In January 2023, U.S. Secretary of the Treasury Janet Yellen informed Congress that the United States was projected to hit its debt limit ($31.4 Trillion) later that month. To avoid the government surpassing its debt limit, Secretary Yellen began taking “extraordinary measures” that will allow the Treasury Department to continue financing its obligations through June 2023. These measures have provided Congress additional months to come to an agreement on raising the debt limit, which has been raised more than 100 times since the 1940s. If Congress fails to raise the debt limit by this summer, the United States will default on its obligations for the first time in history. Read on to learn more about the U.S. debt limit and its impact on education funding, and the actions being taken by NAfME and our education partners to avoid a default on federal loans.
What Is the Debt Ceiling
To begin understanding the debt ceiling, we must establish the fact that the federal government regularly operates in a deficit. In other words, more money is spent during the Fiscal Year than revenue received in the form of taxes. The federal government must borrow money, typically in the form of issuing bonds, to continue operations, and the sum of these bonds makes up the federal debt. As the federal government continues to operate at a (growing) deficit, the federal debt continues to rise.
The federal debt ceiling acts as a self-imposed cap on the total amount of money the federal government is allowed to borrow to fulfill its obligations (i.e., Social Security, Medicaid, active-duty military salaries, etc.). The debt ceiling is set by Congress and can only be raised through congressional authorization. Typically, Congress works quickly to raise the debt limit and avoid any potential defaults, but a more drawn-out debate, centered on how to avoid hitting the debt limit in the future, will most likely stall the 118th Congress’ decision on raising the debt limit.
What Is Being Done to Avoid a Default?
Currently, the only active measures being taken by the federal government to avoid hitting the debt ceiling are the “extraordinary measures” being employed by the treasury department, such as potentially not funding retirement programs for government employees. Ultimately, the decision to raise the debt limit and avoid a government default will fall on the shoulders of Congress. Democrats in Congress have expressed their desire to quickly raise the debt limit, while some Republicans like U.S. Speaker of the House Kevin McCarthy have stated their desire to raise the debt limit contingent on future spending cuts.
NAfME and other national education organizations are urging Congress to reach a decision quickly and to raise the debt limit without cuts to funding. In this recent letter sent to Congress, more than 140 organizations including NAfME expressed concern that default, or even the threat of default, would have “a devastating impact on all Americans,” especially those who rely on federal programs and services and would be adversely affected by rising interest rates. Congress is expected to continue negotiations on raising the debt ceiling and commence work on the FY 2024 appropriations bills later this spring, and NAfME will continue to update you on those changes.
February 24, 2023. © National Association for Music Education (NAfME.org)
