Higher ed organizations are bracing for potential cuts in student loan funding and the trickle down of major cuts to agencies that support the bulk of institutional research and development.

Slashing Research Funding

The biggest threat to higher education appears to be in the area of research funding. The sequester—$1.2 trillion in across-the-board cuts that will go into effect in the likely event that Congress and the White House fail to reach an agreement on spending by March 1—includes $6.8 billion in planned cuts to the various agencies that support higher education research and development: the National Science Foundation, the National Institutes of Health, NASA, and the Departments of Defense, Energy, and Agriculture. The NIH and NSF are slated to lose $1.6 billion and $400 million respectively.

“We don’t yet have a very good playbook for knowing what individual agencies will do,” says Terry Hartle, senior vice president of government and public affairs for the American Council on Education. “I think the frustration over sequestration is not only that the money is going to be reduced in a very heavy-handed, across-the-board fashion, but that it obliterates the ability to plan.”

Hartle says it’s not yet clear how the agencies will apportion the cuts. Some have said they would furlough staff to save money, which could mitigate the impact on programs. Others, like the NIH, have said they would not furlough staff.

“It means less research will be done or research programs will need to be changed to accommodate for less funding,” says Hartle. This could come in the form of taking away funding for existing research to be completed, or, most likely, not making new awards for future research."The one thing we can say for sure, I believe, is that NIH will make fewer new awards this year than would otherwise have been the case."

As far as faculty are concerned, those on university salary lines may lose funding for their grants, but not for their teaching, according to Hartle. "Most likely the impact would affect individuals who are totally grant funded," he says. "Those hired just to work on the research grants, which could include grad assistants, of course, would clearly be at some risk."

Reductions in research funding could also affect the nation’s competitiveness in the global economy, according to the Business-Higher Education Forum. On February 20, the BHEF issued a letter to President Obama and the House and Senate leaders outlining how its members feel cuts will harm STEM education outcomes and the ability for the U.S. to compete, in terms of research, with China, India, Japan, and Brazil.

“We urge you to speak and vote in opposition to sequestration in favor of a reasoned approach to balanced, long-term deficit reduction that preserves investments in research and education, particularly student aid, and spurs long-term innovation and economic growth,” wrote members of the BHEF executive committee, comprised of college, university, and corporate leaders.

Impact on Financial Aid

Another area of higher ed that will be impacted by sequestration is student loan funding. Hartle of ACE says the impact to student loans is relatively modest when compared with cuts to other areas of the federal budget, including K12 and defense spending.

“But virtually every federal budget account that affects higher education, with the notable exception of Pell Grants, will be affected to some degree,” he says.

Sequestration would include 8.2 percent cuts from the Supplemental Educational Opportunity Grant, Federal Work-Study, and federal college access programs such as TRIO and GEAR UP. The 1 percent origination fee for unsubsidized Stafford loans would be raised by 7.6 percent, to about 1.1 percent of a total loan—an inconsequential increase when considering that if a student takes out a $2,500 Stafford loan, he or she will now have to pay an upfront fee of $27.50 for the loan, instead of $25.

Effect on Individual Schools

To get an idea of how individual institutions may be affected, the National Association of Student Financial Aid Administrators used the U.S. Department of Education’s institutional-level formula elements for the 2013-2014 tentative campus-based allocations to create estimates of Federal Work Study and Federal Supplemental Educational Opportunity Grant programs. Schools receive a base funding amount year to year that is always funded first, explains Megan McClean, director of public policy and federal relations for NASFAA. Since the 5.1 percent cut is relatively small, the base funding will remain untouched. What will see a cut is fair share funding, which is based solely on the financial needs of an institution’s students and is awarded from a pool of any remaining funds.

For a variety of reasons, including when a school signed up for a program, how many students it enrolled the previous year, and past funding, ITT Technical Institute, New York University, Nova Southeastern University (Fla.), Argosy University (a for-profit), and Liberty University (Va.) would have the largest reductions in FWS funding. The Kentucky Community & Technical College System, DeVry University (another for-profit), CUNY City University of New York - Central, Ivy Tech Community College of Indiana, and Argosy University would be hardest hit in terms of SEOG funding.

Note that some of the institutions listed, such as DeVry and Miami Dade, represent systems or more than one institution, so while the numbers look respectively large, the cuts are being spread across more students.

These cuts would not be in effect until the 2013-2014 award year, which begins July 1. Current students who are receiving student aid in this award year would not have funds taken away from them. An issue for financial aid administrators is that students have already been starting to receive their award letters for next year, shares McClean.

“They will have to go back to them and say, ‘actually you won’t get that much,' and that’s where it becomes problematic. Students are trying to make decisions and compare schools,” she says. “We have been advising schools to put an asterisk in their awards letters saying the amounts are subject to change due to fiscal uncertainty—and that’s just a tough place to be in.”

NASFAA Sequestration Estimates