Higher Education Funding Cut by $89 Billion Over 10 Years in Obama Budget

President Barack Obama, who has called for the U.S. to lead the world in college graduates by 2020, proposed budget cuts that would reduce support for higher education by $89 billion over 10 years.

Obama’s $77.4 billion spending proposal released today would cut a provision allowing some college students to get two Pell grants in a year and a program that lowers interest rates on loans for graduate students. The changes will reduce 2012 higher education outlays by $10 billion while raising spending for kindergarten through high school education 6.9 percent to $26.8 billion, the Education Department said.

Obama called last year for the U.S. to keep its economy competitive with other nations by producing an additional 8 million college graduates by 2020. Higher education spending cuts are needed so the Education Department can shore up the growing Pell program and expand support for competitive programs such as “Race to the Top,” which offers money for states that follow the administration’s prescriptions for raising student and teacher achievement, according to the department.

“We’re making some tough choices to protect the Pell grant,” Justin Hamilton, a department spokesman, said in an e- mail today. “We’re cutting where we can so that we can invest where we must. Doing nothing would cost students up to $2,500 in critical aid at a time when the cost of college is skyrocketing.”

Race to the Top

Cutting higher education will let the department increase spending on the Elementary and Secondary Education Act, according to the budget documents. The act is targeted at raising standards in grade schools and high schools.

Obama proposed $1.4 billion for the Education Department for competitions such as Race to the Top, which doled out $4.35 billion to states in two rounds of funding. The next set of competitions will target districts, rather than states, Education Secretary Arne Duncan said Feb. 11 in a telephone call with reporters.

The competition will also include a “First in the World” contest for colleges and universities, budget documents said. The program will offer grants totaling $150 million to recognize programs that increase access and improve educational productivity, the documents said.

$35 Billion in Costs

Pell grants give college students from low-income families as much as $5,550 per school year to pay tuition and other costs. Program costs skyrocketed over the past three years to about $35 billion from $15 billion in fiscal 2008 as eligibility widened and the economic crisis hurt families’ finances, said Jason Delisle, director of the federal education budget project at the New America Foundation, a public policy institute based in Washington.

“Congress appropriates the money about a year before the grants go out,” Delisle said in a telephone interview before the budget was released. “All these things are reasons why the program always seems to be behind in how much money it needs.”

Under current rules, some students who have received a Pell grant for the regular school year can get a second grant to cover summer classes. Obama’s budget would eliminate that option, along with subsidized loans for students in graduate school, the budget documents said.

‘Unanimous Agreement’

The proposal is a signal that both Democrats and Republicans want to see the Pell grant program shrink, said Jarrel Price, an analyst with Height Analytics in Washington who studies the effect of government policy on for-profit colleges.

“There’s unanimous agreement that 2012 funding will face severe cuts,” he said today in a telephone interview. “It’s still a challenge to see the exact impact it will have on revenues and enrollments.”

While many for-profit colleges get a significant portion of their revenues from Pell grants, some students will replace lost grants with loans, Price said.

About $162 million, or 28 percent of annual revenue, at San Diego-based Bridgepoint Education Inc. came from the grants, according to a note Price sent to clients today. Apollo Group Inc., the biggest education company and operator of the University of Phoenix, got about $1 billion, or 22 percent of revenue, from Pell grants in the most recent fiscal year, he said.

Apollo, based in Phoenix, gained 27 cents to $43.26 at 12:13 p.m. New York time in Nasdaq Stock Market composite trading. Bridgepoint fell 10 cents to $19.10. The Bloomberg U.S. For-Profit Education Index of 13 companies rose 0.5 percent.

The proposed cuts in the Pell grant program would require new legislation, a step that might open the structure of the student aid program to congressional scrutiny, said David Baime, senior vice president for government relations and research at the American Association of Community Colleges, a Washington- based advocacy group.

“Once they’ve opened up the program, they’re opening the door to anyone who might want to make retrenchments,” he said

To contact the reporter on this story: John Lauerman in Washington at jlauerman@bloomberg.net

To contact the editor responsible for this story: Jonathan Kaufman at jkaufman17@bloomberg.net

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