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Congress Proposes Big Cuts in Pell Grants

The Republican leadership of the US House of Representatives released a proposal to cut the maximum Pell Grant to $4,015 late on Friday, February 11, 2011. This proposal is part of a larger package of budget cuts that seek to cut spending by $100 billion for the remainder of the current fiscal year. Congress has not yet passed the fiscal year 2011 budget. The federal government is currently operating under a continuing resolution that expires in early March. (In the meantime President Obama will unveil his proposals for the fiscal year 2012 budget on Monday morning, February 14, 2011.)

The Pell Grant is awarded according to an award year that runs from July 1 to June 30, while the federal government is funded according to a fiscal year that runs from October 1 to September 30. Thus each Pell Grant spans part of two federal fiscal years. The proposed cuts to the fiscal year 2011 budget would affect the Pell Grant program during the 2011-12 academic year.

The maximum Pell Grant is based on the sum of discretionary and mandatory funding. Discretionary funding is subject to the annual budget appropriations process, while mandatory funding is already appropriated by permanent legislation. Thus discretionary funding is subject to an annual review and can be cut much more easily than mandatory funding. Entitlement programs, like Social Security, are based entirely on mandatory funding.

The current maximum Pell Grant of $5,550 is the sum of a $4,860 maximum Pell Grant under discretionary funding provided by the federal budget and $690 from mandatory funding provided by the College Cost Reduction and Access Act of 2007.

The proposal to cut the maximum Pell Grant appears to affect only the discretionary funding. If so, the $4,015 discretionary maximum would be added to the $690 in mandatory funding to yield an overall maximum Pell Grant of $4,705. This is less than the overall maximum Pell Grant of $4,731 during the 2008-09 award year. (Despite the proposal’s lower overall maximum Pell Grant, there are some technical differences that yield roughly the same total cost. For example, the eligibility cutoff for the Pell Grant is currently based on the overall maximum Pell Grant. Previously it was based on just the maximum Pell Grant under discretionary funding. The minimum Pell Grant is also set at 10% of the maximum Pell Grant, higher than the previous $400 minimum grant.) This proposal would cut the maximum Pell Grant by $845 (15.2%) from the current maximum Pell Grant of $5,550.

While the goal is to roll back government spending to 2008 levels, the legislative proposal hurts Pell Grant funding more severely than other budget items. The recent increases in the maximum Pell Grant compensated for four years of no or negligible increases during the Bush administration. The maximum Pell Grant was essentially flat from 2002-03 to 2006-07. The proposed cut in the maximum Pell Grant will be the largest cut in student aid funding in the history of the Pell Grant program.

This proposal will cause more than a million students to lose eligibility for the Pell Grant. Every $100 change in the maximum Pell Grant currently corresponds to about 200,000 recipients. The proposed cut in the maximum Pell Grant would mean that 1.7 million low income students would no longer qualify for the Pell Grant, almost a fifth of current recipients. The remaining recipients would have their Pell Grants cut severely.

As the Advisory Committee on Student Financial Assistance (ACSFA) demonstrated in its June 2010 report, The Rising Price of Inequality, inadequate need-based grant funding causes declines in Bachelor’s degree attainment. The cut in Pell Grant funding will reduce the number of low income students receiving Bachelor’s degrees each year by about 61,000. Coupled with the likelihood of double-digit tuition inflation at many public colleges, college will become considerably less affordable. (Public college tuition tends to increase at double-digit rates at the end of a recession and for a few years afterward due to shortfalls in state income tax revenue. The stimulus bill delayed this by two years. The end of the stimulus bill funding and the reductions in state support of higher education will cause many public colleges to increase tuition at above-average rates this year.) The combination of an increase in college costs and a decrease in need-based grants will increase student out-of-pocket costs considerably, causing hundreds of thousands of low income students to drop out of college.

The only previous decreases in the maximum Pell Grant were as follows:

• 2008-09. An across-the-board budget cut reduced the maximum Pell Grant by $69 from $4,800 to $4,731. The $4,731 maximum Pell Grant still represented an increase when compared with the maximum Pell Grant of $4,310 in 2007-08.
• 1993-94. The maximum Pell Grant decreased by $100 from $2,400 in 1992-93 to $2,300 in 1993-94.
• 1981-82. The maximum Pell Grant decreased by $80 from $1,750 in 1980-81 to $1,670 in 1981-82.
• 1980-81. The maximum Pell Grant decreased by $50 from $1,800 in 1979-80 to $1,750 in 1980-81.

When Congress passed the Health Care and Education Reconciliation Act in early 2010, they promised to use the savings from the switch to 100% Direct Lending to increase the maximum Pell Grant and to provide more stable funding for the Pell Grant program. A White House fact sheet about the Pell Grant improvements said that the grants would increase in future years to “help keep pace with both inflation and the rising costs of college” and that the legislation would put “the program on more secure footing for years to come.” However, the promised increases in the maximum Pell Grant were anemic at best, with no change in the maximum Pell Grant for five of the next ten years and small inflationary adjustments for the other five years. Congress could have done better, but $20 billion of the savings from eliminating the federally-guaranteed student loan program was used for deficit reduction instead of increasing student aid funding. Now it appears that Congress will once again divert money from student aid to deficit reduction, failing to fulfill last year’s promise to American college students and their families.

This proposal is unwise. If there were a need to cut student aid funding, it would be better to eliminate the subsidized interest on the subsidized Stafford loan than to cut the Pell Grant. Cutting the subsidized interest would have a much less severe impact on access, persistence and completion than cutting the Pell Grant. The Pell Grant program is much more carefully targeted at financial need than the subsidized Stafford loan program, with 97% of Pell Grant recipients earning less than $50,000 a year compared with 69% of subsidized Stafford loan recipients.

This proposal is also short-sighted. Instead of cutting Pell Grant funding, Congress should be doubling it. We are no longer in an arms race, but a brains race. Every year we are falling further and further behind as other countries overtake us in the percentage of the population with college degrees, especially in science, technology, engineering and mathematics. An investment in higher education pays better returns than any other investment. For example, the increased federal income tax revenue from increasing the number of college graduates would pay for the cost of doubling the maximum Pell Grant in about a decade. Federal student aid is not just an investment in the future of the individual student, but an investment in the future of the nation.

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