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Pell Grant Faces Federal Funding Challenges

The cost of the Pell Grant program has ballooned in recent years due to growing enrollment, greater financial need, broadened eligibility standards, higher awards, a weak economy, and the introduction of second Pell Grants in a single award year. Adding to these problems are recent funding shortfalls in the program between fiscal year FY2008 and FY2010 because of inadequate appropriations in some years coupled with catch-up contributions in others. The Obama administration estimates that there will be a $20 billion shortfall in the program for academic year 2012-13. Without any action, this could cause the maximum award of $5,550 to be reduced to $3,240 for the 2012-13 award year.

The Pell Grant program presents both short-term and long-term funding challenges for the federal government. In the short-term, maintaining the maximum award for FY2012 will require a substantial allocation of discretionary funding. At this point Pell comprises a disproportionate and unsustainable portion of funding in the  Labor, Health and Human Services, and Education appropriations bill. In the long-term, federal leaders will need to find a way to create a more sustainable program, or risk even greater future shortfalls.

Proposed Approaches to Fix the Funding Challenges

In a recent report, Federal Pell Grant Program of the Higher Education Act: Background, Recent Changes, and Current Legislative Issues, the Congressional Research Service (CRS) outlined two options available to Congress to tackle the long-term Pell Grant funding challenges. In the first option, Congress could reclassify the Pell Grant program as an entitlement. This would prevent annual funding shortfalls and surpluses in the program. However, the initial costs of reclassification could be substantial under congressional budgetary rules. The Obama administration has recommended this option in previous budget proposals, but backed off the proposal this year as the need to cut federal spending – and rein in entitlement spending in particular – has dominated the political landscape. The second option presented by CRS involves a congressional change to the distribution of overall benefits. This change could target aid to the neediest students or revise the program’s award rules and eligibility parameters.

Democrats and Republicans have recently presented their ideas for shoring up the Pell Grant funding problems as well.

In his FY2012 budget request, President Obama, a long-time supporter of the Pell program, proposed maintaining the $5,550 maximum Pell Grant award for 2012-13 by modifying federal student aid programs. These modifications, packaged together as the “Pell Protection Act,” include to the elimination of second scheduled awards within an award year, beginning in the 2011-12 year. According to the administration, the most recent projections of the overall cost of two Pell Grant awards in a single award year is more than 10 times its original estimate, without clear evidence that it is meaningfully accelerating students’ degree completion. Officials say eliminating these awards would save an estimated $8 billion in 2012. This elimination would not affect the new regulatory rules that mandate assignment of a crossover period to the year that results in the higher payment, or reassignment based on subsequent receipt of additional information.

Another proposal by Obama to maintain the maximum Pell award is to eliminate the Stafford loan subsidy for graduate students, a move projected to save $2 billion. The administration believes that these subsidies are not well targeted and do not encourage more students to enroll in graduate school. Revoking the second scheduled awards will reduce program costs and eliminating Stafford loan subsidies for graduate programs will provide a savings that will be invested directly to the Pell program.  

The Republicans are taking a different approach to the Pell program with their proposed continuing resolution (CR) that would fund the government from March 4 to September 30 after the current CR expires. In their new CR, H.R. 1, Republicans called for the maximum award to be reduced from $5,550 to $4,705. This $845 cut comes from discretionary Pell funding, reducing the previously set $4,860 discretionary maximum amount to $4,015.  The $690 mandatory funding add-on from the Healthcare and Education Reconciliation Act of 2010 (HCERA) will be added to $4,015 to bring the maximum award to $4,705.

The U.S. House of Representatives voted 235-189 on February 19 to approve H.R. 1 with the Pell program cuts intact. The vote was along party lines with all Democrats voting against the bill. It remains to be seen what action the Senate will take.

NASFAA Response

In response to Obama’s proposal and to the House Republican’s proposal, NASFAA stressed that providing funding to maintain the maximum Pell Grant award is our highest priority. NASFAA President Justin Draeger expressed cautious support for the president’s Pell Grant plan, while strongly opposing the Republican-backed Pell Grant cuts in H.R. 1.

“It is regrettable that the administration is proposing to maintain Pell by making cuts to other student aid programs that provide much needed funds to students,” said Draeger in a February 14 statement. “Eliminating subsidized Stafford loans for graduate students and two Pell Grants in an award year will undeniably have a negative impact on students, but maintaining funding for the Pell program … is our highest priority.”

With regards to H.R. 1, NASFAA is calling on its members to urge their representatives in Congress to oppose cuts to the Pell Grant and other vital student aid programs. The Department of Education has already released Pell Payment and Disbursement Schedules for the 2011-12 award year based on the current CR, and with financial aid packages already sent to many families, students are now making decisions on whether to attend college this fall. Final passage of H.R. 1 by the House and Senate could cause the Department to reissue Pell schedules, thus decreasing Pell awards, and creating uncertainty for students and families. According to Draeger, “this legislation would have a devastating effect on students’ ability to pay for college.”

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