The government currently pays the interest on student loans for some graduate and professional students as long as they stay in college. But the official said experts think the subsidy has failed to encourage more students to attend graduate school and it isn’t well-matched to borrowers who have trouble repaying the loans.

The administration also has expanded other programs that help students reduce loan payments and ultimately forgive debt they can no longer afford to repay.

Another $4 billion in savings over 10 years would be achieved by broadening the use of IRS data to determine eligibility, reducing improper payments, and easing the application process, the official said.

Faced with growing annual budget deficits and a national debt into the trillions of dollars, Obama has said his latest budget proposal would save $400 billion over the next decade, including through a five-year freeze on some discretionary spending and cuts to programs that he says even he cares about.

But at the same time, Obama wants to increase spending in areas he says are priorities, such as education and innovation, which he says are important for long-term economic growth and competitiveness.

“It would be a mistake to balance the budget by sacrificing our children’s education,” he said Feb. 12 in his weekly radio and internet address, in an apparent warning to Republicans.

The Institute for Higher Education Policy (IHEP) said in a statement that the Obama administration’s budget showed that “cuts … had to be made” as the country faces its looming debt crises.

IHEP, however, said the White House should use “caution” in modifying the Pell Grant program, “as these cuts may sacrifice the ability of many Americans to access and attain the college degrees.”

The Student Aid Alliance (SAA), a nonpartisan coalition of 80 educational groups, called Obama’s Pell Grant proposal “very reasonable.”

The SAA recently wrote a letter to the House of Representatives saying a Pell Grant cut would “force millions of students to drop out of school” if House legislation — known as HR1 — becomes law.

SAA’s letter to the House pointed to labor economists’ estimate that the U.S. will need 22 million new workers with college degrees by 2018. The country, on its current pace, would miss that mark by about 3 million students, according to SAA.

“By denying students the opportunity and the means to complete their educations, the proposed cuts will result in a dramatic and immediate impact on the American economy and competitiveness, ultimately impairing the ability of millions of college students to achieve the American dream,” said David Warren, SAA co-chairman and president of the National Association of Independent Colleges and Universities.

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