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Paying for Pell Grant Program Requires Stark Choices

For higher education advocates, President Obama’s 2012 budget offers a delicate balancing act. While trying to protect the popular but underfunded Pell Grant program, the administration would make other student aid changes that may leave some low-income students paying more next year.

Pell has undergone tremendous growth in the past two years as a result of an increase in the maximum grant and heavier participation in the program during the recession. The U.S. Department of Education reports that the number of grants has increased from 6 million in 2008 to 9.6 million in 2010 as more young adults forgo the job market for college.

To maintain the current maximum grant of $5,550 and meet demand, the Obama administration would eliminate in-school Stafford Loan interest subsidies for graduate students and the policy of offering a second Pell Grant for undergraduates who enroll in college year-round.

Despite proposing tough choices, the administration is “keeping the Pell Grant program viable for the millions of students who rely on it to pay for college,” says Rich Williams, a higher education advocate for US PIRG. “Something has to be done to keep the program sustainable for the long term.” The cuts have caused concern, however.

The proposed changes “will undeniably have a negative impact on students,” notes Justin Draeger, president of the National Association of Student Financial Aid Administrators. But he adds that, facing a potential $20 billion Pell shortfall in an uncertain political and economic climate, maintaining Pell “is our highest priority.” The year-round Pell is a new program that began with the 2009-10 school year and allows low-income students to get a second grant, usually for summer classes.

A dearth of summer jobs may be pushing more undergraduates toward year-round college. “This benefit has proven to be extraordinarily costly — up to 10 times the initial estimates — and has not yet shown any evidence of accelerating students’ college completion time,” the Education Department said. The policy is costing the government about $7.6 billion.

Some higher education advocates say they are surprised by the administration’s recommendations. So far, the government had provided few numbers on use of year-round Pell, says Jason Delisle, director of the Federal Education Budget Project at the New America Foundation, a Washington, D.C., think tank.

“This has caught all of us off-guard,” he says. “This clearly was an issue within the Department of Education. They were the only ones that had the numbers” on program use.

Republicans now controlling the House of Representatives’ education committee signaled that they are open to Pell policy changes.

“We all recognize the importance of Pell Grants, but unfortunately the Democratic-led Congress expanded the program beyond what taxpayers can afford,” says U.S. Rep. John Kline, R-Minn., the new chairman of the Education and the Workforce Committee. “We need to make tough choices now to strengthen the program for students most in need.”

The administration also would save money by ending the in-school interest subsidy for graduate students. Through this subsidy, federal student loans are interest free for low-income grad school borrowers while they are in school.

The Education Department says these subsidies have little effect on whether students pursue graduate school and that flexible repayment options — including loan deferrals and income-based repayment — already give these students more flexibility. Delisle agrees, saying the priority should be on undergraduate education.

“All graduate students are broke,” he says, yet most continue with their education to reach a long-term goal or a higher-paying job. He adds that the subsidy also has only a small effect on how much students repay on their loans.

The subsidy typically reduces student loan payments by only $20 to $40 a month over a 10-year repayment period, he says. Yet it costs the U.S. Treasury a considerable sum — $13 billion over five years and $29 billion over 10 years.

“If we’re trying to target more aid to needy undergraduates, it’s worth it,” Delisle says.

The graduate subsidy has been a target for budget cutters recently. Late last year, the Bipartisan National Commission on Fiscal Responsibility and Reform recommended ending the subsidy. House Democrats even floated the idea in their original version of the Student Aid and Fiscal Responsibility Act before dropping it prior to the law’s approval.

The Council on Graduate Schools, based in Washington, D.C., expressed concern about the plan because of its potentially damaging effects on students of color.

“We understand these are very difficult budgetary times. But eliminating the in-school subsidy for graduate and professional students will have a differential impact on some graduate students, especially those from underrepresented groups,” says Debra Stewart, council president.

Citing data from the National Center for Education Statistics, she says Black and Hispanic students at the master’s and doctoral levels have higher average loan debt compared with White and Asian students.

“We are concerned that eliminating the in-school subsidy for needy students might decrease access to graduate education,” she says. “We look forward to working with policymakers to address these particularly adverse impacts.”

According to the council, 44 percent of all master’s level students and 32 percent of doctoral students finance their educations with loans.

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