The president delivered his annual budget request, typically released the second week of February, on April 10. The $3.77 trillion FY14 request was delayed by two months largely because of budget uncertainties related to sequestration.
President Obama’s budget provides a general fiscal blueprint, outlining the White House position on overall economic policy and ways to address deficit reduction. It also calls for changes in the tax code, spending requests for federal programs, and a variety of policy changes and new domestic programs.
Some specific tax issues are on the table. The Treasury Department document that contains the administration’s revenue proposals for FY14, often referred to as the “Green Book,” calls for modifying the way colleges and universities report information on IRS Form 1098-T. The book also includes a slew of new capital financing proposals.
Meanwhile, the president proposes significant changes to federal student loan programs, and renews a number of higher education proposals calling for reforms to campus-based aid programs.
Tax Provisions and Reporting Issues
Once again, President Obama is calling on Congress to limit to 28 percent (1) the charitable deduction for those making $250,000 per year or more; and (2) the exclusion of tax-exempt interest for municipal bonds.
Another administration proposal—to change reporting on Form 1098-T—is of particular concern, because it would require that after Dec. 31, 2013, institutions of higher learning report on IRS Form 1098-T amounts paid rather than amounts billed for qualified tuition and related expenses.
Current law requires colleges and universities to report, on the form, a student’s enrollment status, qualified educational expenses, and grant aid in order to assist taxpayers and the IRS in determining a tax filer’s eligibility for education tax credits.
However, institutions presently have the choice of reporting payments received for qualified tuition and related expenses (Box 1 on the form) or amounts billed for qualified tuition and related expenses (Box 2), in a given tax year. The vast majority of institutions choose to report the amounts billed (Box 2) because college and university accounting systems generally do not apply payments from various sources (such as student payments, scholarships, and loans) to specific charges on a student’s account (such as tuition, room and board, and other fees), nor do they distinguish qualified versus unqualified expenses. The proposed change is estimated to enhance IRS compliance enforcement and to raise more than $1 billion over 10 years.
Because Congress is in the process of considering comprehensive tax reform that will have budgetary impact on students and institutions, NACUBO has prepared talking points to assist in reaching out to policy makers and others to bring attention to these concerns.
New Capital Financing Proposals
A number of budget proposals relate to tax-exempt bonds and capital financing, most notably:
- A new “America Fast Forward” bonds program. Similar to the Build America Bonds (BABs) program, this proposal would make direct subsidy payments to state and local government issuers in a subsidy amount equal to 28 percent of the coupon interest on bonds. Unlike the BABs program, the administration would include eligibility for qualified Private Activity Bonds.
- An increased subsidy rate for school construction. The “America Fast Forward Bonds for School Construction” program would allow for a temporary 50 percent federal subsidy rate. Eligible uses would include (1) original financings for governmental capital projects for public schools and state universities; and (2) new money financings for section 501(c)(3) nonprofit educational entities, such as nonprofit schools and nonprofit universities that could use qualified section 501(c)(3) bonds. For temporary stimulus purposes, for such bonds issued in 2014 and 2015, the Treasury Department would make direct payments (through refundable tax credits) to state and local governmental issuers in an amount equal to 50 percent of the coupon interest on the bonds.
- An exception for certain bonds. The budget calls for an exception to the private business limits on tax-exempt bonds for research arrangements relating to basic research at tax-exempt bond-financed research facilities, which meet certain requirements.
Student Loans and Other Aid
Not surprisingly, the president’s proposals incorporate the academic goals of access and completion via loan and aid programs.
- Revamp loan rates. Last year, with a price tag of $6 billion, the White House led an effort to prevent the interest rate for federally subsidized Stafford Loans from doubling from 3.4 percent to 6.8 percent. Given only a one-year reprieve, the rate is again set to double to 6.8 percent on July 1. This year’s proposal would link student loan interest rates (on new federal loans only) to that of 10-year Treasury bonds, with different rates for Subsidized Stafford Loans, Unsubsidized Stafford Loans, and PLUS Loans (see figure).
- Keep student support coming. Several ideas address campus-based aid and consumer awareness.
- Increase Pell Grant awards. The president seeks a $5,785 maximum Pell Grant award for academic year 2014–15 (a 2.48 percent increase over the prior year).
- Tie campus-based aid to key goals. The budget ties distribution of federal campus-based aid—Supplemental Opportunity Grants (SEOG), Federal Work-Study (FWS), and Perkins Loans—to three principles: keeping down net tuition; providing good value; and serving low-income students effectively—although these principles are not thoroughly defined. There is also a request for an increase of $150 million in FY14 for the FWS program, as a part of a longer-term White House plan to double the number of work-study participants over five years.
- Expand the Perkins Loan program to make the loans available at up to 2,700 additional institutions. In doing so, the servicing of Perkins Loans would then be assumed by the Department of Education, which would retain the federal share of prior capital contributions into the program.
- A proposed competitive grant program. “Race to the Top—College Affordability and Completion” is designed to provide states the incentive to revamp the state financing structure for higher education, facilitate on-time completion, and maintain adequate levels of funding for higher education. A new “First in the World Fund” competition would promote innovation and effective strategies for boosting productivity and efficiency.
- Help students become better consumers of and smarter investors in their college educations. The Obama Administration has put considerable effort into promoting the “Financial Aid Shopping Sheet” and the “College Scorecard.” In addition, in April 2012, the White House issued the then-voluntary “Establishing Principles of Excellence for Educational Institutions Serving Service Members, Veterans, Spouses, and Other Family Members.”
A number of institutions with veteran students have voluntarily agreed to comply with the principles, which were spelled out in Executive Order 13607. Some of the requirements include providing prospective students the Financial Aid Shopping Sheet, agreeing to an institutional refund policy aligned with the rules for unearned student aid developed by the ED, and providing educational plans for all individuals using federal military and veterans’ educational benefits.
Within the FY14 budget request for the Department of Veterans Affairs (VA), the administration calls for legislation to require educational institutions to report information demonstrating compliance with Executive Order 13607, which includes the White House Principles of Excellence for institutions serving veterans, service members, and their families.
- Increase research funding. The budget request is friendly to research, calling for increases in spending at the National Institutes of Health, the National Science Foundation, the Energy Department’s Office of Science, and the National Institute of Standards and Technology, as well as for basic research budgets within the Department of Defense. The president’s budget would increase overall research spending by 7.5 percent to $68.1 billion, and would include some targeted investments to promote clean energy, improve health care outcomes, and reinforce national security.
RESOURCE LINK NACUBO advocacy tools.