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Pell Grant Deficit: “The Mother of All Shortfalls

Pell Grant faces a shortfall as more people head back to school in uncertain economic times.

It’s “the mother of all shortfalls,” according to one Washington insider. Others worry that it may get lost amid the nation’s larger financial crises involving banks and mortgage lenders.

But one thing is increasingly clear: Fueled by a declining economy that has many lowincome Americans returning to school, the Pell Grant program is facing a growing shortfall that soon may reach $6 billion.

“It’s such a large figure that Congress and the administration cannot ignore it,” says Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.

In calling it “the mother of all shortfalls,” Nassirian tells Diverse that it will dwarf past shortfalls, including the one that followed the Sept. 11 terrorist attacks.

The last shortfall was exacerbated by Sept. 11 and the economic slowdown that followed. The shortfall was about $1.3 billion in late 2001 and, with Congress taking no action, it grew to $2 billion in the 2002 and $3.7 billion in 2004. Congress finally paid it off in 2006, when it was $4.3 billion.

“It’s just huge,” he tells Diverse. “Ignoring it would bring draconian cuts.”

More than 6 million students are slated to get a Pell Grant this school year, with amounts ranging from $400 to $4,700. Congress and President Bush agreed to spend $14 billion on the program this fiscal year, but that amount is not sufficient to meet the huge demand.

Pell’s structure is such that shortfalls are not uncommon, given the ups and downs of the U.S. economy. As Nassirian notes, the program is in many ways an “entitlement,” meaning that anyone who qualifies based on income is entitled to funding. Yet the number of recipients may fluctuate from year to year, particularly when a spike in jobless rates and uncertain employment prospects are sending many young adults back to school.

Economists and educators devote considerable energy to forecasting Pell Grant usage, but even the most sophisticated models cannot anticipate sudden economic changes or changes in student attitudes. “People try [their] best to forecast this, but it’s difficult even for the experts,” Nassirian says.

If it fails to cover the shortfall, the federal government could be forced to reduce awards to needy students, Nassirian notes. Yet the possibility of cuts is one major reason why both political parties eventually may come together to address the problem.

“It’s important that the Pell Grant is funded at appropriate levels,” says Angela Peoples, legislative director for the United States Student Association. She was optimistic that Congress would provide sufficient funding, though much will depend on the fiscal 2009 appropriation for the program.

While Congress often approves annual spending legislation before the start of the new year, it is likely that lawmakers will not approve final appropriation bills until after the November election and, even more likely, not until after Jan. 1, 2009, she says. “We have to see what happens with appropriations.”

The Pell shortfall is not the only sign that more Americans are heading back to school or seeking financial aid. The U.S. Department of Education recently released data on the number of students filing the Free Application for Federal Student Aid (FAFSA) form, the form required to obtain Pell Grants and other needbased aid. Through July 2008, nearly 9 million dependent and independent students had filed FAFSAs for the year, the department reported. This rate is up more than 15 percent from the previous year. Based on the statistics, that 15 percent increase translates into another 1.3 million Americans seeking financial aid for college study.

While the nationwide increase is 15 percent, state-by-state data show some larger increases. In Florida and Georgia, the number of current and prospective college students seeking financial aid increased by 25 percent. Arkansas and Alabama each reported a 21 percent increase in aid applications. In addition to more college-going students, tough economic times also tend to bring a shift in student admission trends. For example, students who were considering private colleges and universities may focus entirely on the public sector, Nassirian says. Two-year colleges also may become a more popular option.

Amid talk of the shortfall, one positive financial sign is that college students appear to have obtained the educational loans they needed to start the 2008-09 academic year. Given the nation’s credit crunch, some observers had predicted a tough time this fall. “Students are doing OK with access to loans,” Peoples tells Diverse. Fallout in the loan industry “hasn’t affected students as much as some people thought.

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