The Budget Reconciliation Process refers to a mechanism in the annual budget resolution that allows Congress to make changes to spending and revenues without the normal procedural hurdles.

The annual budget resolution adopted by Congress may include special “reconciliation” instructions. The original purpose of the reconciliation process as enacted in the Congressional Budget and Impoundment Control Act of 1974 was to allow Congress at the end of a fiscal year to expeditiously enact legislation that would make minor adjustments to both spending and revenue levels. Historically, however, Congressional majorities have used the reconciliation process to pass large-scale spending and revenue policies, mainly because reconciliation allows Congress to expedite legislation under a more limited (i.e. filibuster-proof) set of procedural rules.

The Budget Reconciliation Process

If Congress chooses to use the reconciliation process, a special set of procedures are followed. First, Congress passes reconciliation instructions in the annual budget resolution, which requires only a simple majority vote and is granted only a limited time for debate. Reconciliation instructions require committees in Congress to draft legislation that would change federal mandatory spending or revenue policies by a specified amount – although the instructions do not necessarily include actual changes to federal laws and programs.

Congressional committees that receive reconciliation instructions must submit their reported policies back to the House and Senate Budget Committees by a date specified in the budget resolution. The Budget Committee then takes all the committee reports and combines them into one omnibus reconciliation bill, after which they may be considered by the full House and Senate. Like the budget resolution itself, the reconciliation bill requires only a simple majority vote to pass and debate is limited to a specified amount of time. After both Houses pass reconciliation bills, a conference committee meets to resolve any differences. After a favorable majority vote in both Houses on the final omnibus reconciliation bill, it is sent to the President for his approval.

Budget Reconciliation Cannot Be Filibustered

Reconciliation is an extremely powerful procedural vehicle in the budget process because it enables a Congressional majority to circumvent the 60 vote filibuster option in the Senate. Only a majority vote is needed in the Senate to adopt a budget resolution that calls for the reconciliation process, and only a majority vote is required to adopt the reconciliation bill that Congress considers to carry out the instructions in the budget resolution. A reconciliation bill is subject to strict rules in the Senate because of its filibuster-proof status. These rules limit the scope of a reconciliation bill so that only certain policies may be considered under the expedited process.

Policy Change
1990Penalties for schools with high student loan cohort default rates
1993Direct Loan program created
1997Changes to student loan guaranty agencies
New education tax benefits
2001New higher ed tax deduction
Increased education tax benefits
2005Reduced lender subsidies in student loan program
Academic Competitiveness and SMART grants created
2007Reduced lender subsidies in student loan program
Higher Pell Grant awards for students
Lower interest rates on federal student loans
2010Elimination of FFEL student loan program
New Pell Grant funding

1990: The Omnibus Reconciliation Act of 1990 established the student loan “cohort default rate” rule. This policy, which still exists today, sanctions colleges and universities whose students have high federal student loan default rates by revoking a school’s eligibly to accept federal student loans. It also established the Federal Credit Reform Act, which changed budget and accounting rules for all federal loan programs, including student loans.

1993: The Omnibus Reconciliation Act of 1993 included the Student Loan Reform Act of 1993 which established the Direct Loan program.

1997: Reconciliation legislation passed in 1997, the Balanced Budget Act of 1997, made major changes to the structure and financing of the guaranty agencies that administer federal student loans. A separate revenue reconciliation bill, the Taxpayer Relief Act of 1997, established four new tax benefits for higher education: The Hope Scholarship Credit, Lifetime Learning Credit, the student loan interest deduction, and penalty free IRA withdrawals for higher education.

2001: The Economic Growth and Tax Relief Reconciliation Act of 2001 made a number of existing education tax benefits more generous and established a new deduction for higher education expenses.

2006: In 2006, the Higher Education Reconciliation Act of 2005 (which was part of the Deficit Reduction Act of 2005) ensured that excess student loan interest payments from borrowers to lenders passed through to the federal government and thus increased federal receipts. The law also established two new higher education grant programs, Academic Competitiveness Grants and SMART Grants, which have since expired.

2007: Congress used reconciliation legislation in 2007 to adopt the College Cost Reduction and Access Act, which reduced subsidies for lenders providing student loans. The law also provided a new entitlement-like funding formula that supplements Pell Grants and temporarily lowered interest rates on Subsidized Stafford student loans for undergraduate borrowers.

2010: Congress used the reconciliation process to pass legislation that eliminated the Federal Family Education Loan (FFEL) program, making all federal student loans issued as of July 2010 Direct Loans. Savings from this policy were put toward the Pell Grant program to modify and expand the entitlement-like funding stream that boosts the maximum grant available to students.

See also: Budget Reconciliation Points of Order