On the evening of August 1, 2011, the U. S. House of Representatives passed the Budget Control Act of 2011.  The bill has been sent to the Senate, which is expected to pass the bill and forward to the President for signing.  It will prevent the United States from defaulting on its loan obligations and raise the debt ceiling.  Under the bill, discretionary spending will be reduced by $1 trillion over the next 10 years.  The debt ceiling will be raised in two steps:  $400 billion immediately following Presidential certification that the debt is within $100 billion of the ceiling and additional borrowing is required, with a second increase of $500 billion subject to the same conditions, but subject to a joint Congressional resolution. 

Impact on Student Aid

• 1.      Provides additional funding of $17 billion for the Pell Grant Program over the next two years.  This covers the current $5.7 billion shortfall and the $11 billion shortfall projected for next year.  Pell would be covered for FY 2012 and FY 2013, as it is a forward funded program.
• 2.      In order to generate funding for the Pell Grant increase, the subsidized interest for graduate students in the federal Stafford Loan Program would be eliminated beginning with July 1, 2012.
• 3.      The repayment incentives in the federal Direct Loan Program would also be eliminated, except for the auto-debit incentive.

For the Future

The bill calls for the creation of a 12-member Joint Committee to report legislation by November 23, 2011 that would propose to reduce the deficit by an additional $1.5 trillion through 2021.  The Committee would be composed of six Democrats and six Republicans coming in equal numbers from the House and the Senate.  Although other programs of student financial aid were not immediately impacted, there is an opportunity for future reductions in programs based on where the cuts are taken.