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OverviewProviding students and their families with grant and loan assistance to help pay for postsecondary education is a core element of the effort to ensure that by 2020 America once again has the highest proportion of college graduates in the world. More specifically, the 2012 request would ensure that Pell Grants will be available to all eligible students through a combination of mandatory savings to offset rising Pell demand and changes in the Pell program that would reduce current and future costs. Proposed mandatory savings include the elimination of interest subsidies for graduate student loans and providing an opportunity for students with multiple loan servicers to convert their student debt to a single loan holder, while the elimination of the "two Pells" provision, which effectively made many students eligible for two Pell Grants in a single award year, would achieve significant cost savings. The 2012 request also would expand the Perkins Loans program and simplify access to student financial aid.
In addition, the 2012 budget includes a new College Completion Incentive Grants program that would make grants to States to encourage colleges to help students enroll in school and finish their studies with a degree or certificate and to reward institutions that produce successful outcomes. Finally, a new Presidential Teaching Fellows program would support K-12 education by recruiting and preparing talented students for the teaching profession through top-tier teacher preparation programs.
The Federal government has greatly increased investment in college student aid in the past few years. In addition to higher Pell Grant awards and low-interest student loans, the Recovery Act created the new American Opportunity Tax Credit (AOTC), which will provide an estimated $7.1 billion in tax relief in fiscal year 2012. The Department estimates that the combination of Federal postsecondary student aid and selected tax benefits will grow to $181 billion in fiscal year 2012, up from $140 billion in fiscal year 2009, an increase of $41 billion, or nearly 30 percent.
Federal Postsecondary Student Aid Soars
| Federal Assistance to College Students | Fiscal Year | Change | ||||
| 2009 | 2012 | Dollars | Percent | |||
| Total Aid Available | $129.3 billion | $166.9 billion | $37.6 billion | 29% | ||
| Selected Tax Benefits | $10.5 billion | $14.2 billion | $3.7 billion | 35% | ||
| Note: Reflects estimates of tax expenditures and preliminary estimated budget effects of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. | ||||||
The Administration's budget would provide $41.2 billion in Pell Grant funding to support awards to nearly 9.6 million students during the 2012-2013 award year while maintaining a maximum Pell award of $5,550. The $41.2 billion total includes $28.6 billion in discretionary funding and $12.6 billion in mandatory funding. However, in response to recent rapid and unsustainable growth in Pell Grant costs, the Administration is proposing a Pell Grant Protection Act that would make changes in student grant and loan programs that would restore financial stability to the Pell Grants program and ensure that it will continue providing significant grant assistance aid to those students with greatest need.
First, the Administration proposes to eliminate the "two Pells" provision, which allows qualifying students to receive two Pell Grants in a single award year. This benefit has proven to be extraordinarily costly—up to 10 times the initial estimates—and has not yet shown any evidence of accelerating students' college completion time. Second, the Pell Grant Protection Act includes changes in the student loan programs to generate mandatory savings that would be used to offset Pell Grant costs, including the elimination of in-school interest subsidies for graduate and professional student loans and a new option for loan conversion. Many, if not most, graduate students are in specialized and often higher-paying fields and thus have less need for subsidized student loans; these students also may benefit from participation in one of several repayment and loan forgiveness plans once they have completed their educations. Moreover, student aid experts have repeatedly noted that providing these subsidies has no effect on encouraging students to pursue graduate education. Eliminating interest subsidies for graduate and professional students would save an estimated $2.2 billion ($1.0 billion in outlays) in fiscal year 2012 and $32.9 billion ($29.3 billion in outlays) over the next 10 years. Allowing borrowers to simplify their debt repayment by converting debt held by multiple lenders to one holder (which will send one bill), while also receiving a benefit of up to 2 percent of their loan balances, would save an estimated $2.1 billion in fiscal year 2012.
The Administration also supports an expanded, modernized Perkins Loan program that, beginning July 1, 2012, would provide $8.5 billion in new loan volume annually—eight and a half times the current Perkins volume. The expanded program would support Perkins Loans at up to 2,700 additional postsecondary education institutions, reaching over 3 million students at full implementation. The new program would provide an additional source of flexible loan dollars for institutions, allowing more students to forgo costly private-label loans and credit-card borrowing. The new formula also would reward institutions with solid college completion outcomes. Overall, this proposal would save $8.6 billion ($7.4 billion in outlays) over 10 years.
The proposed Presidential Teaching Fellows program, which would replace the current TEACH Grants program, would provide formula grants to States to fund scholarships for students attending "high-performing" teacher preparation programs. This new program would provide scholarships of up to $10,000 to cover the cost of program participation for the final year of a Fellow's teacher preparation program (either through an undergraduate or post-graduate program). By limiting eligibility to teacher preparation programs that have been proven successful, and to students who are further advanced in their program of study, the Presidential Teaching Fellows program will be targeted to students who have a greater likelihood of not only entering and remaining in the teaching profession but also of becoming effective teachers.
The Administration continues to seek new, innovative ways of rewarding institutions of higher education that are able to produce good outcomes for all of their students, and particularly their low-income students. The proposed College Completion Incentive Grants program would provide incentives for States to measure and reward efforts by their higher education institutions to produce strong results for low-income students, including graduation and employment.
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Student Aid Summary TablesBudget Authority ($ in millions)
| 2010 | 2011 CR | 2012 Request |
||||
|---|---|---|---|---|---|---|
| Pell Grants | ||||||
| Discretionary funding | $17,495.0 | $23,162.0 | 1 | $28,600.1 | ||
| Mandatory funding | 5,299.8 | 18,718.2 | 1 | 12,556.0 | ||
| Subtotal, Pell Grants | 22,794.8 |
41,880.2 |
41,156.1 |
|||
| Supplemental Educational
Opportunity Grants |
757.5 | 757.5 | 757.5 | |||
| Work-Study | 980.5 | 980.5 | 980.5 | |||
| Leveraging Educational Assistance Partnerships |
63.9 | 2 | 63.9 | 2 | — | 2 |
| Academic Competitiveness Grants | 1,897.0 | 3 | 561.0 | 3 | — | 3 |
| Iraq and Afghanistan Service Grants | 0.02 | 0.2 | 0.2 | |||
| TEACH Grants | 26.8 | 4 | 22.2 | 4 | 14.1 | 4 |
| Presidential Teaching Fellows | — | — | 185 | |||
| Federal Family Education Loans | -9,104.0 | 5 | -24,492.9 | 5 | -2,109.4 | 5 |
| Federal Direct Loans | -11,215.8 | -26,783.5 | 6 | -27,222.7 | 6 | |
| Perkins Loans | — | — | -1,240.8 | 7 | ||
| Total | 6,200.7 |
8 | -7,010.9 |
8 | 12,520.5 |
8 |
1Amounts appropriated for Pell Grants for 2011 include an additional mandatory appropriation of $13.5 billion from the Student Aid and Fiscal Responsibility Act (P.L. 111-152). Request in 2012 includes additional mandatory funding of approximately $7.7 billion received from savings in the student loan programs and appropriated to the Pell program account. 2Includes $33.9 million in 2010 and 2011 for Special LEAP or Grants for Access and Persistence, which was created by the Higher Education Opportunity Act of 2008 and will replace Special LEAP after a 2-year transition period during which States may choose to participate in either program. The budget proposes elimination of this program in 2012. 3The amount for 2010 reflects availability of 2009 delayed funding and a deferral of $561 million to 2011; the amount for 2011 reflects the amount deferred from FY 2010. The program is expected to sunset after June 30, 2011. 4Amounts for 2010 and 2011 include new loan subsidy and upward re-estimate, and exclude downward re-estimates. The downward re-estimate for 2010 was $153 million; the downward re-estimate for 2011 is $5.97 billion. Amount for 2012 reflects new loan subsidy. The budget proposes elimination of this program at the end of the 2011-2012 academic year. 5Budget authority requested for FFEL does not include the Liquidating account. The 2010 amount includes a net downward re-estimate of $7.4 billion primarily related to revised economic assumptions. The 2011 amount includes a net downward re-estimate of $24.5 billion primarily related to revised interest rates. The 2012 amount includes a net modification of $409 million as a result of the proposed debt conversion policy. (Re-estimates and modifications reflect the impact of changes on an outstanding FFEL portfolio of over $416 billion.) 6The 2010 amount includes a net downward re-estimate of $2.6 billion primarily related to revised interest rates. The 2011 amount includes a net downward re-estimate of $5.7 billion, primarily related to revised interest rates. (Re-estimates and modifications reflect the impact of changes on an outstanding Direct Loan portfolio of nearly $221 billion.) 7Amounts in 2010 and 2011 reflect cancellations of current Perkins Loans; amount for 2012 reflects proposal to shift Perkins Loan to a mandatory credit program. 8The 2012 Budget also includes a proposal to create a College Completion Incentive Grants program. This program is anticipated to provide $50 million to States in 2012 to help encourage positive outcomes for low-income students in higher education. | ||||||
Aid Available to Students ($ in millions)
| 2010 | 2011 CR | 2012 Request |
||||
|---|---|---|---|---|---|---|
| Pell Grants | $36,514.6 | $35,772.9 | $36,072.9 | |||
| Supplemental Educational
Opportunity Grants |
958.8 | 958.8 | 958.8 | |||
| Work-Study | 1,170.8 | 1,170.8 | 1,170.8 | |||
| Leveraging Educational Assistance Partnerships |
161.6 | 1 | 161.6 | 1 | — | 1 |
| Academic Competitiveness Grants | 548.0 | — | — | |||
| SMART Grants | 384.0 | — | — | |||
| Iraq and Afghanistan Service Grants | 0.2 | 0.2 | 0.2 | |||
| Presidential Teaching Fellows | — | — | 134 | |||
| New Student Loans: | ||||||
| Federal Family Education Loans2 | 19,617.5 | — | — | |||
| Federal Direct Loans | 84,703.5 | 116,097.8 | 124,317.9 | |||
| Perkins Loans | 970.7 | 970.7 | 4,227.6 | |||
| TEACH Grants | 108.7 | 131.4 | 67.8 | |||
| Subtotal, Student Loans | 105,400.4 |
3 | 117,199.9 |
3 | 128,613.3 |
3 |
| Total4 | 145,138.4 | 5 | 155,264.2 | 5 | 166,950.0 | 5 |
1Reflects only the LEAP program's statutory State matching requirements. 2This program ended on June 30, 2010, as stipulated in the Student Aid and Fiscal Responsibility Act (P.L. 111-152). All new loans as of July 1, 2010 are originated in the Federal Direct Loan Program. 3In addition, consolidation loans for existing borrowers will total $17.2 billion in 2010, $19.5 billion in 2011, and $22.7 billion in 2012. 4The 2012 Budget also includes a proposal to create a College Completion Incentive Grants program. This program is anticipated to provide 25 grants to States in 2012, to help encourage positive outcomes for low-income students in higher education. 5Shows total aid generated by Department programs, including Federal Family Education Loan capital, Perkins Loan capital from institutional revolving funds, statutory, institutional and State matching funds. | ||||||
Number of Student Aid Awards
(in thousands)
| 2010 | 2011 CR | 2012 Request |
||||
|---|---|---|---|---|---|---|
| Pell Grants | 8,873.0 | 9,413.0 | 9,614.0 | |||
| Supplemental Educational
Opportunity Grants |
1,339.1 | 1,339.1 | 1,339.1 | |||
| Work-Study | 713.0 | 713.0 | 713.0 | |||
| Leveraging Educational Assistance
Partnerships |
161.6 | 1 | 161.6 | 1 | — | |
| Academic Competitiveness Grants | 786.0 | — | — | |||
| SMART Grants | 150.0 | — | — | |||
| Iraq and Afghanistan Service Grants2 | — | — | — | |||
| Presidential Teaching Fellows | — | — | 13 | |||
| New Student Loans:3 | ||||||
| Federal Family Education Loans | 5,220.4 | — | — | |||
| Federal Direct Loans | 16,646.2 | 23,728.2 | 25,123.5 | |||
| Perkins Loans | 493.2 | 493.2 | 2,148.2 | |||
| TEACH Grants | 36.7 | 44.3 | 25.1 | |||
| Total awards | 34,419.2 |
35,892.4 |
38,975.9 |
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1Reflects only the LEAP program's statutory State matching requirements. 2Less than1,000 recipients in each year. 3In addition, consolidation loans for existing borrowers will total 494,000 in 2010, 538,000 in 2011, and 609,000 in 2012. | ||||||
Number of Postsecondary Students Aided by Department Programs
| 2010 | 2011 CR | 2012 Request |
|
|---|---|---|---|
| Unduplicated Count (in thousands) | 13,825 | 15,248 | 15,976 |
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Tax Benefits for Postsecondary Students and Their FamiliesIn addition to the Department of Education's grant, loan, and work-study programs, significant support for postsecondary students and their families is available through tax credits and deductions for higher education expenses, including tuition and fees. For example, in fiscal year 2012, students and families will claim an estimated $7.1 billion for the American Opportunity Tax Credit—which provides a credit equaling 100 percent of the first $2,000 of tuition and fees, and 25 percent of remaining expenses, up to a total credit of $2,500—and another $5.5 billion under the Lifetime Learning tax credit, which allows a credit of up to $2,000 for undergraduate and graduate tuition and fees. Additionally, another $1.5 billion will be claimed in above-the-line deductions for interest paid on postsecondary student loans. (Note: AOTC and interest- deduction amounts reflect estimates of tax expenditures and preliminary estimated budget effects of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.)
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| 2010 | 2011 CR | 2012 Request |
|
|---|---|---|---|
| B.A. in millions | |||
| Discretionary | $17,495.0 | $23,162.0 | $28,600.1 |
| Mandatory | 5,299.8 | 5,218.2 | 4,895.0 |
| Definite mandatory funding | — | 13,500.0 | 7,661.0 |
| Total | 22,794.8 |
41,880.2 |
41,156.1 |
| Program costs ($ in millions) | 36,559.0 | 35,820.0 | 36,121.0 |
| Aid available ($ in millions) | 36,514.6 | 35,772.9 | 36,072.9 |
| Recipients (in thousands) | 8,873 | 9,413 | 9,614 |
| Maximum grant (in whole $) | |||
| Discretionary | $4,860 | $4,860 | $4,860 |
| Mandatory add-on | 690 | 690 | 690 |
| Total | 5,550 |
5,550 |
5,550 |
| Average grant (in whole $) | 4,115 | 3,800 | 3,752 |
The Pell Grant program helps ensure financial access to postsecondary education by providing grant aid to low- and middle-income undergraduate students. The program is the most need- focused of the Department's student aid programs, with individual awards varying according to the financial circumstances of students and their families.
The request would provide $36.1 billion in Pell Grant awards to nearly 9.6 million students during the 2012-2013 award year, with a maximum award of $5,550. In response to the unsustainably high costs of the Pell Grant program as currently structured, the Administration is proposing a range of measures, known collectively as the Pell Grant Protection Act, to reform program operations and funding. This proposal includes provisions to both decrease Pell costs—such as by eliminating students' ability to get a second Pell grant in an award year, which would save $7.6 billion in fiscal year 2012—and to find new sources of funding to reduce discretionary funding costs. The source of this funding would be appropriated savings from eliminating the payment of interest subsidies for graduate student loans and from offering borrowers the option of converting their FFEL debt to the Department. These proposals would generate an estimated additional $4.3 billion in savings in fiscal year 2012 that would be used to offset Pell costs and help ensure the long-term financial stability of the Pell Grant program.
In addition, the Administration would continue its effort to simplify and improve the current cumbersome process for applying for student aid by requiring Pell Grant applicants to use tax data from the Internal Revenue Service to populate the income section of the Free Application for Federal Student Aid (FAFSA). This change would save money by preventing over-awards of Pell Grant based on inaccurately reported student and family income data. Taken together, the proposed elimination of a second Pell grant and the income verification policies would decrease Pell Grant costs by $25.3 billion through 2016.
Campus-Based Programs
Grants under the Supplemental Educational Opportunity Grant, Work-Study, and Perkins Loan programs, or the "campus-based" programs, are made directly to participating institutions, which have considerable flexibility to package awards to best meet the needs of their students. The restructuring of the Perkins Loan program under the 2012 budget would provide an additional $7.5 billion to schools for loans to students compared to the current Perkins program.
Supplemental Educational Opportunity Grants
| 2010 | 2011 CR | 2012 Request |
|
|---|---|---|---|
| B.A. in millions | $757.5 | $757.5 | $757.5 |
| Aid available ($ in millions) | 958.8 | 958.8 | 958.8 |
| Recipients (in thousands) | 1,339 | 1,339 | 1,339 |
| Average award (in whole $) | $716 | $716 | $716 |
This program provides grant assistance of up to $4,000 per academic year to undergraduate students with demonstrated financial need. The $757 million request would leverage $202 million in institutional matching funds to make available a total of $959 million in grants to an estimated 1.3 million recipients. Program funds are allocated to institutions according to a statutory formula and require a 25 percent institutional match. Awards are determined at the discretion of institutional financial aid administrators, although schools are required to give priority to Pell Grant recipients and students with the lowest expected family contributions.
| 2010 | 2011 CR | 2012 Request |
|
|---|---|---|---|
| B.A. in millions | $980.5 | $980.5 | $980.5 |
| Aid available ($ in millions) | 1,170.8 | 1,170.8 | 1,170.8 |
| Recipients (in thousands) | 713 | 713 | 713 |
| Average award (in whole $) | $1,642 | $1,642 | $1,642 |
The Work-Study program provides grants to participating institutions to pay up to 75 percent of the wages of eligible undergraduate and graduate students working part-time to help pay their college costs. The school or other eligible employer provides the balance of the student's wages. At the request level, 713,000 students would receive a total of nearly $1.2 billion in award year 2012-13. Funds are allocated to institutions according to a statutory formula, and individual award amounts to students are determined at the discretion of institutional financial aid administrators.
| 2010 | 2011 CR | 2012 Request |
|
|---|---|---|---|
| B.A. in millions | — | — | -$1,240.8 |
| Aid available ($ in millions) | $970.7 | $970.7 | 4,227.6 |
| Recipients (in thousands) | 493 | 493 | 2,148 |
| Average award (in whole $) | $1,968 | $1,968 | $1,968 |
The Perkins Loans program provides long-term, low-interest loans to undergraduate and graduate students with demonstrated financial need at roughly 1,700 institutions. Total assets of over $8 billion represent over 40 years of Federal capital contributions, institutional matching funds, repayments on previous loans, and Federal reimbursements for loan cancellations. Perkins Loan borrowers pay no interest during in-school, grace, and deferment periods and are charged 5 percent interest during the principal repayment period. Annual borrowing limits are $5,500 for undergraduate students and $8,000 for graduate and professional students.
The Administration supports action designed to create an expanded, modernized Perkins Loan program providing $8.5 billion in new loan volume annually—eight and a half times the current annual Perkins volume—and, at full implementation reaching over 3 million students at as many as 2,700 additional postsecondary education institutions. Instead of being serviced by the colleges, loans would be serviced by the Department of Education along with other Federal loans. The loans would have the same 6.8 percent interest rate as Unsubsidized Stafford Loans and the same allowed loan amounts (both undergraduate and graduate) as the current Perkins program. To make loans available to more students, interest on the loans would accrue while students are in school. Overall, this proposal will save an estimated $8.6 billion over 10 years.
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College Completion Incentive Grants
| 2010 | 2011 CR | 2012 Request |
|
|---|---|---|---|
| B.A. in millions | — | — | $50.0 |
| Aid available ($ in millions) | — | — | 50.0 |
| Recipients (in thousands) | — | — | 25 |
| Average award (in whole $) | — | — | $2,000 |
The proposed College Completion Incentive Grants program is designed to target Federal student aid dollars effectively and efficiently while providing better information to parents and students to promote transparency and help them choose wisely among their postsecondary options. The program would make grants to States, which would then provide payments to schools as a positive incentive to encourage better outcomes for students. Participating States would be required to align high school graduation requirements with participating institutions' expectations for academic preparation, create stronger articulation agreements, facilitate transfers, and match Federal funds or provide their own performance-based funding for institutions. States also would set goals for increasing the number of students completing college and for closing gaps among different student groups. All postsecondary institutions in a State would be eligible for the program; participation by public institutions would be mandatory. The size of awards to individual institutions would be linked to measured outcomes.
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Academic Competitiveness Grants/SMART Grants
| 2010 | 2011 CR | 2012 Request |
|
|---|---|---|---|
| B.A. in millions | $1,010.0 | — | — |
| FY 2010 amount deferred from FY 2009 | 887.0 | — | — |
| FY 2011 amount deferred from FY 2010 | — | $561.0 | — |
| Total | 1,897.0 |
561.0 |
— |
| Academic Competitiveness Grants | |||
| Recipients | 786,000 | — | — |
| Aid available to students (in millions) | $548 | — | — |
| Maximum grant (in whole $) | |||
| First-year student | $750 | — | — |
| Second-year student | $1,300 | — | — |
| Average grant (in whole $) | $697 | — | — |
| SMART Grants | |||
| Recipients | 150,000 | — | — |
| Aid available to students (in millions) | $384 | — | — |
| Maximum grant (in whole $) | $4,000 | — | — |
| Average grant (in whole $) | $2,560 | — | — |
These programs award need-based Academic Competitiveness Grants (ACG) to first- and second-year undergraduates who complete a rigorous high school curriculum, and National Science and Mathematics Access to Retain Talent (SMART) Grants to third- and fourth-year undergraduates majoring in physical, life, or computer sciences, mathematics, technology, engineering, or a critical foreign language. All funding is mandatory, so annual discretionary appropriations are not required.
Academic Competitiveness Grants are awarded to students who are eligible for a Federal Pell Grant. First-year applicants, who may receive up to $750, also must be first-time undergraduates, enrolled or accepted for enrollment in a 2- or 4-year degree granting institution, and have completed a rigorous secondary school program. Second-year ACG applicants qualify for an award of up to $1,300 if they have completed a rigorous program and maintained a cumulative grade point average of at least 3.0 during their first year as an undergraduate.
SMART Grant applicants must maintain a cumulative GPA of at least 3.0 in the coursework required by their major to qualify for up to $4,000 for their third and fourth years of undergraduate study. SMART Grants, in combination with the Federal Pell Grant and other student financial assistance, may not exceed the student's cost of attendance.
The ACG/SMART program sunsets at the end of academic year 2010-2011; accordingly, no new appropriations are provided or requested for fiscal year 2011.
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TEACH Grants/Presidential Teaching Fellows
| 2010 | 2011 CR | 2012 Request |
||||
|---|---|---|---|---|---|---|
| TEACH Grants | ||||||
| BA in millions | $26.8 | 1 | $22.2 | 1 | $14.1 | 1 |
| Recipients | 36,650 | 44,285 | 25,082 | |||
| Aid available to students (in millions) | $108.7 | $131.4 | $67.8 | |||
| Maximum grant(in whole $) | $4,000 | $4,000 | $4,000 | |||
| Average grant(in whole $) | $2,966 | $2,966 | $2,703 | |||
| Presidential Teaching Fellows | ||||||
| BA in millions | — | — | $185.0 | |||
| Number of State formula grants | — | — | 35-56 | |||
| Total aid available (in millions) | — | — | $136.0 | |||
| Minimum State award (in $000s) | — | — | $600 | |||
| Average State award (in $000s) | — | — | $3,362 | |||
| Number of Presidential Teaching Fellows | — | — | 13,357 | |||
1Amounts for 2010 and 2011 include new loan subsidy and upward re-estimate, and exclude downward re-estimates. The downward re-estimate for 2010 was $153 million; the downward re-estimate for 2011 is $5.97 million. Amount for 2012 reflects new loan subsidy. | ||||||
The TEACH Grant program, which began operations on July 1, 2008, awards annual grants of up to $4,000 to eligible undergraduate and graduate students who agree to serve as a full-time mathematics, science, foreign language, bilingual education or other English language program, special education, or reading teacher at a high-need school for not less than 4 years within 8 years of graduation. For students who fail to fulfill this service requirement, grants are converted to Direct Unsubsidized Stafford Loans with interest accrued from the date the grants were awarded.
For budget and financial management purposes, this program is operated as a loan program with 100 percent forgiveness of outstanding principal and interest upon completion of a student's service requirement. The Administration currently estimates approximately 75 percent of participating students will not complete the required service and thus will have their grants converted to Direct Unsubsidized Stafford Loans. Consistent with the requirements of the Credit Reform Act of 1990, budget authority for this program reflects the estimated net present value of all future non-administrative Federal costs associated with awards in a fiscal year.
The 2012 budget proposes overhauling the TEACH Grant program and replacing it with the new Presidential Teaching Fellows program, which is specifically focused on ensuring that recipients enter, remain, and thrive in the field of teaching. Under this proposal, States would receive funds to award scholarships of up to $10,000 to talented individuals attending their most effective teacher preparation programs, based in part on the academic growth of the students their graduates teach. Fellows would use their scholarships to pay for their final year of either a traditional teacher preparation or alternative route program. After graduation Fellows would be required to teach for at least 3 years in a high-need school or high-need subject. To receive funds, States would commit to holding the least effective teacher preparation programs accountable for results and upgrading licensure and certification standards, and would be eligible to set aside additional funding to provide recognition and portable certification to effective classroom teachers. The purpose of targeting the funding in this way is to increase the likelihood that recipients will be committed to becoming teachers with the skills and knowledge it takes to succeed in the classroom and more likely to fulfill their service obligation.
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Federal Family Education Loans and Direct Loans
(in millions)
| 2010 | 2011 CR | 2012 Request |
||||
|---|---|---|---|---|---|---|
| Federal Family Education Loans | ||||||
| New Loan Subsidies (BA) | -$1,701.4 | 1 | — | -$1,700.4 | ||
| Net Modification of Existing Loans | — | — | -409.02 | 2 | ||
| Net Re-estimate of Prior Loans | -7,402.6 | 3 | -$24,492.9 | 3 | — | |
| Total, FFEL Program BA | -9,104.0 |
-24,492.9 |
-2,109.4 |
|||
| Direct Loans | ||||||
| New Loan Subsidy (BA) | -8,632.6 | 3 | -21,094.2 | 3 | -27,222.7 | 3 |
| Net Modification of Existing Loans | — | — | — | |||
| Net Re-estimate of Prior Loans | -2,583.2 | 4 | -5,689.3 | 4 | — | |
| Total, New Budget Authority | -11,215.8 |
-26,783.5 |
-27,222.7 |
|||
| Total, Student Loans (BA) | -20,319.8 | -51,276.4 | -29,322.1 | |||
1Total includes amount for Consolidation Loans but does not include the Liquidating Account, which deals with costs associated with loans made prior to 1992. 2Under Credit Reform, costs or savings related to the impact of policy changes on existing loans are reflected in the current year. The amount of 2012 FFEL modification reflects the impact of the debt conversion policy proposal. 3Total includes amount for Consolidation Loans. 4Under Credit Reform, the subsidy amounts needed for active loan cohorts are re-estimated annually in both Direct Loans and FFEL to account for changes in long-term projections. Re-estimates and modifications reflect the impact of changes on outstanding portfolios of over $416 billion for FFEL and nearly $221 billion for Direct Loans. | ||||||
New loan volume (in millions)
| 2010 | 2011 CR | 2012 Request |
||||
|---|---|---|---|---|---|---|
| Federal Family Education Loans | $19,617.5 | — | — | |||
| Direct Loans | 84,703.5 | $116,097.8 | $124,317.8 | |||
| Total | 104,321.0 |
1 | 116,097.8 |
1 | 124,317.8 |
1 |
| Number of New loans (in thousands) | ||||||
| Federal Family Education Loans | 5,220 | — | — | |||
| Direct Loans | 16,647 | 23,728 | 25,124 | |||
| Total | 21,867 |
1 | 23,728 |
1 | 25,124 |
1 |
1In addition, Consolidation Loans for existing borrowers will total $17.2 billion and 494,000 loans in 2010, $19.5 billion and 538,000 loans in 2011, and $22.7 billion and 609,000 loans in 2012. | ||||||
The Department of Education currently operates two major student loan programs: the Federal Family Education Loan (FFEL) program and the William D. Ford Federal Direct Loan (Direct Loan) program. SAFRA eliminated the authorization to originate new FFEL loans after June 30, 2010; all new loans are originated in the Direct Loan program. The FFEL program made loan capital available to students and their families through private lenders. State and private nonprofit guaranty agencies administer the Federal guarantee protecting FFEL lenders against losses related to borrower default. These agencies also collect on defaulted loans and provide other services to lenders.
Under the Direct Loan program, the Federal Government uses Treasury funds to provide loan capital directly to schools, which then disburse loan funds to students.
Basic Loan Program Components
Both FFEL and Direct Loans feature four types of loans with similar fees and maximum borrowing amounts:
Stafford Loans are subsidized, low-interest loans based on financial need. The Federal Government pays the interest while the student is in school and during certain grace and deferment periods. For undergraduate loans made on or after July 1, 2008, the interest rate is fixed at 6.0 percent. Rates for undergraduates drop each subsequent July 1 through 2011, when rates would be 3.4 percent. Rates would return to 6.8 percent beginning July 1, 2012.
Unsubsidized Stafford Loans have a fixed interest rate of 6.8 percent, but the Federal Government does not pay interest for the student during in-school, grace, and deferment periods.
PLUS Loans are available to parents of dependent undergraduate students at slightly higher rates than Stafford or Unsubsidized Stafford Loans and the Federal Government does not pay interest during in-school, grace, and deferment periods. Graduate and professional students may also take out PLUS loans.
Consolidation Loans allow borrowers with multiple student loans who meet certain criteria to combine their obligations and extend their repayment schedules. The rate for both FFEL and Direct Consolidation Loans is based on the weighted average of loans consolidated rounded up to the nearest 1/8th of 1 percent. The resulting rate for the consolidated loan is then fixed for the life of the loan.
Ensuring Continued Access to Student Loans
In response to significant disruptions in the credit markets and concern over access to FFEL program loans, the Ensuring Continued Access to Student Loans Act (ECASLA) of 2008 provided the Department of Education with authority to purchase student loans to support new originations during the 2008-2009 academic year. Using this authority, which was subsequently extended through the end of the 2009-2010 academic year, the Department established several programs to ensure the availability of student loans, including a Loan Participation Interest program, a Loan Purchase program, and an Asset-Backed Commercial Paper Conduit. The authority to purchase new loans using ECASLA authority expired after the 2009-2010 academic year.
2012 Budget Request
Debt Conversion
Providing students with easy access to financial aid in college is a key component to the goal of leading the world in the proportion of college graduates by 2020. However, once students are out of school, the process for students to repay any loans taken out while in school should be just as simple. While the FFEL program ended on June 30, 2010, over 6 million student loan borrowers have student loans in both the FFEL and Direct Loan programs. The repayment process for these borrowers involves complicated record-keeping and making payments to multiple student loan holders, putting these students at greater risk for default due solely to the administrative complexity of the repayment process. To assist these borrowers and simplify their repayment process, the 2012 request would allow them to convert existing FFEL debt to the Department of Education. Terms and conditions of the borrower's loans would not change, and borrowers would not have to consolidate their loans to participate. Borrowers that choose to convert will receive a benefit of up to 2 percent of their loan balance.
Eliminate Graduate Student Interest Subsidy
Currently, graduate students are eligible to borrow up to $8,500 per academic year for a Subsidized Stafford loan. The Administration proposes to eliminate the payment of in-school interest subsidies on these graduate student loans, both as a cost-saving measure and in recognition of reduced repayment burden resulting from previous action taken by Congress—such as the new Income-Based Repayment program, and the Public Sector Loan Forgiveness and other loan forgiveness programs. In addition, graduate students often study in specialized, higher-paying fields and thus are less in need of subsidized loans. Moreover, student aid experts have repeatedly noted that providing these subsidies has no effect on encouraging students to pursue graduate education. The estimated $2.2 billion ($1.0 billion in outlays) in savings resulting from this proposal in 2012 would be redirected to the Pell Grant program to help students with the greatest need for assistance in paying college costs.
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Career, Technical, and Adult Education 
Higher Education Programs
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For further information contact the ED Budget Service.
This page last modified—February 14, 2011 (mjj).