Congress Proposes Cutting Student Financial Aid in FY2012 Federal Education Budget

Mark Kantrowitz

October 03, 2011

Congress Proposes Cutting Student Financial Aid in FY2012 Federal Education Budget

The U.S. House of Representatives and U.S. Senate are considering proposals to cut student financial aid in the FY2012 federal education budget.

Rep. Denny Rehberg (R-MT), chairman of the House Appropriations subcommittee with oversight over education spending, released draft legislation (H.R. 3070) on Friday, September 30, 2011, which includes several changes to student financial aid for college. The legislation was referred to the House Committee on Appropriations.

The Senate version of this legislation, the Department of Education Appropriations Act, 2012 (S. 1599) was introduced on Thursday, September 22, 2011 and was reported by Senator Tom Harkin (D-IA) for the Senate Committee on Appropriations on the same day (S.R. 112-084). Senator Harkin also chairs the Senate Health, Education, Labor and Pensions (HELP) committee.

These bills represent the start of negotiations between the House and Senate on student aid funding in the FY2012 federal budget. The final legislation will likely include elements of both proposals.

Changes to the Federal Pell Grant

Both the House and Senate proposals maintain a $5,550 maximum Pell Grant for a third year.

The House version of the legislation cuts eligibility for the Pell Grant from 18 semesters to 12 and requires at least half-time enrollment.

The House legislation also eliminates eligibility for students who qualify for less than 10% of the maximum grant. Currently, students who qualify for 5% to 10% of the maximum grant get a Pell Grant that is rounded up to 10% of the maximum Pell Grant. Students who qualify for less than 5% of the maximum Pell Grant get nothing. The new legislation will require students to qualify for at least 10% of the maximum Pell Grant to get a grant. The legislation will effectively change the EFC eligibility cutoff for the Pell Grant from 95% of the maximum grant (5273) to 90% of the maximum grant (4995). The minimum Pell Grant will remain unchanged at $555, but fewer students will qualify for a minimum Pell Grant.

The House legislation also includes changes to need analysis which will affect the number of students receiving the maximum Pell Grant.

The House legislation also requires the U.S. Department of Education to reduce the maximum grant if the Pell Grant appropriations for the 2012-13 academic year are insufficient to fully fund all grants. The reduction will be by either a fixed or variable percentage or a fixed dollar amount.

The Senate version of the legislation preserves the Pell Grant for an estimated 9.4 million recipients by eliminating subsidized interest on the subsidized Stafford loan during the 6-month grace period after the borrower graduates or drops below half-time enrollment. Borrowers will still have a 6-month grace period before repayment begins, but the interest will accrue during this period and will be added to the loan balance if unpaid by the borrower.

The Senate legislation also closes the funding shortfall for the 2012-13 award year by shifting mandatory Pell Grant funding from FY2014, FY2015 and FY2016 to FY2012 and FY2013. Either way the Pell Grant program would have a funding shortfall in FY2014 and subsequent years.

The Senate version of the legislation does not change eligibility requirements for the Pell Grant.

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