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Obama’s FY 2014 Budget Proposes Changes to Federal Student Loans, Increases Research Funding

April 10, 2013

Obama FY 2014 Budget


President Obama released his budget proposal for FY 2014 today, which includes among the higher education provisions a proposal to move to a market-based interest rate on all federal student loans. This includes the interest rate on subsidized Stafford student loans, which are set to double to 6.8 percent July 1 if no action is taken.

The president’s $3.77 trillion plan provides $71.2 billion in discretionary funding for the Department of Education, which budget documents say is 4.6 percent above what Congress approved spending in 2012 (FY 2013 appropriation bills are not yet finalized.)

White House budget documents say that the president’s plan would set rates on new subsidized Stafford, unsubsidized Stafford and PLUS loans each year based on the 10-year Treasury interest rate, which would be fixed for the life of the loan. There would be no cap on the interest rates.

Such a proposal is broadly similar to plans offered by Republican senators last year, but significantly different in some key details. In particular, the Obama administration’s proposal would retain the subsidized loan program, which would be eliminated under other plans.  

A move to a market-based plan faces significant political opposition. As The Chronicle of Higher Education pointed out this morning, some Democrats advocate maintaining the current subsidized Stafford loan interest rate of 3.4 percent, a level that was extended last summer for a one-year-period just ahead of the scheduled increase.

Meanwhile, the president’s budget plan also calls for preserving the maximum Pell Grant award, which the White House says will rise to $5,780 in FY 2014, while including “measures that that ensure full program funding through the 2015-16 academic year,” according to budget documents.

Similar to last year’s proposal, the budget plan also calls for a Race to the Top for Higher Education program, which would provide $1 billion to support competitive grants to states that “commit to driving comprehensive change in their higher education policies and practices.”

The president’s budget largely level funds the other student aid programs, but does include a request for a $150 million increase to Federal Work Study (FWS). This is part of a proposal (offered last year by the Obama administration) to ultimately double FWS funding over the next five years. The increase to FWS is one component of an effort by the administration to significantly change the current campus-based aid programs (FWS, Supplemental Opportunity Education Grants and Perkins Loans).

Outside of student aid, the budget proposes some significant increases to other areas of interest to colleges and universities. In particular, the budget contains a request for $8 billion in new funding for community colleges to better integrate their programs with workforce needs.

The president’s budget provides strong support for research programs, proposing an overall 9 percent increase in non-defense research and development funding. The budget requests a total funding level of $31.3 billion for the National Institutes of Health, which would reverse the sequestration cuts, and provide 1.5 percent more than was available in FY 2012.

For the National Science Foundation (NSF), the increase was even larger. The budget requests $7.6 billion for NSF, also reversing the sequestration cuts and representing an increase of 8.4 percent over FY 2012.

More details about the higher education part of the president’s budget proposal were emerging Wednesday afternoon. See the following stories for some highlights:

Budget Targets Early Education, Costs for College
The Wall Street Journal

Obama Administration’s 2014 Education Budget Proposal Boosts Pell Grant, Seeks Interest Rate Changes
Diverse: Issues In Higher Education

Obama Budget's Big Education Items: Preschool for All, College Race to the Top
The Christian Science Monitor

An Agency-By-Agency Guide To Obama's 2014 Budget
The Associated Press (NPR)

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