Friday, February 15, 2013

Education Secretary Outlines Grim Consequences of Looming Budget Cuts - Government - The Chronicle of Higher Education

Education Secretary Outlines Grim Consequences of Looming Budget Cuts - Government - The Chronicle of Higher Education

By Kelly Field
Washington
Looming budget cuts would end financial aid for thousands of students and force the U.S. Department of Education to slice payments to contractors that administer the federal student-aid programs, Secretary of Education Arne Duncan told members of Congress on Thursday.

In a hearing before the Senate Appropriations Committee, Mr. Duncan said that "sequestration"—the across-the-board spending cuts that are scheduled to take effect on March 1—would slash Federal Work Study and Supplemental Educational Opportunity Grants by $49-million and $37-million, respectively, resulting in 33,000 fewer work-study awards and 71,000 fewer supplemental grants. Pell Grants would be exempt from the cuts this year, but would be vulnerable in future years.

The process of sequestration could also compel the department to cut payments to nonprofit servicers of student loans, potentially forcing those agencies to lay off and furlough employees, or even close, he said. If that happened, it could disrupt loan-payment processing and hamper the department's ability to collect defaulted debt, he warned.

"If we do not collect on loans, fewer funds will be repaid to the Treasury, and our deficit will increase," he told lawmakers. "That is the opposite of what sequestration is supposed to achieve."

Samantha DeZur, a spokeswoman for the Education Finance Council, which represents the nonprofit servicers, said her group hoped the department would provide details on the potential cuts soon, so the servicers could "minimize the impact on borrowers as much as possible."

It is not entirely clear, however, why it would be necessary to cut payments to servicers under sequestration. According to the department's proposed budget for the 2013 fiscal year, the nonprofit-servicing program is expected to cost $331-million this year, $28-million less than the mandatory money provided for the program. Even if the program were cut by 5.3 percent, as provided under sequestration, it would still have a $9-million surplus. The department did not respond to a request for comment by press time.

Mr. Duncan said the cuts could also require the department to furlough its own employees, an outcome that could cause delays in the awarding of aid and "significantly harm the department's ability to prevent fraud, waste, and abuse in the very large, complex student-financial-assistance programs."

He called for replacing sequestration with "balanced budget reduction that includes revenues," and argued for "selective cuts" rather than "mindless across-the-board sequestration."

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