Good morning, and welcome to Friday, May 26. Today’s Briefing was written by Rick Seltzer, with contributions from Julia Piper. Write to me: rick.seltzer@chronicle.com.
A quick scheduling note: The Daily Briefing won’t publish Monday in observance of Memorial Day. We’ll be back Tuesday.
Colleges would be exposed if Congress can’t reach a debt-ceiling deal
The Daily Briefing has previously argued that college leaders must keep an eye on the fight over the federal debt ceiling because it reveals the ways higher ed’s long-term business model depends on the outcomes of partisan battles.
Colleges have a more immediate reason to worry. The debt ceiling still hasn’t been lifted, leaving the real prospect that the United States could hit the limit around June 1.
If that happens, the government’s ability to spend will be sharply curtailed. Some spending will remain possible, because the feds will still have some money flowing. But the amount that can be paid out will be limited by the fact that the government won’t be able to borrow more.
That means the government will have to choose which bills to pay and which ones to ignore.
How higher ed would specifically be affected depends on policymakers’ priorities, but the likely effects aren’t pretty, the American Council on Education recently said.
- Economic shocks will cause students and families to lose jobs.
- The cost of debt will increase for students, employees, and colleges.
- Public higher ed spending will be cut.
Federal student-aid programs are the 800-pound gorilla on campuses.
- If the U.S. defaults but resolves the impasse relatively quickly, fall and spring aid disbursements could proceed as normal.
- The longer an impasse stretches on, the more likely it becomes that those two big funding injections are late to arrive in college coffers.
- Some programs that make money for the government, like Parent PLUS Loans, could be offered even as those that lose money, like Stafford Loans, aren’t.
The bulk nature of financial-aid payments could make it hard for the government to pay. Most disbursements come before the start of the traditional spring and fall semesters.
Entitlement programs like Social Security and Medicare will likely take priority. As disruptive as it would be for colleges to lose federal financial aid and research funding, imagine what happens when Social Security checks don’t go out.
What it means: Colleges should lay a plan for what they’ll do if the government defaults and pulls back from making payments. How much cash on hand do they have available? Leaders will want to think about what families will need — like extra institutional-funded financial aid and more flexibility for students to pay their bills.
