leave the budgets for the Federal SEOG Grant and Federal Work-Study programs unchanged.

The House legislation eliminates funding for minority-serving institutions, cuts funding for Hispanic-Serving Institutions (HSI) by 83% and cuts funding for Historically-Black Colleges and Universities (HBCU) by 36%. The Senate legislation does not cut funding for these programs.

The House legislation eliminates the AmeriCorps program and other national and community service programs. The Senate legislation preserves all of these programs.

The House legislation eliminates the Fund for the Improvement of Postsecondary Education (FIPSE) while the Senate legislation preserves it.

Blocking New Program Integrity Regulations

The House legislation blocks several recent U.S. Department of Education program integrity regulations, including the state authorization rule and the new definition of credit hour.

The House legislation also blocks the gainful employment rules concerning new programs and the data collection requirements for the gainful employment rule. The latter will effectively prevent implementation of the gainful employment rules starting in 2012, since U.S. Department of Education can’t enforce the rules without data. The gainful employment rules establish affordable debt restrictions on most programs at for-profit colleges and on non-degree certificate programs at public and non-profit colleges.

The Senate legislation does not block these regulations. Senator Harkin has held a series of hearings that have been sharply critical of for-profit colleges. He favors increased regulation of the industry.

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