Pell Grants Survive Federal Budget Process

Funding remains for these popular federal educational grants, though more changes are likely afoot.

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Details continue to trickle out about the federal budget compromise negotiated last week. One piece of good news is that the bill provides $23 billion in funding for Pell Grants and maintains the maximum grant at $5,550.

But the bill does eliminate the so-called "two Pells" program, which allows students to get additional Pell Grants for summer enrollment. With Democrats and Republicans already preparing competing budget proposals for 2012, now seems like a good time to review the Pell Grants program.

[Read more about Pell Grants.]

For literally millions of people, Federal Pell Grants—need-based grants provided to low-income students—are a lifeline when it comes to affording a college education. Pell Grants are the single largest source of grant aid for postsecondary education. And because they do not have to be repaid, they lower the debt burden for students after they graduate.

A recent study released by the University of Alabama's Education Policy highlights the financial importance of Pell Grants. Based on surveys given to the directors of 205 community colleges in 25 states, the report found that 70 percent of all community college students received Pell Grants in 2009-10 and that enrollment in community colleges increased by at least 9 percent as the total number of Pell Grants increased by more than half.

Unfortunately, as the blog Higher Ed Watch recently reported, the program is on an unsustainable path: Its cost more than doubled in the last few years from $16.1 billion in 2008-09 to an expected $34.4 billion in award year 2011-12.

Here's how the Department of Education breaks down the approximate cost increases:

• 40 percent of the growth in costs of the Pell Grant program from 2008 to 2012 will be attributable to a growth in enrollment from 6.1 million in 2008 to an estimated 9.6 million in 2012.

• 14 percent of the increase is attributable to changes in the eligibility formula, including increasing the income threshold at which students receive an automatic zero Expected Family Contribution from $20,000 to $30,000; increasing the amount of income that is withheld from the calculation; and removing certain sources of income (such as the Earned Income credit, the Additional Child tax credit, Temporary Assistance for Needy Families, and Social Security benefits) from consideration.

• 22 percent of the increase stems from the "two Pells" program.

• 25 percent of the growth in costs is attributable to an increase in the maximum grant that students can receive from $4,731 in 2008 to $5,350 in 2009 and $5,550 in 2010.

This breakdown makes it clear that the majority of the increase in costs is attributable to changes Congress made to the Pell Grant program.

The Department of Education recommended eliminating the "two Pells" provision (it is estimated to add almost $8 billion to Pell Grant costs in fiscal years 2011 and 2012) and streamlining the Free Application for Federal Student Aid (FAFSA) application. As we saw earlier, the 2011 budget does in fact eliminate the "two Pells" provision.

[Find out what was cut from the Department of Education budget.]

Other proposals include reducing eligibility to the most financially needy students, reducing the number of years students can receive the grants from the current total of 18 semesters, and linking grants to outcomes such as grades or completion rates. Higher Ed Watch proposes reforming the practice of colleges using their institutional aid dollars to attract students with high grades, standardized-test scores, and accomplishments.

Prioritizing these highly accomplished students (who often don't qualify for need-based aid) means that low-income students often have to maximize the amount they are eligible to receive in Pell Grants and still take on substantial student loans, often including private loans, to cover the cost of enrollment.

Given the current climate on Capitol Hill, it is certain that further changes to Pell Grants will be on the table in the coming year. We'll be following the debate closely and weighing in to protect the ability of millions of low-income students to afford a college education. We'll use this blog to keep you updated as well, so stay tuned.

As always, if you have a question, send an E-mail to studentloanranger@usnews.com.

Isaac Bowers is the senior program manager for Educational Debt Relief and Outreach at Equal Justice Works. He was previously an attorney at Shute, Mihaly & Weinberger LLP in San Francisco, where he focused on environmental, land use, and planning issues. A graduate of the New York University School of Law, Bowers also has extensive experience in nonprofit advocacy and outreach.