Low-Income Students

Paul Ryan’s proposal to cut federal spending by 20 percent has been impossible to ignore – especially what that might mean for education programs. Federal spending currently makes up about 10 percent of annual spending for education, so a 20 percent cut to that spending would only translate to 2 percent of total spending, on average. But what about the impact on non-average school districts?  As it turns out, more than 1,500 districts rely on federal funds for 20 percent or more of their annual revenue, and those districts would take a big hit.

Last week, Ed Media Commons showcased data from the Federal Education Budget Project, Ed Money Watch’s parent initiative, to reveal that these cuts could mean much more for districts that rely more heavily on federal funds. Using Census data on school districts’ total annual revenue and federal revenue for the 2009-10 school year, we calculated the percent of each district’s revenue made up of federal funds, as well as how much each district stands to lose under a 20 percent cut.

Of the more than 1,500 districts that rely on federal funds for 20 percent or more of their annual revenue, seventy-seven would lose more than 10 percent of their annual revenue if Congress were to cut federal spending by 20 percent. Those districts tend to be smaller, with enrollments mostly between 100 and 2,000.

These districts’ reliance on federal revenue can mostly be explained by high proportions of American Indian students. Many districts receive funds under Impact Aid, a federal program that provides funds to school districts with high proportions of “federally impacted” students like American Indians. Because those districts do not benefit from property tax revenue from people living on Indian reservations, the federal government makes up for that lost revenue. For example, Sanders Unified School District in Arizona had an enrollment of 1,049 in 2010 and nearly 97 percent of those students identified as American Indian. Of that district’s approximately $15 million in annual revenue, just over $9 million comes from federal sources. If Congress were to cut spending by 20 percent, Sanders Unified could lose as much as $1.8 million, 12 percent of its annual revenue.

Many large districts would also be disproportionately affected by big cuts to federal education funding. Los Angeles Unified School District, Chicago Public Schools, and Miami-Dade School District, the second-, third-, and fourth-largest school districts in the country, each rely on federal funds for more than 16 percent of their annual revenue. Chicago receives nearly 24 percent, or $1.2 billion, of its annual $5.1 billion in total revenue from federal sources. That federal funding comes from several federal programs aimed at low-income students such as Title I (about $300 million) and Free and Reduced Price Meals (about $140 million), as well as special education (about $90 million). A 20 percent cut to federal funding would mean a loss of $244 million for Chicago.

Of course, some districts rely very little on the federal government for education funding. Over 2,100 districts get 5 percent or less of their annual revenues from federal sources. These districts also tend to be smaller – only 248 have enrollments over 5,000 – and tend to serve wealthier and less diverse populations. Cheshire School District in Connecticut, for example, had an enrollment of 4,950 in 2010 and an annual revenue of over $71 million, only 4.5 percent of which came from federal sources. The district has a student poverty rate of only 3.1 percent, very few English language learners, and is made up of nearly 87 percent white students. This means the district receives very little federal funding under programs like Title I or Free and Reduced Price Meals. If federal spending were cut by 20 percent, Cheshire would only lose $637,000 in revenue.

While a 20 percent cut would be devastating for many school districts, others would lose only the aforementioned 2 percent or even less. These austere times mean that cuts to federal spending are likely. We hope that Congress is able to target those cuts in such a way that protects the most vulnerable students that benefit directly from federal spending. While Title I and Individuals with Disabilities Education Act special education spending are often the most discussed, it is important that programs like Impact Aid also factor heavily into negotiations. For many of these districts, such a cut could mean millions of dollars or a substantial portion of their annual revenue.

Click here to download these data for every school district in the nation. To view programmatic and demographic data, please visit febp.newamerica.net/k12.

This post was updated August 18th to reflect possible higher costs for the Ryan Pell proposal

All eyes are back on the Pell Grant proposal in the Ryan budget (the House-passed fiscal year 2013 budget resolution) now that Rep. Paul Ryan (R-WI) will be Governor Mitt Romney’s running mate. It goes unmentioned, however, that when it comes to Pell Grant funding, both Ryan and Obama are making promises that they cannot possibly keep.

The plan Rep. Ryan included in his fiscal 2013 budget resolution would make a series of eligibility changes to the program, end the portion of the program’s budget funded as an entitlement, and cancel the next five years of inflationary increases to the maximum grant. (Click here to view a side-by-side comparison of Ryan's proposed changes.) The plan also assumes that Congress will support a maximum grant of $5,550 each year through the appropriation process.

Based on our estimates, that would require an annual appropriation of about $28 billion (maybe even $30 billion), taking the eligibility changes into account. While that is less than what the program currently costs in total, it is about $6 billion more (or possibly $8 billion more) than what Congress typically provides through the appropriations process. Assuming such a big increase in funding for the Pell Grant program seems like a tall order given that the Ryan plan also assumes reductions in total appropriations spending as compared to the current trajectory.

Now the Obama plan. The president proposes no eligibility changes to the program and would keep the entitlement funding portion intact, along with the inflationary increases in the maximum grant. To do so, the president would temporarily allocate additional funding to the program – but for only one year – by cutting funding to other programs (mainly student loans). In 2015 and each year thereafter, President Obama’s plan assumes Congress will support the program with an annual appropriation of $32 billion, or $10 billion more than what Congress typically provides.

That is essentially the same unrealistic proposal that the Ryan plan lays out – both plans hinge on Congress making annual appropriations for the program that are higher than they are today, year after year, meaning that some other program(s) must be cut by the same amount. What should Congress cut to pay for that kind of increase? Neither candidate has said.

Sure, the Obama plan spares students from eligibility changes and includes a small increase in the grant, and the Ryan budget does not. But President Obama’s promised Pell Grant benefits should hardly reassure students, families, and education advocates, given that his plan amounts to little more than a heroic assumption about future funding. Yet these groups seem all too eager to let the president get away with proposing a budgetary near-impossibility, while taking Rep. Paul Ryan to task for proposing effectively the same thing.   

If the president’s supporters think that they are acting in the best interest of soon-to-be Pell Grant recipients by trashing the Ryan budget and touting the Obama plan, they are deluding themselves. The Pell Grant program is headed for a fiscal cliff that lawmakers cannot avoid by assuming more money will materialize. It’s going to take real money, which means advocates and policymakers need to start making real tradeoffs. So far, neither Ryan nor Obama has made those tradeoffs, and Pell Grant supporters shouldn’t give only one of them a free pass.

The Asset Building News Week is a weekly Friday feature on The Ladder, the Asset Building Program blog, designed to help readers keep up with news and developments in the asset building field. This week's topics include financial capability, measuring poverty, and welfare.

When you were a teenager, did you work summer jobs? According to the Center for Labor Market Studies at Northeastern University, about 57% of 16-19 year olds had summer jobs in 1989. Fast forward to 2010 and just 29.6% of these older teens are employed in the summer months.

A Boston Globe story from this morning highlights the challenges teens face this summer in finding employment and points out the role that social networks, socioeconomic background, and families play in paving the way to employment for some kids. The piece profiles a handful of Boston-area teens whose parents have hired them to work in family businesses because opportunities were so limited elsewhere.

Here at Early Ed Watch, you usually find us writing about education policy. But as we have often written, education is most powerful when it is combined with high-quality health care, parenting, child care, and nutrition. Last week, the Federal Interagency Forum on Child and Family Statistics, a 22-agency team that collects and reports data on child and family welfare, released a new report, “America’s Children: Key National Indicators of Well-Being.”

The report highlights some shifts in child well-being indicators and metrics, many of which carry implications for education policy. According to the report, there were 73.9 million children in the United States in 2011 -- up from 1.5 million kids in 2000.  Of those, 24.3 million were aged 0 to 5.  That means children make up almost a quarter of the population, and very young children make up nearly 8 percent.

Willie Elliott grew up in Beaver Falls, Pennsylvania, just as the steel mills were shutting down. His father, a train conductor and engineer, was frequently laid off; his mother worked as a waitress and in warehouses to help make ends meet. The family experienced several bouts of homelessness.

Congress appears set to pass a bill tomorrow that allows certain undergraduate students to borrow up to $5,500 for the coming school year at a fixed interest rate of 3.4 percent instead of 6.8 percent.  The president spent months making the case for the one-year, low-rate extension, and Congress spent almost as much time debating how to pay for it. The whole episode raises a lot of questions that students, reporters and policymakers should have been asking all along.

For all the effort the president went to in arguing for the lower rate, why did he ask Congress for only a one-year fix? Did he think a longer extension would be too expensive at more than $6 billion a year?

It looks that way: His 10-year budget request sent to Congress earlier this year included only the one-year extension. That is, when the president had his choice about where to set spending and revenue levels for every line item in the federal budget, he didn’t make room for more than a one-year interest rate extension. Why?

Why didn’t the president and Congress use these past months to enact more meaningful reforms to the student loan program?

The program is far from perfect. Congress set the interest rates on federal student loans back in 2002 and doesn’t allow them to adjust for changes in market rates. Ed Money Watch showed how lawmakers could peg the rates to U.S. Treasury rates, offering lower rates for all borrowers next year and even providing borrowers who would get the 3.4 percent interest rate with more savings. The proposal would save $6 billion, and it would be permanent. When asked about this alternative, the White House had no comment.

Why didn’t the president invest his time and energy to put the Pell Grant program, which provides grants to nearly ten million college students from the poorest families, on better financial footing?

Temporary funding for the Pell Grant program runs out next year and the maximum grant is scheduled to drop by about half in 2014. But $6 billion – the same amount the president convinced Congress to spend on the interest rate extension – would stop that from happening. Why weren’t student aid advocates up in arms that the president challenged Congress to find $6 billion for the interest rate fix over Pell Grants? Even the Washington Post said that the president had his priorities wrong. 

How was the president able to argue that the interest rate fix was meant to help borrowers weather a weak job market given that:

1. The loans to which the interest rate hike would apply (Subsidized Stafford) are interest-free for borrowers who are unemployed or have low incomes; and

2. The Obama Administration in 2011 expanded the income-based repayment plan on federal student loans so that no borrower with loans issued since 2008 ever has to pay more than 10 percent of her monthly income on her debt, regardless of the interest rate she is charged. Loans are then forgiven after 10 years for public sector employees and 20 years for everyone else.

These benefits make a one-year extension of the 3.4 percent interest rate irrelevant for borrowers who are unemployed or earning too little to make full monthly payments.

Had students, the news media, policymakers, and others been asking these questions all along, the interest rate fix might not be headed to the president for his signature tomorrow. Instead, perhaps a bill with far more meaningful reforms and benefits for students would be.

Thursday, May 31, the Asset Building Program hosted an event Financing College Success: Innovations to Promote Readiness, Access, and Completion. We were particularly excited to host Martha Kanter, Under Secretary at the U.S.

Children are significantly more likely to maintain a relationship with financial institutions and have greater financial assets later in life when they own a savings account earlier in life. However, some children gain access to savings accounts while others do not—an inequity that tends to be based on parents’ socio-economic status. This paper explores the case for extending financial inclusion to children by improving access to basic financial services.

Last Thursday, The White House hosted the first ever Summit on Financial Capability and Empowerment.  Did you hear all about it?  Probably not – it somehow slipped the evening news.