Student Aid and the Sequester: A Gathering Storm

NEW YORK (MainStreet) — The government shutdown was the 800-pound gorilla that mercifully left the room last month when Congress voted to suspend the debt ceiling. Next year it could be back and may be joined by a 600-pound gorilla as the 2014 round of sequester cuts kick in.

Congress passed the Budget Control Act of 2011, setting the stage for automatic federal budget cuts, later known as "the sequester," to take effect if Congress failed to reduce the federal deficit by March 1, 2013. Because Congress did not act, these budget cuts are now in the house.

The federal government started preparing for 2014 last month, when the Common Origination and Disbursement (COD) System, the conduit through which federal aid to education flows started gearing up for the 2014 cuts. COD gets an annual do-over to disburse new awards for the coming year—and to accommodate the coming sequester cuts. Both the COD and schools receiving aid have had to modify their systems and processing before the money can flow.

In an October 18 letter posted on the Information for Financial Aid Professionals Website (IFAP), which provides guidance to schools on federal student aid, Jeff Baker, director of policy liaison and implementation at IFAP, stated, "The sequester changes the amount of TEACH Grant and Iraq-Afghanistan Service Grant awards for fiscal year 2014 and requires further increases to origination fees on Federal Direct Loans," meaning that all three programs were cut. He noted the sequester requirements he discussed are unrelated to the last month's government shutdown and the impact on the Department of Education.

He also stated that the Federal Pell Grant program is "exempted from the effects of the sequester," and this year's award payment schedules are unchanged. But the following year could be up for grabs.

Other programs that have been baked into the 2014 sequester include the Federal Work Study program, which funds part-time employment for low-income students to defray the cost of postsecondary schooling--that will get a 5.5% cut to the tune of $51 million. Supplemental Educational Opportunity Grants (FSEOG), available to undergraduates in similar circumstances, will get whacked by $383 million, also a 5.5% cut. Students who receive Pell grants and have the most financial need will be the first in line for FEOGs, which don't have to be repaid.

The vagaries of how budgeting gets done in Washington has enabled the Department of Education to keep the trains running on time as far as its day-to-day operations are concerned regardless of the sequester—the government shutdown notwithstanding. The ED may catch the same break in 2014.

"The Department's administrative budget did take a hit as a result of the sequester, just like all the federal agencies did," said Dave Bergeron, former acting assistant secretary for postsecondary education at the Department of Education and now vice president of post-secondary education at the Washington, D.C.-based Center for American Progress. "Because a lot of its expenses are contracted out to vendors, I think it's possible to manage a reduction in salaries and expense budgets by delaying procurements and by delaying when contracts are awarded."

If students feel like pawns in a game where they wish they had less skin, the sequester is likely to become a political football that could take some unpredictable bounces. The Hill reported on October 23 that Rep. Paul Ryan (R-Wis.), the GOP's chief budget negotiator, expressed an interest in swapping long range reforms to entitlement programs for changes to sequestration spending cuts that Democrats are expected to demand. The sequester will outrun the next off-year election and the presidential election as well, since it has eight more years to run.

In July, the Congressional Budget Office estimated that if sequestration cuts remained through the coming fiscal year, it could cost as much as 1.6 million jobs—not a good sign for the class of 2014.

--Written by John Sandman for MainStreet

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