Debt Ceiling Agreement Preserves Pell Grants — For Now

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The agreement reached Sunday night among Democratic and Republican leaders in the House and Senate provides specific funding for Pell Grants, but doesn’t settle the controversy over the availability of the grants.

Some Tea Party Republicans withheld support of House Speaker John A. Boehner’s (R-Ohio) debt ceiling/deficit proposal last week until new funding for Pell grants was stripped from the proposal.

Pell Grants, which unlike federal student loans do not have to be repaid, are essentially an entitlement that go to low-income students to offset the cost of college. The maximum amount of the grant is currently $5,500 per year for the neediest students – those whose family income is less than $30,000. About 10 million students currently are approved to receive Pell Grants; the average amount is about $3,700.  Grant money has not been disbursed for the upcoming school year.

The recession, which has prompted many people to seek retraining for new careers, has pushed the annual payout for Pell Grants to almost double – expected payout this year is $35 billion – and brought new scrutiny of the eligibility requirements.  Currently, there is no age limit for Pell Grant recipients, or major restrictions on the type of college for which the grants may be used, only that it be approved to participate in federal financial aid programs.

In 2006, before the recession and before the explosion of for-profit college enrollment, a total of $17 billion was paid out in Pell Grants.

The money included in the bill is actually a supplemental appropriation, designed to cover shortfalls in the program. The debt ceiling/deficit bill appropriates $13.2 billion to cover the shortfall for fiscal 2011 and $7 billion for the shortfall in 2012. Because even these appropriations, especially for fiscal 2012, will not be sufficient to cover the expected shortfall, changes in eligibility must be imposed to bring the payout in line with appropriations.

The bill would allow the maximum grant amount of $5,500 to remain for the 2011-2012 academic year.

The fifth section of the new debt ceiling bill covers Pell Grants and other education matters.  It begins on page 71 of the 74-page bill.