Obama's Budget Proposes Incentives for Student Success

Saul Loeb, AFP, Getty Images

The president's ambitious proposals, announced on Tuesday, will face an uphill climb in Congress, which has already set spending limits for 2015 and has little appetite for costly new programs.
March 05, 2014

The maximum Pell Grant would increase by $100, and states and colleges would get billions of dollars in incentive grants under President Obama’s 2015 budget proposal, released on Tuesday.

The spending plan seeks $7-billion over 10 years to reward colleges that do a good job of graduating Pell Grant recipients and $4-billion over four years to encourage states to maintain their higher-education spending and adopt performance-based funding models.

The plan asks Congress to provide $6-billion for job-training programs at community colleges and requests $75-million in competitive grants to "reduce costs and improve outcomes" at minority-serving institutions. It also seeks $100-million more for the president’s "First in the World" innovation competition, which Congress seeded with $75-million this year.

For students, the proposal would raise the maximum Pell Grant to $5,830 and make permanent the broadest tuition tax credit, the American Opportunity Tax Credit. It would extend the student-loan program’s most generous income-based repayment plan, Pay as You Earn, to all borrowers, and would exempt from taxation any loan forgiveness provided under that plan.

Like several past budgets, the proposal for the fiscal year that begins on October 1 would change how campus-based aid is allocated to institutions and would remake the Perkins Loan program, expanding it from $1-billion to $8.5-billion.

But the president’s ambitious proposals will face an uphill climb in Congress, which has already set spending limits for 2015 and has little appetite for costly new programs.

Accountability Agenda

Several of the president’s ideas build on previous budgets and plans he announced during last summer’s "college cost" bus tour.

In speeches on campuses in New York and Pennsylvania last August, Mr. Obama proposed "Pell bonuses" for colleges and pledged to work with Congress to make the Pay as You Earn loan-repayment plan both broader and better aimed.

Tuesday’s budget fleshes out those proposals, detailing how institutions would qualify for a bonus and how the revised repayment plan would work. Under the president’s plan, colleges would get bonuses based on their number of on-time Pell graduates, multiplied by a tiered bonus amount per student, varying by institution type. Colleges that continued to improve the performance of their Pell recipients would be rewarded with larger bonuses.

Colleges could use the bonuses to increase need-based aid to students, enhance academic and student-support services, or put in place changes aimed at improving student learning, lowering costs, and accelerating graduation.

Under Mr. Obama’s loan-repayment plan, all borrowers would be eligible to repay their loans under the Pay as You Earn program, which caps monthly payments at 10 percent of discretionary income and forgives borrowers’ remaining debt after 10 to 20 years. Currently, only recent borrowers with no older debt qualify.

The budget would also tweak the program to focus it on the neediest borrowers and guard against graduate programs' using its debt forgiveness as an excuse to raise tuition.

Under the revised plan, loan forgiveness for public-sector employees would be capped at the aggregate loan limit for undergraduates who are independent of their parents, while private-sector employees with balances greater than that amount would have to pay for 25 years before receiving forgiveness.

To ensure that high-balance borrowers "pay an equitable share of their earnings as their income rises," the proposal would eliminate the program’s standard payment cap. And to protect low-income borrowers from ballooning balances, it would limit the amount of interest that can accrue when a borrower’s payment is insufficient to cover interest.

The idea of offering incentive grants to states first appeared in the president’s 2013 budget, in the form of a $1-billion "Race to the Top" competition for higher education. It reappeared in the next year's budget but has never received funding from Congress. This year Mr. Obama upped the ante to $4-billion and renamed the plan the "State Higher Education Performance Fund."

Community Colleges

The proposed community-college job-training program is a successor to the $2-billion "Trade Adjustment Assistance Community College and Career Training" program, which was financed under the 2010 health-care-reform law and will run out of money this year. It would offer competitive grants to community colleges and other groups to offer training programs and apprenticeships aimed at preparing students for in-demand careers.

In another piece of good news for community colleges, the budget would partially restore eligibility for Pell Grants to students who lack a high-school diploma but pass an "ability to benefit" test.

Minority-serving institutions would receive level funds under the budget (excluding the proposed grant competition), as would Federal Work-Study and Supplemental Educational Opportunity Grants and the TRIO and Gear Up college-preparatory programs.

Highlights of Obama's Fiscal-2015 Budget for Higher Education and Science

  One-year change
Education Department Highlights
Pell Grants (maximum individual award) 1.7%
Pell Grants (program costs) 1%
Supplemental Educational Opportunity Grants 0%
Federal Work-Study 0%
Stafford Loans -1%
Unsubsidized Stafford Loans 2%
PLUS Loans 5.5%
TRIO programs for disadvantaged students 0%
Gear Up 0%
Historically black colleges -3.7%
Hispanic-serving institutions 0%
Highlights for Other Agencies
National Institutes of Health 0.6%
National Science Foundation 1%
Department of Energy Office of Science 0.8%
National Endowment for the Humanities 0%
National Endowment for the Arts 0%
Note: Percentages are rounded.
Source: U.S. government