CONGRESSIONAL BUDGET OFFICE  COST ESTIMATE

July 24, 2009

H.R. 3221
Student Aid and Fiscal Responsibility Act of 2009

As ordered reported by the House Committee on Education and Labor on July 21, 2009

SUMMARY

H.R. 3221 would amend the Higher Education Act of 1965, which authorizes most
federal postsecondary education programs. It would prohibit new federally guaranteed
loans from being made under the Federal Family Education Loan (FFEL) Program and
would increase direct spending for the Federal Pell Grant Program and other programs.

The elimination of guaranteed student loans would lead to a comparable increase in direct
lending by the government. The estimated subsidy cost shown in the budget is lower for
the direct student loan program than for the FFEL program. Thus, enacting the bill would
yield net budgetary savings for shifting new lending from the guaranteed loan program to
the direct loan program.

On balance, CBO estimates that enacting H.R. 3221 would reduce direct spending by
$13.3 billion over the 2009-2013 period and $7.8 billion over the 2009-2019 period.
Assuming appropriation of the necessary amounts, implementing the bill would increase
discretionary spending by at least $13.5 billion over the 2009-2019 period. (That estimate
reflects the bulk of the likely discretionary costs under H.R. 3221; but CBO has not
completed a comprehensive estimate of all effects that would be subject to appropriation
action.) Enacting H.R. 3221 would not affect revenues.

H.R. 3221 contains no intergovernmental or private-sector mandates as defined in the

Unfunded Mandates Reform Act (UMRA).
ESTIMATED COST TO THE FEDERAL GOVERNMENT

The estimated impact of H.R. 3221 on spending is shown in Table 1. The costs of this
legislation fall within budget functions 500 (education, training, employment, and social
services) and 700 (veterans benefits and services).

TABLE 1. ESTIMATED BUDGETARY IMPACT OF H.R. 3221, THE STUDENT AID AND FISCAL
RESPONSIBILITY ACT OF 2009
By Fiscal Year, in Billions of Dollars

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009-
2014 2009-
2019

CHANGES IN DIRECT SPENDING

Federal Student Loan Programs a
Estimated Budget Authority -0.2 -6.1 -14.1 -12.2 -8.7 -8.4 -8.0 -7.9 -7.6 -7.8 -8.1 -49.8 -89.2
Estimated Outlays -0.3 -3.8 -9.6 -11.3 -8.2 -7.5 -7.0 -6.8 -6.7 -6.7 -6.9 -40.7 -74.8

Federal Pell Grant Program
Estimated Budget Authority 0 0.1 1.9 0.8 6.7 3.6 4.0 5.2 6.4 8.1 9.9 13.0 46.7
Estimated Outlays 0 * 0.6 1.6 2.4 5.8 3.7 4.3 5.5 6.9 8.6 10.4 39.4

Other Programs
Estimated Budget Authority 0 4.7 7.3 2.8 2.8 2.7 2.1 2.1 2.2 1.2 1.2 20.3 29.0
Estimated Outlays 0 0.6 3.7 5.0 4.2 3.4 2.6 2.3 2.2 2.1 1.5 16.9 27.6

Total Changes
Estimated Budget Authority -0.2 -1.3 -4.9 -8.7 0.7 -2.2 -1.8 -0.5 1.0 1.5 3.0 -16.5 -13.4
Estimated Outlays -0.3 -3.1 -5.3 -4.6 -1.7 1.6 -0.7 -0.2 1.0 2.3 3.1 -13.3 -7.8

CHANGES IN SPENDING SUBJECT TO APPROPRIATIONb

Estimated Authorization Level 0 0.1 0.8 0.9 1.1 1.3 1.5 1.8 2.1 2.4 2.6 4.3 14.8
Estimated Outlays 0 0.1 0.4 0.9 1.0 1.2 1.5 1.7 2.0 2.2 2.5 3.6 13.5

Notes: Components may not add to totals because of rounding; * = less than $50 million.

a. Including the Federal Perkins Loan Program.

b. CBO has not completed an estimate of all discretionary spending under H.R. 3221; the estimates shown here represent the

bulk of the bill’s discretionary costs.


BASIS OF ESTIMATE

As required under the Federal Credit Reform Act of 1990 (FCRA), most of the costs of
the federal student loan programs are estimated on a net-present-value basis. Under credit
reform, the present value of all loan-related cash flows is calculated by discounting those
expected cash flows to the year of disbursement, using the rates for comparable
maturities on U.S. Treasury borrowing. (For example, the cash flow for a one-year loan is
discounted using the Treasury rate for a one-year zero-coupon note.) The costs for the
federal administration of student loans are estimated on a cash basis. For this estimate,
CBO assumes the bill will be enacted by October 1, 2009, and that the necessary funds
will be appropriated for all discretionary programs.

Direct Spending

H.R. 3221 would amend the federal student loan programs (including the Federal Perkins
Loan Program) and the Federal Pell Grant Program and would amend or create several
other programs. Those changes would decrease net direct spending by $13.3 billion over
the 2009-2014 period and $7.8 billion over the 2009-2019 period.

Federal Student Loan Programs. H.R. 3221 would make several changes to the federal
student loan programs, including the Federal Perkins Loan Program. As shown in
Table 2, CBO estimates that, on net, those changes would reduce federal costs by
$40.7 billion over five years and $74.8 billion over 10 years. The major changes that
affect direct spending include:

  • Eliminating new guaranteed student loans under the FFEL program and thus
    shifting those loans to the William D. Ford Federal Direct Student Loan
    program—saving an estimated $86.8 billion over the 2010-2019 period;
  • Reducing interest rates on subsidized student loans to undergraduate borrowers—
    at a cost of $3.2 billion over the 2012-2019 period;
  • Interactions between the FFEL and direct loan program and various other program
    changes—resulting in a net cost of $7.5 billion over the 2009-2019 period; and
  • Speeding up the phase-out of the current Perkins loan program and establishing a
    new Perkins loan program in its place—for a net cost of $1.3 billion over the
    2010-2019 period.

TABLE 2. SUMMARY OF CHANGES IN THE FEDERAL STUDENT LOAN PROGRAMS
By Fiscal Year, in Billions of Dollars

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009-
2014 2009-
2019

CHANGES IN DIRECT SPENDING

Eliminate new lending in the
FFEL Program
Estimated Budget Authority 0 -4.8 -13.3 -12.2 -11.2 -10.5 -10.2 -10.2 -10.1 -10.3 -10.7 -52.1-103.5
Estimated Outlays 0 -2.6 -8.9 -11.0 -10.0 -9.4 -9.0 -8.9 -8.9 -9.0 -9.3 -41.8 -86.8

Reduce borrower interest rates
Estimated Budget Authority 0 0 0 * 0.5 0.5 0.5 0.5 0.6 0.6 0.6 1.1 3.9
Estimated Outlays 0 0 0 * 0.3 0.5 0.5 0.5 0.5 0.5 0.5 0.8 3.2

Interactions and other changes
Estimated Budget Authority -0.2 * * 0.6 1.2 1.2 1.2 1.2 1.3 1.3 1.4 2.7 9.1
Estimated Outlays -0.3 * * 0.4 0.8 1.0 1.0 1.1 1.1 1.1 1.2 2.0 7.5

Subtotal, FFEL and Direct
Loans
Estimated Budget Authority -0.2 -4.8 -13.3 -11.6 -9.5 -8.8 -8.5 -8.4 -8.3 -8.4 -8.7 -48.3 -90.6
Estimated Outlays -0.3 -2.6 -8.9 -10.6 -8.9 -7.9 -7.5 -7.4 -7.3 -7.3 -7.6 -39.0 -76.1

Federal Perkins Loans
Estimated Budget Authority 0 -1.3 -0.8 -0.6 0.7 0.4 0.5 0.6 0.6 0.6 0.6 -1.6 1.4
Estimated Outlays 0 -1.2 -0.8 -0.7 0.7 0.3 0.5 0.5 0.6 0.6 0.6 -1.6 1.3

Total, All Federal Student
Loans
Estimated Budget Authority -0.2 -6.1 -14.1 -12.2 -8.7 -8.4 -8.0 -7.9 -7.6 -7.8 -8.1 -49.8 -89.2
Estimated Outlays -0.3 -3.8 -9.6 -11.3 -8.2 -7.5 -7.0 -6.8 -6.7 -6.7 -6.9 -40.7 -74.8

Notes:   Components may not add to totals because of rounding; * = between -$50 million and $50 million.

Eliminate new lending in the FFEL Program. Under current law, the federal government
provides federal loans to borrowers through two separate programs. In the FFEL Program
(guaranteed loans), private lenders originate loans to postsecondary students and the
federal government makes payments to these lenders, guarantees them against significant
loss in the case of default, and provides funds to guaranty agencies to help administer
those loans. In the direct loan program, the federal government serves as the lender.

Beginning in July 2010, the bill would prohibit new guaranteed loans under the FFEL
Program; which under current law, CBO estimates will account for about $705 billion in
loans—70 percent of all loan volume—over the next 10 years. Under the prohibition in

the bill, CBO expects that volume would shift to the direct loan program. CBO estimates

that the subsidy rates for direct loans are, on average, about 10 to 20 percentage points
lower than for guaranteed loans. (The subsidy rate reflects the present value cost for each
dollar the government loans or guarantees.) Because of that difference in subsidy rates,
CBO estimates that prohibiting new guaranteed loans—with the replacement of those
loans by direct student loans—would lower federal budget costs by $41.8 billion over
2010-2014 period and by $86.8 billion over the 2010-2019 period. Consistent with the
accounting required under FCRA, most of those estimated savings represent the changes
in present-value estimates for the switch from guarantees to direct loans for each year
over that period.

About $7 billion of the projected savings over the 2010-2019 period reflect forgone
administrative costs in the FFEL Program. The increased loan volume in the direct loan
program would require additional funds for administering and servicing those loans, but
those costs are classified as discretionary spending and discussed below under the
heading “Spending Subject to Appropriation.”

Reduce Borrower Interest Rates. The bill would change the interest rate on subsidized
loans for undergraduate borrowers beginning in July 2012. Under current law, the
borrower rate on those student loans is scheduled to increase from 3.4 percent to
6.8 percent on July 1, 2012. Under the bill, the borrower rate would switch to a variable-
rate formula. The rate charged would be equal to the 91-day Treasury bill rate (calculated
as if it were equivalent to a bond) plus 2.5 percentage points, and would be adjusted
annually each July. Because the rate would be capped at 6.8 percent, borrowers would
never pay an interest rate higher than the 6.8 percent they would pay under current law,
but would have some probability of paying a lower interest rate, depending on future
Treasury rates.

Taking into account the one-sided aspect of the new interest rate calculation and the
historical volatility of rates on short-term Treasury borrowing, CBO estimates that
changing the interest rate to a capped variable rate would cost $0.8 billion over the 2010-
2014 period and $3.2 billion over the 2010-2019 period.

Interactions and Other Changes. Other changes to the student loan programs and
interactions between different sections of the bill would reduce net savings by
$7.5 billion over the 2009-2019 period. Those changes are detailed below:

  • CBO estimated the effects of each section of the bill independently of all other
    sections and then calculated the interaction between provisions for the bill as a
    whole. For H.R. 3221, CBO estimates that the interactive effects would reduce net
    savings by $7.6 billion over the 2009-2019 period.
  • Beginning July 1, 2010, borrowers who currently have a guaranteed consolidation
    loan but do not also have a direct consolidation loan would be able to refinance
    their guaranteed consolidation loan into a direct loan. Under current law,
    consolidation loans are not permitted to be refinanced. Because of the difference
    in subsidy rates, CBO estimates this change would lower direct spending by an
    estimated $250 million in 2009.
  • Beginning in July 2011, the bill would
  1. 1. Exclude the assets and most untaxed income of both students and parents currently included in calculating eligibility for need-based aid. CBO estimates this would cost $120 million over the 2011-2019 period; and
  2. 2. Allow student who have been convicted of possession of illegal drug while receiving financial aid to receive student aid. CBO estimates this would cost $24 million over the 2011-2019 period.  Both of these provisionswould also affect the Pell grant program, and those costs are discussedbelow.
  • H.R. 3221 would forgive federal loans for members of the uniformed services whodo not receive academic credit because they must withdraw from school for reasons of military service. CBO estimates this provision would increase directspending by $21 million over the 2010-2019 period.
  • In October 2009, for loans first originated in January 2000 and after, the bill would allow lenders to make a one-time, permanent choice to change the underlying rate on which the yields are based for both outstanding and new guaranteed student loans. Under current law, the yield rates are based on the bond equivalency rate of the three-month Commercial Paper rate with various add-ons depending on the type of loan and the loan status. The bill would allow lenders, within a specified period of time, to change that rate to the one-month London Interbank Offered Rate (LIBOR), calculated as if it were equivalent to a bond. CBO estimates that this change would have a negligible impact on spending.

Perkins Loan Program. H.R. 3221 also would amend the current Federal Perkins Loan
Program, under which some 1,700 colleges and universities use revolving funds to make
student loans. (Schools loan about $1 billion a year to students from those revolving
funds.) Over 80 percent of the capital in those revolving funds came from the federal
government. Under current law in October 2012, schools must begin returning the
government’s share of those funds to the Treasury. Under H.R. 3221, schools would

begin the return of federal capital in July 2010. The bill would allow schools to retain
amounts for administrative expenses and other fees, thus slightly reducing expected
receipts.

The bill would establish a new Federal Perkins Loan Program in July 2010; the interest
rate would be 5 percent and students would face the same terms and conditions as with
unsubsidized direct loans under the direct loan program. (Borrowing limits would be
similar to the existing Perkins Loan Program.) The new loans would be disbursed
through school financial aid offices to borrowers who met the new financial need
requirements. A maximum of $6 billion in new loans could be made each year.

CBO estimates that, on net, these changes to the Perkins Loan Program would reduce
direct spending by $1.6 billion over the 2010-2014 and increase direct spending by
$1.3 billion over the 2010-2019 period.

Federal Pell Grant Program. H.R. 3221 also would amend the current structure of the
Federal Pell Grant Program and formulas for determining eligibility under that program.
As shown in Table 3, CBO estimates these changes would increase direct spending by
$10.4 billion over the 2010-2014 period and by $39.4 billion over the 2010-2019 period.
(Some of these changes also would affect discretionary spending in the Pell grant
program. Those changes are discussed below under “Spending Subject to
Appropriation.”)

TABLE 3.  ESTIMATED MANDATORY SPENDING FOR PELL GRANTS
By Fiscal Year, in Billions of Dollars

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009-
2014 2009-
2019

CHANGES IN DIRECT SPENDING

Amend the Current Mandatory Award
Estimated Budget Authority 0 0.1 1.9 0.7 6.7 3.5 3.9 5.1 6.3 7.9 9.7 13.0 45.8
Estimated Outlays 0 * 0.6 1.6 2.4 5.8 3.6 4.2 5.4 6.7 8.4 10.3 38.7

Other Changes
Estimated Budget Authority 0 * * * * * 0.1 0.1 0.2 0.2 0.2 0.1 0.9
Estimated Outlays 0 * * * * * 0.1 0.1 0.1 0.2 0.2 * 0.7

Total Changes
Estimated Budget Authority 0 0.1 1.9 0.8 6.7 3.6 4.0 5.2 6.4 8.1 9.9 13.0 46.7
Estimated Outlays 0 * 0.6 1.6 2.4 5.8 3.7 4.3 5.5 6.9 8.6 10.4 39.4

Notes:  Components may not add to totals because of rounding; * = between -$50 million and $50 million.
Mandatory Spending for Pell grants. Under current law, the Pell grant program is funded
from both discretionary and mandatory sources. An annual appropriation sets the
maximum award level for which students are eligible and a mandatory account provides
additional funding to students eligible for the discretionary program. The amount of the
additional mandatory award is determined by the amount of budget authority directly
appropriated in the Higher Education Act. In 2009, CBO estimates that discretionary
costs for the Pell grant program will be $22.8 billion with additional mandatory spending
equal to $2.7 billion.

H.R. 3221 would permanently amend the calculation of mandatory funding for Pell
grants beginning in fiscal year 2011. For each year, the bill would appropriate such sums
as may be necessary to increase the mandatory award from the previous year. The
increase in the mandatory award would be determined by inflating the previous year’s
total award level by the change in the Consumer Price Index plus one percentage point
and then subtracting out the previous year’s discretionary award level or $4,860
(whichever is greater). The base level of the award would continue to be set in an annual
appropriations act. For 2010, the mandatory award level is set at $690.

As shown in Table 4, starting with the most recent appropriations act (for the 2009-1010
academic year) which specifies an award level of $4,860, CBO estimates the mandatory
award would grow from $690 in 2010 to $2,040 in 2019. If an appropriations act were to
set the discretionary maximum award at a level greater than $4,860, it would raise the
amount of the mandatory award in each successive year, and increase overall costs.

TABLE 4.  ESTIMATED MAXIMUM AWARD LEVELS FOR PELL GRANTS UNDER H.R. 3221
By Fiscal Year, in Dollars
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

MAXIMUM AWARD LEVEL

Discretionary award level 4,860 4,860 4,860 4,860 4,860 4,860 4,860 4,860 4,860 4,860 4,860
Additional mandatory award level a 490 690 825 950 1,065 1,180 1,315 1,475 1,660 1,850 2,040
Total  5,350 5,550 5,865 5,810 5,925 6,040 6,175 6,335 6,520 6,710 6,900

a. The mandatory add-on of $690 for fiscal year 2010 is stated in current law.

Other Changes to Pell grants. In addition, CBO estimates that changes to the eligibility
and needs analysis formulas (described above) and to programs whose funding is tied to
Pell grants would, on net, increase direct spending by $0.7 billion over the 2010-2019
period.

Other Federal Programs. H.R. 3221 would amend or create several mandatory grant
programs that would provide education-related funding to a wide variety of entities. As
shown in Table 5, CBO estimates that these programs would increase direct spending by
$16.9 billion over the 2010-2014 period and by $27.6 billion over the 2010-2019 period.
In particular:

  • H.R. 3221 would appropriate $8.0 billion for the Early Learning Challenge
    Fund—$1.0 billion a year for 2010 through 2017. Based on the spending patterns
    of similar programs, CBO estimates this provision would increase direct spending
    by $7.9 billion over the 2010-2019 period.
  • For fiscal years 2010 through 2019, H.R. 3221 would appropriate a total of
    $7.0 billion for grants to states and institutions of higher education to undertake
    systemic reform of community colleges. CBO estimates this provision would
    increase direct spending by $6.1 billion over the next 10 years.
  • The bill would appropriate $2.5 billion in 2011 to renovate and modernize
    facilities for community colleges. Based on the spending patterns of similar
    programs, CBO estimates this provision would increase direct spending by
    $2.5 billion over the over the 2011-2019 period.
  • The bill would appropriate $2.1 billion in 2010 and 2011 to renovate and
    modernize facilities for elementary and secondary schools (K-12). Based on the
    spending patterns of similar programs, CBO estimates this provision would
    increase direct spending by $4.1 billion over the 2101-2019 period.
  • The bill would appropriate $3.0 billion for the College Access and Completion
    Innovation Fund. Based on the spending patterns of similar programs, CBO
    estimates these provisions would increase direct spending by $3.0 billion over the
    2010-2019 period.
  • H.R. 3221 would extend through 2019 the current direct appropriation of
    $255 million per year for grants to Historically Black Colleges and Universities
    and Minority Serving Institutions that expires in 2009 under current law. CBO
    estimates this provision would increase direct spending by $2.2 billion over the
    next 10 years.

In addition, the bill would amend an existing program for providing education benefits to
veterans (as described below).

TABLE 5.  OTHER MANDATORY SPENDING PROGRAMS UNDER H.R. 3221

CHANGES IN DIRECT SPENDING
By Fiscal Year, in Billions of Dollars
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009-
2014
2009-
2019
Early Childhood Education
Budget Authority 0.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 0.00 0.00 5.00 8.00
Estimated Outlays 0.00 0.10 0.70 0.90 1.00 1.00 1.00 1.00 1.00 1.00 0.30 3.70 7.90
Community College Reform
Budget Authority 0.00 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 3.60 7.00
Estimated Outlays 0.00 * 0.50 0.60 0.70 0.70 0.70 0.70 0.70 0.70 0.70 2.60 6.10
Community College Grants
Budget Authority 0.00 0.00 2.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.50 2.50
Estimated Outlays 0.00 0.00 0.60 1.00 0.50 0.40 0.00 0.00 0.00 0.00 0.00 2.50 2.50
Modernization and Renovation (K-12)
Budget Authority 0.00 2.10 2.10 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4.10 4.10
Estimated Outlays 0.00 0.30 1.10 1.50 0.90 0.20 * 0.00 0.00 0.00 0.00 4.10 4.10
College Access Completion Innovation Fund
Budget Authority 0.00 0.60 0.60 0.60 0.60 0.60 0.00 0.00 0.00 0.00 0.00 3.00 3.00
Estimated Outlays 0.00 0.10 0.50 0.60 0.60 0.60 0.50 0.10 * * 0.00 2.40 3.00
HBCU and MSI Funding
Budget Authority 0.00 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 1.30 2.60
Estimated Outlays 0.00 * 0.10 0.20 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.90 2.20
Supplemental Education Grants for Veterans (a)
Estimated Budget Authority 0.00 0.10 0.10 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.80 1.90
Estimated Outlays 0.00 0.10 0.10 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.80 1.90
Cooperative Education
Estimated Budget Authority 0.00 * 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 * *
Estimated Outlays 0.00 * * * * 0.00 0.00 0.00 0.00 0.00 0.00 * *
Total
Estimated Budget Authority 0.00 4.70 7.30 2.80 2.80 2.70 2.10 2.10 2.20 1.20 1.20 20.30 29.00
Estimated Outlays 0.00 0.60 3.70 5.00 4.20 3.40 2.60 2.30 2.20 2.10 1.50 16.90 27.60

Notes: Components may not add to totals because of rounding; * = less than $50 million; HBCU = Historically Black Colleges
and Universities; MSI = Minority Serving Institutions.

(a) Funding for Supplemental Education Grants for Veterans affects direct spending at both the Departments of Education and
Veterans Affairs. The effects on outlays for each department is as follows:


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009-
2014
2009-
2019
Department of Education 0.0 0.1 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4 1.2 2.9
Department of Veteran’s Affairs 0.0 * -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.4 -1.1

Supplemental Education Grants for Veterans. Section 106 would require the
Department of Education to create a supplemental grant program for certain veterans who
are eligible for education benefits under the Post-9/11 GI Bill. Under the new GI Bill, the
highest amount of in-state tuition charged at a public institution in a given state
constitutes the maximum tuition benefit that the Department of Veterans Affairs (VA)
can pay in that state. In addition, VA will pay for student fees up to the highest amount
charged in that state. Under the proposed grant program, supplemental funding would be
available to veterans attending private colleges and universities in states where the benefit
amount for tuition is low compared to other states. The dollar amount of each grant
would equal the difference between the highest fees charged at a public institution in the
state where the individual is attending school and the fees charged at the private
institution the individual is attending.

Based on information from VA, CBO estimates that approximately 25,000 veterans
would be eligible for those grants each year and that the average value of the grants
would grow from about $9,000 in 2010 to $14,000 in 2019. Thus, CBO estimates that the
grant program would increase direct spending by the Department of Education by
$2.9 billion over the 2010-2019 period.

That increase in spending would be partially offset by reduced spending by VA. Under
the Post-9/11 GI Bill, veterans attending schools participating in the Yellow Ribbon
Program are eligible to receive an additional contribution from VA (which is matched by
the school) to help cover the cost of tuition and fees at more expensive schools. The grant
program in the bill would cover much of the cost of high tuition and fees for eligible
veterans at private institutions, decreasing the amount that VA would pay as a matching
contribution for the Yellow Ribbon Program. Under the bill, CBO estimates that direct
spending by VA would decrease by $1.1 billion over the 2010-2019 period. On net, CBO
estimates that this proposal would increase direct spending for veterans education
benefits by $1.9 billion over the 2010-2019 period.

Spending Subject to Appropriation

H.R. 3221 also would make several changes to discretionary spending. CBO has not
completed an estimate of all the effects on discretionary spending under the bill, but we
have estimated the bulk of such costs. The biggest increases in discretionary spending
would stem from changes to the direct loan and Pell grant programs.

Administration of Direct Loans. As mentioned above, most of the costs for
administering loans in the FFEL Program are mandatory, while administrative costs in
the direct loan program are mostly discretionary. Based on information about contracts
for administering the FFEL program and consistent with projected loan volume, CBO
estimates that eliminating new lending in the FFEL program and shifting the projected
volume to the direct loan program would increase discretionary spending for
administrative costs by $7.2 billion over the 2010-2019 period.

Federal Pell Grant Program. In 2009, CBO estimates that the discretionary costs for
Pell grants will total about $22.8 billion. CBO estimates that implementing H.R. 3221
would increase discretionary spending for the Pell grants by $6.3 billion over the 2010-
2019 period, subject to appropriation of the necessary amounts. Those increased costs
stem mostly from changes made to the needs analysis formulas and eligibility
calculations, which are described in greater detail under the subheading “Federal Student
Loan Programs” in the “Direct Spending” section.

INTERGOVERNMENTAL AND PRIVATE-SECTOR IMPACT

H.R. 3221 contains no intergovernmental or private-sector mandates as defined in
UMRA. Institutions of higher education and public school systems would benefit from
grants authorized under the bill. Any costs or requirements associated with those grant
programs would be incurred voluntarily as conditions of federal assistance.

ESTIMATE PREPARED BY:

Federal Costs:
Federal Student Loan and Grant Programs: Deborah Kalcevic and Justin Humphrey
Veterans Education Programs: Camille Woodland
Impact on State, Local, and Tribal Governments: Burke Doherty
Impact on the Private Sector: Nabeel Alsalam

ESTIMATE APPROVED BY:

Peter H. Fontaine
Assistant Director for Budget Analysis

Source: Congressional Budget Office Cost Estimate of H.R. 3221, Student Aid and Fiscal Responsibility Act of 2009, July 24, 2009 (PDF)