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A Temporary, Albeit Tenuous, Reprieve for Pell Grants

Published:  July 28, 2011
Issues:  

[Editor's Note: This post ran first on Higher Ed Watch's sister blog, Ed Money Watch]

As Higher Ed Watch and our sister blog Ed Money Watch reported on Tuesday, the two competing federal debt reduction plans offered by House Speaker John Boehner (R-OH) and Senate Majority Leader Harry Reid (D-NV) include supplemental funding that should shore up the Pell Grant program for the next two years. These proposals, if enacted, would make it significantly easier for Congress to maintain the maximum Pell Grant at $5,550 in fiscal year 2012 and the projected $5,620 in fiscal year 2013.

These plans, however, provide the program with only a temporary and tenuous reprieve. First off, Congress will still need to provide a regular appropriation later this year to fully fund a maximum grant of $5,550 for fiscal year 2012 (and it will have to do it again next year, too). Under both proposals, this appropriation will still have to be higher than the fiscal year 2011 level [see chart below]. That’s going to be difficult as both plans would set strict caps on annual appropriations in aggregate. The 2012 cap set under both plans would require either a $5 or $7 billion cut in total appropriations compared to the 2011 figure. To be sure, the cap applies to all federal programs funded through appropriations, but it will make an increase in the Pell Grant appropriation that much harder.

As a result, Congress may still have to consider changes to the program’s eligibility rules in the pending appropriations bill as a way to reduce the cost of the program. And even if they manage to avoid doing so now, they will certainly have to before the supplemental funding runs out in 2014. In other words, the Pell Grant funding provided in the debt ceiling proposals would give policymakers some more time to engage in thoughtful debate over how to reshape the program, rather than forcing them to ram through changes in the heat of this extremely high-stakes budget battle. But it’s not entirely clear how much time they would have before those decisions would have to be made.

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As Higher Ed Watch has previously reported, the Pell Grant program is facing a serious budget crisis even as demand for the grants continues to escalate. This is primarily because short term funding sources that helped boost the maximum Pell Grant in recent years (such as the American Recovery and Reinvestment Act of 2009 and last year’s student loan reform bill) will be gone at the end of fiscal year 2011. According to the Congressional Budget Office, Congress needs to come up with $34.2 billion in fiscal year 2012 just to keep the maximum Pell award where it is. That’s an enormous challenge, as the recently-enacted fiscal year 2011 bill provided $23 billion.

Up until now, the White House and House Republican leaders have taken starkly different positions on how to deal with the Pell Grant’s budget problems. In February, President Obama made clear in his fiscal year 2012 budget request that his aim was, first and foremost, to keep the maximum Pell Grant at its current level. He proposed achieving this goal with a combination of spending increases, eligibility changes, and reductions to other student aid programs, including eliminating the in-school interest subsidy on subsidized Stafford loans for graduate and professional students.

In contrast, the House Budget Committee’s Republican leaders called for cutting the maximum Pell Grant and making targeted changes within the program to reduce its costs. Under the plan, which they laid out in a report accompanying the House-passed fiscal year 2012 budget resolution in April, the lawmakers would have dealt with the program’s growing price tag by reducing the size and cost of the program overall, making it less expensive and less generous. Meanwhile, the Budget Committee’s leaders also called for eliminating the in-school interest subsidy for graduate students. They would have, however, used the savings exclusively for deficit reduction, rather than for boosting spending on Pell Grants.

Since then, negotiations over the Pell Grant program have taken place entirely behind closed doors, as part of the larger battle over raising the federal debt ceiling and reducing the budget deficit. As a result, Pell Grant supporters have been mostly in the dark about what the final deal would mean for the program.

That’s why some were relieved to find out this week that President Obama had prevailed in the short term. The proposals offered by the House Speaker and Senate Majority Leader both provide the program with nearly enough emergency funding over the next two years ($17 billion under the Boehner plan and $18 billion under the Reid plan) to fund the current maximum Pell Grant during this period of time. In addition, both plans would predominantly pay for the increase by ending the in-school interest subsidy for graduate students, as the President proposed.

But again, these plans offer just a temporary reprieve for Pell Grants until the supplemental funding runs out in 2014. House Education and the Workforce Committee Chairman John Kline (R-MN) emphasized this point on Tuesday, when he praised the Boehner plan for giving Congress some additional time “to reassess ways to strengthen the program and make it fiscally sustainable for future years.”

Assuming that a final debt reduction bill is passed along these lines, policymakers will hopefully seize whatever opportunity they have over the coming months to have a thoughtful debate that examines the benefits and pitfalls of potential policy options. As we’ve said before, lawmakers shouldn’t decide the Pell Grant program’s future in haste, behind closed doors, and in the heat of high stakes budget battles.

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