Pell Grants Safe, For Now

As the debate over the federal budget winds down – at least for the time being – we in higher ed are left to consider the ramifications for federal financial aid for college students. A default on our national debt obligations could have led to higher borrowing costs for colleges and universities, so the agreement is good news on that front. And the Pell Grant Program will receive $17 billion over two years, allowing the maximum award to remain at $5,550 for 2012. (See AGB's Alert on this topic.)

But it’s not all sunshine, and it might not last.

The deal Congress has struck calls for cutting $1 trillion (or more) from the federal budget, and that has to come from somewhere. In agreeing to maintain full Pell Grant funding, Congress will put an end to the subsidies for interest on loans to graduate students while they are still in school, ending as well interest-rate reductions for on-time loan repayments and electronic billing. The Congressional Budget Office estimates that these two cuts alone will save the government—and taxpayers—about $21.6 billion over 10 years.

Whether the Pell Grant reprieve lasts remains to be seen – the maximum award could still be cut, as could funding to other student-aid programs. Additional cuts of up to $1.5 trillion to the overall federal budget may still be forthcoming.

This debate comes at a time when the U.S. is seeking to increase the number of students enrolling in some type of higher education to 22 million by 2018. Threats to financial aid mean that low- and middle-class students might not be able to achieve their dreams of attending college, risking not only their future but the nation’s future competitiveness and innovation. For those who can attend, less financial aid could mean working longer hours at part-time or full-time jobs, lower graduation rates, and higher debt levels for those who take on loans to make up for less federal and institutional aid. Institutional budgets could suffer, too.

The debate will continue, and with it, the uncertainty for students and the colleges and universities they attend, or hope to attend. For now, we watch and wait to see how our elected officials decide to proceed.