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Pell Grants Avoid Cuts—For Now

Program that Helps Low-Income Students Attend College Saw Increased Spending in Debt Limit Deal

SOURCE: AP/Carlos Osorio

People walk on the campus at Wayne State University in Detroit on July 20, 2011. The Pell Grant program received $17 billion from the debt limit deal.

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The theme of the debt limit deal brokered over the weekend was obviously spending cuts—around $2.1 trillion to $2.4 trillion, to be specific—but there is one bit of increased spending in the bill that stands out. The debt limit deal provides $17 billion for the Pell Grant, which offers grants of up to $5,550 to low- and lower-middle-income students to attend college. The funds will temporarily alleviate the pressure to cut off millions of low-income college students from the program in the next two years.

Raising the debt limit will allow Americans to breathe an immediate sigh of relief that the nation will not default on its debts. But the spending limits imposed in the deal will have long-term consequences. The supplemental funding for Pell Grants similarly takes the pressure off in the short term, but the threat of cuts to the program down the road remains. For the millions of students who depend on Pell Grants to go to college, this infusion of funds is a reprieve, not a pardon.

The deal provides $17 billion in supplemental funding for the Pell program for the next two years. That’s not enough to cover the cost of the program, but it means that Congress will only have to appropriate slightly more than it did in 2011 (somewhere around $23 billion to $24 billion) to cover the full cost.

This is a minor win for now. Congress will be able to fund Pell Grants at their current level for the next two years without cuts to eligibility and without reducing the maximum grant of $5,550. And it limits the budgetary pain that would be inflicted on other important education and training programs that could have been cut to save the Pell Grant.

The $17 billion to supplement Pell is offset by eliminating interest rate subsidies that some graduate students receive for federal student loans while in school. The Congressional Budget Office projects that eliminating these subsidies will save $18.1 billion over the course of the debt limit deal. Congress probably would have eliminated those subsidies anyway since the bipartisan federal debt commission, the College Board, and the president himself all promoted the idea. The fact that the money is used to shore up the Pell Grant rather than for unrelated spending or deficit reduction is certainly worthy of praise.

The only dubious change to higher education spending in the debt limit bill is the elimination of an incentive program for on-time loan repayment that offered students in the federal direct-lending program a partial rebate on the origination fee in exchange for on-time loan payments.

The savings aren’t necessary to offset the increased spending on Pell, and they will likely go toward deficit reduction. If Congress is going to eliminate a benefit for college students struggling to pay back their loans it should put that money back into another education program that benefits low-income families. At the very least, Congress should provide some justification for the cut based on the program’s merits rather than sneaking it in with the Pell funding.

Unfortunately the debt limit plan provides only short-term relief for the Pell Grant program. The additional funding won’t shield the Pell program from cuts in the long term, and it does nothing to reduce the cost of the program itself. Financial stresses caused by the economic downturn are driving increased enrollment in the Pell program. And increased enrollment is one of the most significant drivers of spending on Pell Grants.

To best way to reduce the cost of the Pell Grant program is to rebuild our economy. If the debt limit deal strips funding from programs that promote economic growth and stability for American families, then the temporary reprieve for Pell Grants today won’t be worth much in the long run.

Julie Margetta Morgan is a Policy Analyst at American Progress.

See also:

  • The Deal by Michael Ettlinger and Michael Linden

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