Federal Budget Detail: New FFELP Loans Cost Taxpayers Nothing

The Obama administration has issued details of its fiscal 2010 budget proposals, which include a proposal to eliminate the Federal Family Education Loan Program in favor of direct loans beginning July 1, 2010. The budget details project that new FFELP loans issued this year will cost taxpayers nothing.

In fact, according to budget figures, the federal government is projected to make just over $1 on every $100 issued in FFELP loans during fiscal 2009. Even so, the administration projects it will save more than $20 billion during the next five years by replacing FFELP loans with direct loans because the federal government’s “profit” on direct loans is much larger than on FFELP loans.

Other student aid items in the budget proposal include the following:

Pell Grants. The proposed budget would set the maximum Pell Grant award for 2010-2011 at $5,550, make the Pell Grant program a federal entitlement, and increase the maximum award in subsequent years by 1 percentage point more than the Consumer Price Index. The budget documents indicate that Pell Grants would become an “appropriated entitlement” — leaving flexibility for the congressional appropriations committees to increase funding above the specified 1 percent over the Consumer Price Index, or to place a limitation on funding below the entitlement level.

Perkins Loans. The administration proposes a major expansion of the Perkins Loan Program, shifting the program’s funding away from the annual congressional appropriations process to mandatory funding. The program would grow to a $6 billion-a-year program from the current a $1 billion annual program. Rather than funding new loans from a campus-based revolving loan pool, Perkins loan funding would be delivered like Pell Grant and direct loan funding. Schools would remit the federal share of borrower payments to the U.S. Department of Education and retain funds to cover Perkins loan cancellation payments. The administration also proposes to revise the allocation of Perkins loan funding to schools “in consultation with Congress.”

Work/Study. Proposed funding of $980 million, the same as appropriated this year, would generate $1.2 billion to assist nearly 800,000 students.

SEOG. Supplemental Educational Opportunity Grants would be funded at $757 million, the same as for 2009.

LEAP. The administration proposes $64 million in funding for Leveraging Educational Assistance Partnerships, the same as for 2009.

College Access and Completion Fund. The administration proposes $500 million in funding for 2010 and $2.5 billion over five years for efforts to promote college access and student completion.

TRIO and GEAR UP. The administration proposes $905 million for Federal TRIO programs and $313 million for GEAR UP, the same funding levels as for 2009.

Congress can accept, reject or modify the administration’s budget proposals. Congressional appropriators now will develop spending proposals on the student aid provisions subject to the annual appropriations process. U.S. House and Senate education committees will consider the budget provisions that deal with changes in mandatory federal funding of student aid programs.