Explaining Budget Reconciliation and Education Funding

It appears that House and Senate Democrats have agreed to include "budget reconciliation instructions" aimed at reforming federal student loan programs in the fiscal year 2010 budget resolution. The House and Senate each adopted their own versions of the 2010 budget resolution several weeks ago and will bring a final compromise version up for a vote this week. The most important piece of the budget resolution for education programs is the reconciliation instruction. What is budget reconciliation and why is it important?

Reconciliation is one part of the larger congressional budget resolution, an agreement between House and Senate majorities on spending and revenue levels for the five or ten upcoming fiscal years. (The 2010 budget resolution covers 2010 through 2014.) The budget resolution is not legislation. It serves only as a set of self-imposed guidelines that Congress uses to shape legislation considered later in the year. Importantly, it cannot be filibustered in the Senate, requiring only a simple majority vote to pass.

While constructing the budget resolution, Congress may choose to include "reconciliation" instructions in the budget resolution. These require congressional committees to draft legislation that changes federal mandatory (i.e. entitlement) spending or revenue by a specified amount. However, the instructions themselves do not specify changes to federal laws and programs.

Reconciliation does not apply to programs funded through the annual appropriations process, which includes most federal education programs. However, some education programs, such as student loans, Academic Competitiveness/SMART grants, and a small portion of Pell Grants are funded with mandatory spending. The reconciliation process has been used seven times since 1990 to enact major changes in education policy.

The fiscal year 2010 budget resolution that Congress is expected to adopt this week includes reconciliation instructions to committees with jurisdiction over health care and education. While the Senate-passed version did not include reconciliation instructions, the House-passed version did. The compromise budget resolution finalized today sides with the House and includes reconciliation instructions to the education committees to draft legislation that reduces spending by $1 billion over the next five years. The reconciliation instructions for education in the Senate are as follows:

(b) COMMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS. - The Senate Committee on Health, Education, Labor, and Pensions shall report changes in laws within its jurisdiction to reduce the deficit by $1,000,000,000 for the period of fiscal years 2009 through 2014.

(c) SUBMISSIONS. - In the Senate, not later than October 15, 2009, the Senate committees named in subsections (a) and (b) shall submit their recommendations to the Senate Committee on the Budget. Upon receiving all such recommendations, the Senate Committee on the Budget shall report to the Senate a reconciliation bill carrying out all such recommendations without any substantive revision.

Once House and Senate committees draft legislation that achieves the spending reduction required in the reconciliation instructions, they will report the legislation to the House and Senate Budget Committees where legislation from other committees that received reconciliation instructions will be combined into an omnibus bill for consideration by the full House and Senate. This legislation requires only a simple majority vote to pass in the Senate. As a result, reconciliation instructions are an extremely powerful procedural vehicle in the budget process because they enable a majority to pass legislation while circumventing a filibuster (which is only overcome by a three-fifths majority) in the Senate. After a favorable vote in both Houses, the bill is sent to the president for his signature.

Democratic leaders in Congress intend to use reconciliation to advance President Obama's proposal for student loan reform. In his initial budget blueprint released in February, the president proposed eliminating one of the two main federal student loan delivery programs: the Federal Family Education Loan program, which subsidizes private lenders to make student loans on behalf of the government. As a result, all loans would be made through the Direct Loan program, which currently provides about 30 percent of all federal student loans. Student borrower terms are nearly identical under both programs, but analysts at the Office of Management and Budget and at the Congressional Budget Office (CBO) report that the Direct Loan program costs the government less per loan. Nearly all of the resulting savings would be spent on the Pell Grant program, which would become an entitlement program with grant awards that are indexed to inflation.

The CBO estimated that the president's student loan proposal would save $47 billion over the next five years and $94 billion over the next ten years. The savings associated with the loan program changes would allow the education committees in Congress to meet the reconciliation instructions in the fiscal year 2010 budget resolution to reduce federal spending over five years.

Right now, this appears to be the plan Congressional Democrats have in mind. Ed Money Watch will have more analysis as the reconciliation process unfolds throughout the year. In the meantime, additional information on reconciliation and the federal education budget can be found here on the Federal Education Budget Project website.