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Financial Aid

Kinder, Gentler Pell Cuts

Proposals for reducing costs while avoiding across-the-board cuts
University Business, June 2011

Republicans and Democrats agree: The projected cost of the Pell Grant program is unsustainable. Now policymakers are looking at the best ways to reduce costs.

In its 2012 budget proposal, the Obama administration proposed eliminating the year-round Pell Grant program and student loan subsidies for graduate and professional students to help offset what the administration estimates will be a $20 billion funding shortfall for the 2012-13 award year. The proposal to eliminate the year-round Pell Grant program was fast-tracked when Congress included this provision in the FY2011 spending bill. As a result, students will not be able to receive a second Pell Grant award in the 2011-12 award year.

The elimination of year-round Pell appears to be just the start.

Unfortunately, the elimination of year-round Pell appears to be just the start. In their FY2012 budget outline, House Republicans have proposed rolling back 2012-13 Pell Grants to FY2008 levels. According to a Congressional Budget Office estimate, this would reduce the current maximum Pell Grant of $5,550 to $3,040 for the 2012-13 award year. While it is unlikely this budget outline will be adopted by Congress, it demonstrates Republicans' desire to dramatically cut Pell program costs.

As the prospect of additional Pell Grant program cuts in the FY2012 budget grows, leading student aid policy experts have taken the initiative to propose strategic ways to reduce funding instead of simply slashing awards across the board. In a recent student aid policy analysis, Mark Kantrowitz, the publisher of and, lays out 14 options to reduce the cost of the Pell program that would be "less harmful" than cutting the maximum award as House Republicans have proposed.

In addition, a group of seven prominent economists who focus on higher education research offered five options to cut costs in the "least destructive manner." These economists include:

  • Sandy Baum of the School of Education and Human Development at The George Washington University (D.C.)
  • Susan Dynarski of the Ford School of Public Policy and School of Education at the University of Michigan
  • Art Hauptman, a higher education consultant and contractor
  • Bridget Terry Long of the Harvard Graduate School of Education
  • Mike McPherson of the Spencer Foundation
  • Judith Scott-Clayton of the Teachers College at Columbia University
  • Sarah Turner of the Curry School of Education at the University of Virginia.

The economists outlined the goals of their options in a letter to the College Board. The letter states that modifications or cuts to the Pell program should be made with a clear eye to facilitating access for students who are prepared to succeed in college and to encouraging students to complete their postsecondary studies in a timely fashion, without sacrificing the targeting of funds to the students who need them the most.

The options outlined by Kantrowitz and the group of economists share several similarities.

Both proposals suggest reducing the time that students can be eligible to receive Pell Grants.

Currently, students can get Pell Grants for 18 semesters--roughly eight years of college. The policy experts suggest reducing this to six years. The letter to the College Board notes that only 3 percent of Pell recipients receive a grant after six years. Reducing eligibility to six years (12 semesters) would save about $800 million and would also encourage students to complete their degree sooner.

Both sets of proposals also recommend a better correlation between enrollment and award levels. Currently, a student must be enrolled for at least 12 credit hours in order to be eligible for a full-time Pell Grant. The group of seven researchers proposes increasing that threshold to 15 credit hours in order to provide an incentive for students to complete their degrees more quickly. Students who enrolled between 12 and 15 credit hours would be eligible for a reduced grant--they offer 80 percent of the maximum, $4,440, as an example. They argue that the approach would create savings and improve the integrity of the program.

Kantrowitz proposes eliminating grants for students who attend schools less than half the time. He notes that students who enroll part-time and work full-time are less likely to graduate than students who enroll full-time and work part-time. This would target the money where it is most likely to lead to completion.

Both sets of recommendations would prohibit certain institutions from participating in the Pell Grant program. Kantrowitz notes that about 250 colleges have opted out of the student loan program in order to preserve eligibility for the Pell Grant.

"It doesn't seem right for colleges that would have had high default rates to remain eligible for the Pell Grant," Kantrowitz writes. However, he recognizes that part of the reason these colleges had high default rates is their low costs. Low institutional charges allow students to maximize the refund they get after deducting institutional charges from the student's financial aid.

Kantrowitz also recommends requiring institutions to maintain a minimum graduation rate in order to qualify to participate in the Pell Grant program. He maintains that this would ensure funding is targeted at colleges where the students have a greater chance of graduating. He also proposes limiting Pell Grants to students in Bachelor's or Associate's degree programs.

The researchers offer a broader recommendation, suggesting that Pell program eligibility be limited to colleges and universities that prove to be committed to the success of their students. The idea would be to minimize "the extent to which institutions and/or students can manipulate the system and divert dollars away from their necessary role of increasing meaningful educational opportunities." As the letter goes on to say, this "is a necessary component of assuring the long-term viability of the program."

In an ideal world, we'd be talking about how to increase the federal investment in need-based student aid, but the weak economy and growing enrollment in higher education threaten the federal investment in higher education and make cuts seem inevitable. The recommendations made by these leading financial aid policy experts show that we still have options and there is no need to indiscriminately make cuts that would harm the nation's neediest students and threaten the nation's ability to compete in the future economy.

It is vital that we do all we can to protect students by finding ways to reduce Pell program costs while continuing to eliminate financial barriers to higher education. Before simply slashing funding, we should explore ways to make the program more efficient and effective.

Haley Chitty is director of communications at the National Association of Student Financial Aid Administrators,