As Congress tries to stop the federal government from shutting down at the end of this week, it also faces a deadline to prevent the United States from defaulting on its loans – an unprecedented result that would have an impact higher education and the economy in general, in a disastrous way but still little known.
This is the whole result of the debt ceiling, which is a restriction on the amount of money the federal government can borrow to pay its obligations. According to Treasury Secretary Janet Yellen, the country is expected to run out of its ability to pay its bills between mid-October and early November, so Congress must raise the debt ceiling before then to allow the Treasury Department to borrow more money.
While raising the debt ceiling is generally a bipartisan process, Republicans were expected to oppose it in a procedural vote Monday night, arguing it would further encourage federal spending by Democrats – like the budget reconciliation bill. $ 3.5 trillion, which includes the free college community, funding for institutions serving minorities, and an increase in the Pell Grant. Instead, they want Democrats themselves to figure out how to raise the debt ceiling, rather than tie it to legislation that keeps the federal government open, which it is now.
“If they want to tax, borrow and spend historic sums of money without our contribution, they will have to raise the debt ceiling without our help,” Senate Minority Leader Mitch McConnell, a US Republican, said last week. Kentucky. . “This is the reality. I have been saying this very clearly since July.
It’s almost impossible to know what would happen if the United States defaulted on its loans because it would be such a disaster, said Sandy Baum, a non-resident senior researcher at the Center on Education and Data Policy at the Urban Institute.
“I have to believe that they will raise the debt ceiling because it is as if the economy is in danger of collapsing,” Baum said. “There would be so many terrible things that would happen that choosing what would happen to higher education… I don’t think anyone really knows what they would do or what would happen.”
At least one result seems obvious if Congress doesn’t act: It’s hard to shell out financial aid if the federal bank account doesn’t have money, said Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators. If there is no funds in the treasury and no way to raise capital, the federal government will become dependent on incoming revenue.
“The good news for students is that the largest installments of federal student aid are paid early in terms and will already be gone by the time the treasury runs out of money,” Draeger said. “But it will be a small consolation for the students who wait and depend on the disbursements to come.”
The debate around the federal debt and spending ceiling raises larger questions about the national debt at a time when many Democrats are looking to make monumental investments in higher education.
“I think the national debt problem is just cooling the desires of voters and policymakers to spend, spend, spend on everything under the sun,” said Beth Akers, senior researcher at the American Enterprise Institute. “The current problems with the debt ceiling only draw attention to the issue of spending beyond our means.”
This includes the Build Back Better Act, which is largely based on President Biden’s U.S. plan for families, but fails to deliver the level of investment initially proposed by Biden – for example, a tuition-free community college would be licensed for five years instead of 10, and historically black colleges and universities have failed to see the level of infrastructure investment executives deem necessary.
Moderate and progressive wings of the Democratic Party are divided over the cost of the reconciliation bill – centrist Democratic Senator Joe Manchin of West Virginia said earlier this month in an op-ed that he would not vote for a package who spends an additional $ 3.5. one thousand billion.
“Many in Washington have convinced themselves that we can add trillions of dollars more to our national debt of almost $ 29 trillion without any repercussions,” Manchin wrote. “For those who will reject my reluctance to support a $ 3.5 trillion bill as a political posture, I hope they will heed the powerful words of Admiral Mike Mullen, former Chairman of the Joint Chiefs of Staff, who called the debt the greatest threat to national security. ”His comments echoed the fear and concern I have heard from many economic experts I have personally met.
So, does the reluctance to add to the national debt by some lawmakers further inhibit federal spending on higher education? Not quite, say policy experts.
“I don’t think there are so many people who think we are on the brink of disaster because of the national debt,” Baum said. “And certainly when we talk about the types of spending that are in these bills – most of which are investments in the future – it’s a lot more ‘we don’t want to spend this money’ than that. on the national debt.
The debate over the national debt is much more about politics than politics, said Terry Hartle, senior vice president of government relations and public affairs at the American Council on Education.
“Republicans, I don’t think they were ever going to support President Biden’s initiatives for political reasons – the national debt provides a practical explanation for this lack of support,” Hartle said.