Yesterday, the House and Senate Appropriations Committees jointly released text of a fiscal year 2009 Omnibus Appropriations bill that would fund federal agencies for the remainder of the fiscal year. Since fiscal year 2009 began in October, federal agencies have been operating under a continuing resolution that maintained funding at 2008 levels. (Yes, we know it's confusing--you can learn more about the federal budget process here and here).

For the most part, the Omnibus bill maintains funding levels for key early education programs at fiscal year 2008 levels or provides very modest nominal increases.

While the relatively stable funding for early education programs may look unimpressive, it's important to remember that Congress just passed a stimulus bill that provided substantial amounts of funding for many of these programs, so in fact states, local school districts, and Head Start agencies will be receiving a lot more federal dollars for these programs this year than they did in the past.

 [This is the first in a Higher Ed Watch series "Revisiting the 9.5 Student Loan Scandal." The series takes a closer look at the origins of the scandal with the purpose of trying to resolve unanswered questions and dispel lingering myths surrounding it.]

As the Bush administration nears its end, key questions remain about its role in a scandal that allowed student loan companies to bilk taxpayers out of more than $1 billion by overcharging the government for subsidy payments on loans they made to students. At Higher Ed Watch, we think it's especially vital to get answers to the following questions: what did the political appointees at the Education Department know about the 9.5 percent scandal and when did they know it?

Before delving into these questions, it's important to recall the details of the scandal, which has been largely overshadowed in recent years by higher-profile student loan controversies and the credit crunch.

The roots of the 9.5 scandal date back to the 1980s when poor economic conditions and soaring loan costs prompted Congress to keep nonprofit lenders, which use tax-exempt bonds to finance their loans, in business by guaranteeing them a return of 9.5 percent on loans. Congress rescinded that policy in 1993 but grandfathered in the loans already made, believing that the volume of 9.5 loans would decline as they were paid off.

Instead, a group of lenders devised a strategy to aggressively grow the volume of loans that they claimed were eligible for the inflated payments. They did so by transferring loans that qualified for the 9.5 subsidy payment to other financing vehicles and recycling the proceeds into new loans that they claimed were then eligible for the subsidy. A particularly egregious actor was Nelnet, which was created in 1998 when Nebraska's nonprofit student loan agency converted to for-profit status. By repeating the transfer and recycling process over and over, Nelnet increased the amount of loans for which it sought the 9.5 percent rate from about $550 million in 2003 to nearly $4 billion in 2004.

Poor states, communities, and children persistently get the short end of the stick in school funding. Education spending policies at all levels-federal, state, and local-layer on inequities that disproportionately benefit high-wealth school districts and lead to large funding disparities between high- and low-poverty communities. A new report from Education Sector and the Center on Reinventing Public Education seeks to quantify the cumulative impacts of these inequities on local schools. The results are striking. Addressing these inequities should be a key priority for federal and state policymakers.

The Education Sector/Center on Reinventing Public Education report examines two elementary schools in neighboring states that serve similar populations but receive very different levels of federal, state, and local funding. Cameron Elementary in Fairfax County, Va., receives more than twice the per pupil funding Ponderosa Elementary in Cumberland County, N.C., receives even though both schools serve predominantly low-income populations in poorer sections of their respective counties. These funding disparities are the result of funding distribution structures that disproportionately benefit wealthier states, districts, and schools over poorer states, districts, and schools.

A new Pre-k Now report on pre-k finance highlights the increasing use of state school funding formulas as a vehicle for pre-k funding. When Pre-K Now produced a similar report in 2006, it identified only 6 states that funded pre-k through their state school funding formulas. The 2008 report identifies 11 states that do so, including some national leaders on pre-k.

This is good news. There are lots of benefits to using state school funding formulas to pay for pre-k. For starters, it's simple: States simply allow school districts and charter schools to receive state per-pupil funds for four-year-olds, as they already do for older students. Because state school funding formulas and the bureacratic systems to operate them already exist, this approach requires little in the way of additional bureacracy. That's particularly important as more states start thinking about scaling up relatively modest existing targeted pre-k programs: A grant program that works well when you're serving less than 10% of children--as more than half of states currently do--becomes a lot more unwieldy when you're trying to serve all 3- and 4-year-olds in a state. That's borne out by the fact that, of the top 10 states serving the most 4-year-olds in pre-k, 6 use the state school fudning formula to do so.

Early education programs fared poorly under the fiscal year 2008 omnibus appropriations bill signed by President Bush in late December. Of 9 federal programs that provide support for early education, only one—Title I—received a significant funding increase—$1 billion, bringing Title I funding to $13.9 billion for 2008. But, because Title I funds are used to improve education for disadvantaged students from preschool through high school, only a fraction of this increase will go to early education.

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The legislation significantly cuts funding for three early education programs:

• Cuts Reading First, which supports scientifically based literacy programs in kindergarten through third grade, by two-thirds, or $636 million;
• Cuts Even Start, which supports family literacy, parenting classes, and early education, cut by 20 percent, or $16 million;
• Eliminates the Early Childhood Educator Professional Development program.

Several other programs received level funding—a cut in real terms—or small cuts due to a 1.74% across the board recission for all programs. As a result, total funding for early education programs other than Title I fell by $677 million. These cuts exceed any likely increase in school districts’ early education spending as a result of Title I increases.