NAICU Washington Update

Student Aid Funding Decisions Coming From all Directions

October 07, 2011

This fall has lived up to expectations of its being a season of continuous student aid funding activity in various corners of the federal government.

Preliminary proposals for next year's student aid funding levels have emerged from both the House and Senate, while the "Super Committee" will be looking at both the Pell Grant and student loan programs.  Then, in the middle of all this hustle and bustle, comes a surprise announcement from the administration that the Pell Grant program may now be running a surplus. Despite - or maybe as a result of - all this activity, it's still a long road before the ultimate fate of the student aid programs is decided.

Super Committee

The Joint Select Committee on Deficit Reduction (aka "Super Committee") has everyone in Washington wondering whether the bipartisan group of twelve lawmakers will be able to develop a big plan to reduce the deficit by November 23.  A leaked document from the committee has confirmed assumptions that the committee would review all programs with automatic funding, including both student loans and Pell Grants.  "Review" does not necessarily mean cuts, but student aid advocates are particularly concerned about preserving both the in-school interest subsidy for low-income students in the loan program and the mandatory Pell Grant increase from the Student Aid Fiscal Responsibility Act, as well as maintaining eligibility for current recipients.

Senate Funding

While Super Committee speculation makes the headlines, the funding committees in Congress are moving ahead with proposals for FY 2012 spending levels.  First out of the box was the Senate Appropriations Subcommittee, which approved its bill on September 21.  The good news is that the subcommittee kept the Pell Grant maximum at $5,550 for the 2012-13 academic year without cutting any students out of the program, and level funded all student aid programs.  The Senate bill also level funds strengthening institutions and international education programs.

The bad news is that the Pell funding was built on eliminating the six-month interest-free grace period following graduation for low-income student borrowers.  This continues a disturbing trend set by the decision in July to eliminate the in-school interest-free policy for low-income graduate students.

In the report language, the committee explains its decision process:  "The Committee makes this change reluctantly, but believes it is preferable to reducing the maximum Pell Grant award.  In addition, interest subsidies are poorly targeted because they are based on a student's family's income upon entering school and not on the student's ability to repay loans after leaving school . . . The subsidies also do not necessarily go to the neediest students.  In 2008, 40 percent of subsidized loan recipients were dependent students from families with annual incomes above $60,000, and 31 percent of subsidized loan recipients were independent students with annual incomes over $30,000."

Also in the report language is a request that the Department of Education "report on the impact that the elimination of the LEAP program has had on the total amount of need-based grant aid available to low- and moderate-income students in the 2011-12 academic year.  The report should be submitted to the Committee by August 1, 2012."  Funding for the LEAP program was eliminated in the FY 2011 bill.

A Pell Surplus?

Shortly after the Senate released its plan, the administration's mid-session review had some unexpected good news on the Pell Grant program.  For the first time since the economic downturn, the program showed a projected surplus of $1.6 billion for FY 2012.  Department staff believe that the reason for the surplus could be two-fold:  elimination of the year-round Pell provision, and a slowing of the application growth rate from roughly 12% to 6%.  Many consider Pell a leading economic indicator, and are hoping that the declining application growth rate could be an early sign of a larger economic recovery.

Unfortunately, because of a 2005 budget rule, Congress can't use the updated estimates from the administration's mid-session review in writing the appropriations bills.  This means appropriators are still working under the earlier estimate of a $1.3 billion Pell shortfall for FY 2012.  Still, the news helps advocates argue against unnecessary program cuts.

House Appropriators Set Marker

In an unexpected move on September 30, the House Appropriations Committee released a draft of its FY 2012 Labor-HHS-Education spending bill.  Its release was a surprise because, after twice cancelling scheduled meetings, the subcommittee still hasn't held a mark-up.

The House bill differs from the Senate approach.  It preserves the interest-free grace period for low-income students' loans, and instead reducing eligibility for the Pell Grant program by modifying various eligibility criteria.  The draft bill  eliminates funding for Javits graduate education, but does maintain the $5,550 maximum Pell grant, along with level funding for SEOG, Federal Work Study, TRIO, GEAR UP, and GAANN.  Substantial cuts are proposed for many other education programs, including support for minority-serving institutions and international education.  The House draft also bans any funds from being used to implement the gainful employment, state authorization, and definition of credit hour regulations.

In choosing to trim Pell rather than loans, the House Appropriations Committee makes clear its concern about the recent increased cost and expansion in the Pell Grant program.  Specifically, the draft would:

  • Eliminate less-than-half-time students.
  • Immediately lower the lifetime limit from 18 to 12 semesters (pro-rated for part-time students).
  • Reduce the income protection allowance for all categories except parents of dependents, making them more equitable.
  • Lower the income amount for automatic-zero-EFC to $15,000.
  • Eliminate approximately half of the students who currently receive the minimum Pell Grant.
  • Add sources of untaxed income to those that determine EFC: child tax credit, welfare benefits, EITC, foreign income excluded from federal tax, untaxed social security benefits and special fuels tax credit.
  • Eliminate ability-to-benefit students, but not home-schooled or GED students.
  • Allow the Secretary of Education to ratably reduce the Pell Grant maximum should funding from Congress be insufficient to cover the grants.

According to the Department of Education, these proposed changes would cut $4.3 billion from the Pell Grant program by removing 554,320 students from the program, and lowering the average grant by $240.  NAICU is still analyzing the proposals to assess the implications of these changes for students at independent institutions, and to see how they might benefit the long-term stability of the Pell Grant program.

How the House and Senate reconcile their differences on the future of the Pell Grant program, how the Department's updated Pell estimates influence the debate, and how the Super Committee treats higher education will play out over the next three months.

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