Pell Grant Faces Federal Funding Challenges (UPDATED ON MARCH 17)

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 years (FY) 2008 and 2010 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.  

“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 NASFAA President Justin Draeger in a Feb. 14 statement on the Obama administration’s proposal. “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.”

The Republicans are taking a different approach to the Pell program which could impact the current fiscal year and potentially cause problems with aid currently being awarded.

As of mid-March, Federal programs (like Pell Grant) are being funded by a series of temporary spending measures (continuing resolutions, or CRs) to give Congress additional time to debate a long-term CR that sets spending levels for the remainder of FY2011 which ends on Sept. 30. House Republicans approved a long-term CR (H.R. 1) that included a 15 percent reduction to 2011-12 Pell Grants. On March 11, the Senate voted to defeat H.R. 1 marking a brief victory in the battle for FY2011 Pell funding, but 2011-12 Pell Grant awards will remain in limbo until Republicans and Democrats agree on federal spending levels for the remainder of FY2011. Reaching an agreement on FY2011 Pell spending could be a challenge as Republicans continue to call for cuts while Democrats fight to maintain funding.

Meanwhile, Pell Grant awards have been set by the U.S. Department of Education for the 2011-12 award year based on spending levels included in a temporary spending bill.  The Department issued Pell Grant Payment and Disbursement schedules based on the maximum Pell Grant set by the temporary spending measure, so financial aid offices are in the process of notifying students of their financial aid packages based on these schedules.  If Congress reduces funding for Pell Grants, schools could be forced to retract financial aid offers and make downward adjustments to Pell Grant awards.

NASFAA has spearheaded a national “Save Student Aid” campaign to fight legislation that would reduce 2011-12 Pell Grant awards by rallying financial aid administrators, students and parents to urge their representatives in Congress to maintain Pell funding. You can join this campaign and take action to save student aid by visiting NASFAA.org.

2 thoughts on “Pell Grant Faces Federal Funding Challenges (UPDATED ON MARCH 17)

  1. Sandy

    Thank you for bringing this information to us. Even though reducing Pell Grant amounts for 11-12 year would create more work for the financial aid office, it must be done. The US is broke, and we must reduce every program/department across the board–drastically. If we do not, we could be faced with far bigger problems in the not too distant future.

    So I will not support your efforts to fight a Pell Grant reduction.

  2. Pell Grant Recipent

    We all can understand the constraints of a budget as professional, but its hard to denie out low income students who are in most need of the pell grant. Some people precieve it as welfare for the poor, howeve, its means to end for most people who can’t get out of their poor neighboorhoods and gain employment. Not everyone is using the system to get rich. Plus Pell is a opprotunity to benifit from, not to be discouraged.

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