In the annual State of the Union address, President Obama highlighted proposals to make education at community colleges free for students and developed a tax plan that would simplify the American Opportunity Tax Credit. Shortly thereafter, on February 2, the White House made public its proposed $4.066 trillion federal budget for FY16, in which higher education access and affordability remain top priorities.
President Obama also set ambitious goals for research spending. Research agencies would see significant gains, while overall research and development spending would increase by $7.6 billion. Obama calls for a budget increase of 5.3 percent for the National Science Foundation, 5.4 percent for the Department of Energy Office of Science, and a 3.3 percent increase for the National Institutes of Health.
However, it will be an uphill battle to find any common ground between the Democratic White House and the Republican Congress in the coming months on topline FY16 spending and programmatic budget lines, as well as on long-term domestic policy and tax initiatives. In order to achieve his myriad goals, the president would do away with sequestration and increase tax revenue.
America’s College Promise
Early in the year, President Obama announced his proposal to make two years of community college “as free and universal as high school,” calling the idea, “America’s College Promise.” If approved by Congress, America’s College Promise would provide federal funding to cover three quarters of the average cost of community college, provided states make certain commitments. The White House proposal is based on a program in Tennessee, where community college and technical school students can apply for the Tennessee Promise scholarship, which provides two years of tuition-free education.
A new detail emerged from the White House in February—students from families with an adjusted gross income of $200,000 and above would not be eligible. The administration would mandate other specific expectations for participating students, colleges, and states:
- To have their tuition covered, students must attend at least half time, maintain a 2.5 GPA while in college, and make steady progress toward completing their program.
- Community colleges must offer programs that either (1) are academic programs that fully transfer to local public four-year colleges and universities, or (2) are occupational training programs with high graduation rates and that lead to degrees and certificates that are in demand among employers. The fact sheet also states, “Colleges must also adopt promising and evidence-based institutional reforms to improve student outcomes,” calling attention to college persistence and degree completion programs at the City University of New York, as an example.
- States that choose to participate will be expected to contribute one quarter of the funds necessary to eliminate community college tuition for eligible students.
Education Budget Goals
The proposed budget for FY16 would allow for a maximum Pell Grant award of $5,915 for 2016–17. White House budget documents also include proposed reforms to many federal student aid programs. Notable highlights of the FY16 budget proposal include:
- Pell Grant. The Pell Grant Program would be fully funded. The current maximum would increase from $5,775 to $5,915 for 2016–17, and the maximum award would be tied to inflation beyond 2017. Few details were included, but the administration proposes “strengthening academic progress requirements.”
- Income-based repayment (IBR) for student loans. IBR would be streamlined; any savings would be redirected to the Pell Grant Program; and the administration would modify “Pay as You Earn” terms and make them the basis for the only income-driven repayment plan for borrowers who originate their first loan on or after July 1, 2016.
- Perkins Loans. The Perkins Loan Program would be overhauled by modifying the formula used to allocate funding to institutions; the Department of Education, rather than institutions, would service Perkins Loans.
- Campus-based aid.Supplemental Educational Opportunity Grants and Federal Work Study would be level funded from FY15.
- FAFSA simplification. The administration would cut by 30 the number of questions on the current Free Application for Federal Student Aid, bringing the total number of questions to 78.
- 90/10 rule. The budget proposes including Department of Defense Tuition Assistance and Department of Veterans Affairs GI Bill benefits in the calculation of the 90 percent cap on the share of for-profit colleges’ revenue that comes from federal taxpayers.
- Competitive programs. The budget proposes increased funding for the First in the World program and a new $200 million American Technical Training Fund, to expand technical training programs.
Higher Education Act Reauthorization
Congress will consider the White House policy proposals as legislators work toward reauthorization of the Higher Education Act, which expires Sept. 30, 2015—during FY16 budget negotiations. Lawmakers at both ends of Pennsylvania Avenue will continue to propose new college programs, rules, regulations, and reforms through the year, with reauthorization in mind. However, if Congress cannot complete a rewrite before the fall deadline, legislators will pass temporary extensions until an agreement can be reached.
The Republican-led Congress, though, is unlikely to support the president’s call for making community college free. In response to the State of the Union address, Rep. John Kline (R-MN), chairman of the house committee that oversees education policy, stated, “Bigger and bloated government isn’t the solution to the problems facing our nation. Instead of making promises the American people can’t afford, the president has a responsibility to meet our existing commitments.”
For 2015, Kline has made reauthorization of the Elementary and Secondary Education Act (ESEA) a priority. Even though it tops his committee agenda for the 114th Congress, it remains unclear if Democrats and Republicans, in both the House and Senate, can actually work together to hammer out compromise legislation with the White House—and it may take months before a final agreement is brokered. Reauthorization of the Higher Education Act follows next on the education committee’s agenda, after work on ESEA; but with the next presidential election year quickly approaching, party politics may impede progress on compromise higher education legislation, especially if the battles over the ESEA rewrite are bruising.
In the Senate, during the first week of session in January, a bipartisan group of senators introduced two higher education pieces of legislation, one that would simplify the process of applying for federal financial aid and another to consolidate loan repayment options into two plans:
- Sens. Burr (R-NC) and King (I-ME) reintroduced the Repay Act, along with Sens. Mark Warner (D-VA), Marco Rubio (R-FL), Susan Collins (R-ME), and Lamar Alexander (R-TN). The act would offer two plans: a fixed repayment plan, based on a 10-year period; and a single, simplified income-driven repayment option.
- Sen. Burr, along with Sens. Alexander, Bennet (D-CO), Booker (D-NJ), Isakson (R-GA), and King introduced the FAST Act, a bill aimed at simplifying the process of applying for and receiving federal financial aid to attend college. The legislation would limit the FAFSA to two questions—household size and household income. Perkins and Supplemental Educational Opportunity Grants would be eliminated.
As in the House, the chairman of the Senate education committee has made ESEA reauthorization a priority. However, he would like to move these two pieces of higher education legislation as soon as possible, hoping for action on them this spring, as a part of the steps toward a full rewrite of the HEA.
President Obama is also promoting a new tax plan that would simplify the American Opportunity Tax Credit. A new AOTC would expand and modify the current credit, and repeal Lifetime Learning Credits. The expanded AOTC would be available for the first five years of postsecondary education and for five tax years. It would expand eligibility to include undergraduate students attending less than half time. Members of the tax-writing committees are also developing similar and alternative proposals related to AOTC reform.
Earlier this year, the White House further suggested limiting the tools that encourage families to save and plan for college—specifically 529 plans—but abandoned the idea after significant public outcry and criticism from both Republican and Democratic members of Congress.
Most lawmakers agree that the tax code is enormously complicated and that simplification would benefit both the government and taxpayers. The White House and congressional leaders have been exploring possible courses toward reform. However, there remain deep divides on fundamentals—from the role taxes will play in addressing the deficit and economic growth to whether reform should include both business and individual tax reform.
A great deal depends on the decisions legislators make in crafting—and passing—a budget resolution. The budget resolution, which will be hammered out over the next few months, could include reconciliation instructions that clear the path to tax reform. It is also possible that the budget resolution significantly curtails government spending. At the end of the day, the budget resolution and reconciliation legislation will determine what is at stake. The relationship between the White House and Republican leaders on Capitol Hill will shape whether or not that legislation becomes a headline-grabbing political tool or a vehicle for compromise.
Together with the release of the White House budget request, the administration provides a “General Explanation of the Administration’s Fiscal Year 2016 Revenue Proposals.” In addition to a reformed AOTC, numerous other proposals would affect students and institutions:
- IRS Form 1098-T. Colleges and universities would be required to report on IRS Form 1098-T amounts paid rather than amounts billed for qualified tuition and related expenses.
- Student loans. The proposal repeals the student loan interest deduction and provides exclusions for certain debt relief and scholarships.
- Charitable treatment of ticket purchases. The proposal would disallow the deduction for contributions that entitle donors to a right to purchase tickets to sporting events. Currently, donors may deduct 80 percent of the contribution.
- Charitable deduction. The administration again proposes a 28 percent cap on the charitable deduction. However, charitable giving carve outs are built into both a proposed “Buffett Rule” tax scheme and a proposed capital gains tax.
- Municipal bonds. The administration also calls for limiting to 28 percent the exclusion of tax-exempt interest for municipal bonds.
- Private business use. For bonds issued after the date of enactment of the proposed legislation, the proposal would provide an exception to the private business limits on tax-exempt bonds for certain research arrangements. Specifically this would relate to basic research at research facilities that are financed by tax-exempt bonds and that meet certain other requirements.
The stakes are high as Congress attempts to tackle comprehensive tax reform and HEA reauthorization; many of the proposals introduced this year are ambitious. It will take a few more months to determine if bipartisan accords can be struck, or if headlines will return to stories about political gridlock in Washington. It will be a long road ahead, with a presidential election year around the corner, difficult budget negotiations to navigate, and many questions about the reality of any of these initiatives being enacted this year.