Pell Grants Preserved, Graduate Student Loans Cut

Published August 25, 2011

Federal debt-ceiling negotiations that originally targeted Pell Grants for reduction ultimately preserved the program while cutting federal loans for graduate students as part of the $1.5 trillion, ten-year deal. 

The Department of Education (DOE) requested a 13.3 percent budget increase for 2012, largely to boost Pell Grants. This would have raised department spending 20.7 percent above 2010. The deal reduces federal spending $7 billion from current levels for the fiscal year beginning Oct. 1. 

A bipartisan congressional committee must slice $1.5 trillion from the federal budget over the next 10 years, or automatic cuts will hit all agencies. That would mean a 6.7 percent trim for most, which equals $3 billion from the DOE annually. 

Treated As Entitlement
Conservatives have consistently targeted Pell Grants for elimination because of their contribution to rising college costs and their mismanagement by the DOE, and ignoring them in the debt deal means once more delaying this reckoning, said Jeff Selingo, editor of the Chronicle of Higher Education.

“[Pell Grants are] essentially an entitlement,” Selingo said. “When money is short, the Education Department borrows against next year’s appropriation to maintain the maximum award. And Congress often allows those debts to accumulate for a few years before paying them down with an emergency appropriation, and that’s essentially what is needed now.”

Despite this opposition, Congressional Democrats and the Obama administration managed to move Pell Grants off the table during the debt-ceiling negotiations. The loan cuts made instead will total $21.6 billion over the next ten years, according to the Congressional Budget Office, $17 billion of which will fund Pell Grants. Federal graduate student loans will now accrue interest while a student is in school, and discontinue a 0.5 percent credit for students who make payments on time. 

Expanding Eligibility, Awards
In 2009-2010, 8.1 million students received a Pell Grant, averaging $3,706. In 1999-2000, 3.8 million students received an average Pell grant of $1,915.

The program was previously limited to students with good academic records from poor families, but eligibility has grown to fit lower-middle class students with little concern about their academic ability, says Richard Vedder, an Ohio State University economist and director of the Center for College Affordability and Productivity.

“As maximum Pell amounts grow and eligibility is extended to less-poor persons, the award is taking on the nature of an entitlement—which is precisely what President Obama wants,” Vedder said.

A 2007 study by University of Oregon economists showed colleges and universities tend to absorb federal student aid by increasing tuition. As federal aid increased, college costs increased, the study found.

The DOE refuses to release information about Pell Grant awardees to allow the public and lawmakers to assess the program. 

“Where are the numbers? Where are the statistics of how many Pell Grant awardees drop out of college?” Vedder asked. “Nowhere. Why? Because the numbers would be devastating for Pell Grant proponents.”