The time of unprecedented growth for the federal Pell Grant program couldn’t have come at a worse time for Congress. As lawmakers were looking to cut federal spending to address the growing national deficit, record college enrollments, the economic downturn, and expanded Pell Grant awards and eligibility criteria combined to triple the cost of the program over five years.
During the 2006-07 award year, $12.82 billion in Pell Grant awards was distributed to 5.2 million low-income students. By the 2010-11 award year, those numbers ballooned to $36.5 billion, distributed to roughly 9 million students. Not surprisingly, Congress did not predict the program would expand this rapidly and it began running a funding shortfall. President Obama’s fiscal year 2012 budget request estimated that the program would need an additional $20 billion to maintain the $5,550 maximum award for the 2011-12 academic year.
To plug the shortfall and maintain the maximum award, Congress passed three separate pieces of legislation in 2011 to reduce the cost of the Pell Grant program and divert funding from other student aid programs to fund Pell Grants. These bills demonstrated the strong, bipartisan support in Congress to maintain the maximum Pell Grant and were considerably better for student aid recipients than some proposed legislation that threatened to slash funding levels for Pell Grants.
The first piece of legislation that impacted student aid funding was the FY2011 budget. Congress was unable to finalize the 2011 budget in 2010, so it passed a series of stop-gap spending measures (known as Continuing Resolutions) to keep the government running until it passed a long-term Continuing Resolution in April 2011. This spending bill cut FY2011 federal spending for non-defense programs by nearly $40 billion, but maintained the maximum Pell Grant.
To reduce the cost of Pell Grants, the 2011 budget eliminated the newly created year-round Pell Grant program that enabled certain students to earn two Pell Grant awards in a single award year. The program was created to encourage students to finish college faster. More than 800,000 students took advantage of this program in 2010. Eliminating the program saved the government roughly $8 billion over two years and helped reduce the projected $20 billion Pell Grant program funding shortfall.
The bill made student loans more expensive for some borrowers.
The 2011 budget also cut $20 million from the Federal Supplemental Educational Opportunity Grant (FSEOG) program. FSEOG is a form of campus-based federal aid and provides need-based grants to low-income students at roughly 3,800 institutions. Institutions apply each year for FSEOG funds and must contribute 25 percent of the award amounts.
In addition, the 2011 budget cut $25 million from the federal TRIO programs—eight programs that serve low-income individuals, first-generation college students, and individuals with disabilities to progress from middle school to postbaccalaureate programs. The GEAR UP program, which is designed to increase the number of low-income students who are prepared to enter and succeed in postsecondary education, was cut by $25 million. The budget also eliminated the Leveraging Education Assistance Program (LEAP), a $63 million program that provided funding to states that must be matched to establish a state grant program assisting students who demonstrate substantial financial need.
Despite these cuts, student aid advocates were counting their blessings because the final 2011 budget passed by Congress was more favorable than a version passed by the House that would have cut Pell Grant awards by as much as $845 and eliminated all funding for the FSEOG program.
Budget Control Act
When Congress passed legislation to increase the debt ceiling, the bill also included several provisions that provided additional funding for the Pell Grant program and made student loans more expensive for some borrowers.
While funding for many programs was cut in the Budget Control Act, Congress provided an additional $10 billion for the Pell Grant program for FY2012 and $7 billion for FY2013.
To generate budget savings, the Budget Control Act eliminated the in-school interest subsidy for graduate and professional students beginning July 1, 2012. It’s estimated to save $18.1 billion from FY2012-21, according to the Congressional Budget Office (CBO). The bill also eliminated some student loan repayment incentives for borrowers with loans disbursed on or after July 1, 2012. Together, the elimination of the graduate and professional in-school interest subsidy and direct loan repayment incentives yielded a savings of $21.6 billion with $17 billion redirected to the Pell Grant program and $4.6 billion going to deficit reduction.
Even though the elimination of the Year-Round Pell Grant in the FY2011 budget reduced the shortfall to $11 billion and the additional funding provided in the Budget Control Act helped close the 2011-12 academic year Pell shortfall further, Pell still faced a $1.3 billion dollar shortfall for FY2012.
Like with the 2011 budget, Congress failed to pass the 2012 budget before the beginning of FY2012 on Oct. 1, 2011. After a series of continuing resolutions, Congress passed a 2012 budget in December that maintains a $5,550 maximum Pell Grant for the 2012-13 award year by reducing spending on other student aid programs and restricting eligibility for Pell and other federal student aid.
To create sufficient savings to cover the outstanding $1.3 billion shortfall, the 2012 budget reduced the number of semesters a student can receive a Pell Grant to 12 full-time semesters, down from 18. The reduction will affect all students beginning with the 2012-13 award year, not just those who received a Pell for the first time on or after July 1, 2008. The budget also made some students who qualified for the minimum Pell award ineligible.
The Ability-to-Benefit testing option, an option for non-high school graduates to become eligible for Title IV, was eliminated in the 2012 budget, meaning students who weren’t home-schooled and/or don’t have a high school diploma or GED are no longer eligible for federal student aid after July 1, 2012. In addition, the minimum income to qualify for an automatic-zero Expected Family Contribution was lowered to $23,000, down from $31,000 used for the 2011-12 award year.
The 2012 budget also temporarily eliminates the no-interest six-month grace period on Stafford student loans made between July 1, 2012 and July 1, 2014. The repayment period still begins six months after the student is no longer enrolled at least half-time, but interest that accrues during those six months will be payable by the student rather than be subsidized by the federal government.
Together, elimination of the temporary Stafford loan interest subsidy during the grace period and eligibility changes are expected to save $11 billion over 10 years—enough to immediately plug the 2012-13 award-year Pell shortfall.
While Congressional support for maintaining the maximum Pell Grant remains strong, budget pressures will continue to threaten Pell funding. The most immediate threat stems from the Budget Control Act, which directed Congress to develop legislation to create $1.5 trillion in savings by December 2011. Congress failed to meet this mandate triggering $1.2 trillion in automatic, across-the-board spending cuts for FY2013.
These automatic cuts would impact most federal spending programs (including student aid programs), but Pell Grants are exempt. However, Congress still has time to act to prevent the automatic cuts before they go into effect in January 2013. If Congress is able to pass legislation that reduces the deficit by at least $1.2 trillion, it could preempt the automatic cuts. This gives Congress another opportunity to tweak the Pell Grant program and other student aid programs to create budget savings.
Haley Chitty is director of communications at the National Association of Student Financial Aid Administrators, www.nasfaa.org.