How do you make $896 million disappear? If you’re the House Budget Committee, all you have to do is change a few rules.
In this case, the House Budget Committee is changing the rules to exclude $896 million worth of budget offsets that the Senate wants to use to fully fund the Pell Grant program—the nation’s premier student aid program for low‑income students.
Over the past year there’s been a stark divide in Congress over support for the Pell Grant program. This divide stems from a fundamental disagreement over the value of aid to low‑income students. House leadership repeatedly tried to cut funding for Pell Grants while Senate leadership sought to preserve Pell Grants by cutting spending on lesser priorities.
In this column we’ll look at the overall budget situation for Pell Grants and the different funding approaches taken by the House and Senate. And then we’ll explain the House Budget Committee’s misguided gambit to cut $896 million in funding for Pell.
Overall Pell Grant budget situation
According to the Congressional Budget Office, the Pell Grant program is projected to cost $31.7 billion in award year 2012-2013, which lasts from July 1, 2012 until June 30, 2013. Due to Pell scoring rules adopted in section 406 of the 2006 budget resolution, Congress must enact sufficient funding to cover these costs as well as any shortfall from previous years. This rule exists to ensure Congress does not just roll shortfalls forward into future years. The shortfall from last year is $5.7 billion—a result of more students than expected qualifying for aid. All in all, Congress must come up with $37.4 billion for award year 2012-2013 to maintain the maximum award of $5,550 and ensure access to Pell Grants for more than 9 million low-income students.
Congress included $10 billion in the debt ceiling deal for the Pell Grant program in award year 2012-2013. In addition, last year’s continuing resolution saved $3.2 billion by eliminating the “Full-Year Pell,” a program that enabled year‑round students to qualify for additional Pell funding. Which means that if Congress provides the same level of discretionary funding in fiscal year 2012 that it provided in fiscal year 2011—$23 billion—Pell Grants will be underfunded by $1.3 billion.
Table 1 provides a breakdown of the projected $1.3 billion shortfall in the Pell Grant program.
House attempts to cut Pell Grants
The House Appropriations Committee, however, did not even try to meet the full cost of the Pell Grant program. The House Labor-HHS-Education appropriations bill for fiscal year 2012 proposes a collection of cuts—$3.6 billion in all—that would eliminate Pell Grants for as many as 1 million students while reducing the size of awards for millions of others.
The House bill:
- Cuts awards for students whose families earn between $15,000 and $30,000 per year
- Cuts awards for students who work part time
- Cuts awards for students whose families benefit from safety net programs
- Eliminates awards for students who take longer than six years to finish their degree
- Eliminates awards for students who attend college less than half time
House Republicans favor cuts to the Pell Grant program as a matter of policy—not a concession to difficult budget circumstances. This year’s House Budget Resolution, supported by 98 percent of House Republicans, recommended reversing all changes to the Pell Grant program since 2007.
Comments from House leaders reveal their true intentions. Rep. Denny Rehberg (R-MT), chairman of the House Appropriations Labor-HHS-Education Subcommittee, refers to Pell Grants as “the welfare of the 21st century.” And several House Republicans, including House Budget Committee Chairman Rep. Paul Ryan (R-WI), condemn the Pell Grant as an unnecessary benefit—suggesting that it should be reduced and replaced with student loans.
Senate efforts to preserve Pell Grants
The Senate, on the other hand, opted to cover the $1.3 billion shortfall by eliminating a student loan subsidy that paid the interest on some loans during a six-month grace period before students must begin repayment. This solution isn’t ideal since it would result in modest increases to student loan debt—but it is better than cutting Pell Grants.
The Senate’s proposal would save $2.3 billion over the next two years, which is more than sufficient to cover the $1.3 billion shortfall in award year 2012-2013. The extra budget savings—approximately $1 billion—would be applied to Pell Grants in award year 2013-2014. By applying these savings to Pell Grants, the Senate maintains the maximum award of $5,550 and avoids cuts to eligibility for low-income students.
House Budget Committee changes the rules
Which brings us back to the House Budget Committee. The committee’s most recent plan to cut Pell Grant funding relies on the invention of new scoring rules.
According to existing Pell scoring rules, Congress is required to enact sufficient funding to cover the full cost of Pell Grants for the upcoming award year—in this case, award year 2012-2013—along with any funding shortfall incurred in prior years.
The Senate’s proposal fully complies with the Pell scoring rule. The elimination of subsidies on student loan interest would save $400 million in fiscal year 2012. In addition, the bill directs another $1.9 billion in savings to fiscal year 2013. The Senate allocates $896 million of savings in fiscal year 2013 toward Pell Grant costs in award year 2012-2013, which is a perfectly legitimate option since most of award year 2012-2013 falls within fiscal year 2013. The remaining $1 billion in fiscal year 2013 savings is applied to Pell Grant costs in award year 2013-2014.
Table 4 displays the specific allocation of budget savings derived from eliminating the six-month grace period on subsidized student loan interest.
The Senate Budget Committee agreed that the Senate’s proposal fully satisfies the Pell scoring rule for award year 2012-2013.
But the House Budget Committee is blatantly ignoring the Pell scoring rule and threatening to substitute its own partisan analysis. The committee claims that all budget authority for Pell Grants in award year 2012‑2013 must originate in fiscal year 2012. The committee’s flawed interpretation of Pell scoring rules would exclude $896 million in savings from fiscal year 2013—even though savings from fiscal year 2013 would accrue at the same time Pell Grant funding is expended in award year 2012-2013. (see Table 5)
Put simply, the House Budget Committee is inventing new rules as it goes along. The committee is trying to change the Pell scoring rule to exclude $896 million in legitimate offsets—thereby forcing Congress to cut an equal amount of funding from the Pell Grant program. In a nutshell, House Republicans are so focused on cutting Pell Grants that they’re willing to change the rules to get it done.
There are two problems with the House Budget Committee’s newly invented rule.
First, the actual Pell scoring rule does not mention fiscal years. The rule states that Congress must enact sufficient budget authority for the upcoming award year. And the Senate’s proposal clearly enacts sufficient budget authority for award year 2012-2013.
Second, the committee does not have a good reason to prohibit fiscal year 2013 funds from supporting Pell Grants in award year 2012-2013. There is a nine-month overlap between the two periods. It is perfectly reasonable to apply savings from one time period to offset costs that accrue during the same time period.
A quick look at the calendar demonstrates why the House Budget Committee’s new rule doesn’t make sense:
To suggest that budget savings that accrue between October 2012 and June 2013 cannot be used to offset Pell Grant costs that accrue during the same time period is nonsensical.
The House Budget Committee’s power grab makes it clear that House Republicans would rather cut Pell Grants than accept savings in other areas of the budget. Their attempt to overrule CBO is merely the latest installment in their long history of trying to cut Pell.
- House Republicans passed a budget resolution earlier this year that would reverse all gains in the Pell Grant since 2007.
- House Appropriations Labor-HHS-Education Subcommittee Chairman Denny Rehberg called Pell Grants “the welfare of the 21st century.”
- House Budget Committee Chairman Paul Ryan suggested replacing Pell Grants with additional student loans.
- The House Appropriations Committee has released a proposal to cut $3.6 billion from the Pell Grant program in award year 2012-2013.
All of these ideas are bad.
As we’ve said before, we believe the best way to reduce the cost of the Pell Grant program is to rebuild our economy—and make sure that it works for everyone. Boosting family incomes will reduce the need for Pell Grants, and lowering the unemployment rate will reduce the number of workers exiting the labor market to return to college.
In the meantime, the House Budget Committee should stop searching for excuses to cut Pell Grants.
Stephen Steigleder and Julie Margetta Morgan are Policy Analysts at American Progress.