The U.S. Congress is still working to finalize funding for fiscal year 2012, despite the fact that the fiscal year began on October 1.  In the meantime Congress has passed a continuing resolution to keep agencies and programs operating at fiscal year 2011 levels until a FY12 budget is passed, which is expected later this year.

Since 2009 Congress has provided new rounds of ad-hoc funding to maintain the increased maximum grant level established in the American Recovery and Reinvestment Act of 2009.  The new grant level continues to be a challenge for Congress. Since 2009 Congress has supported the increase in the grant through various efforts including:

• Elimination of the guaranteed student loan program (2010)
• Elimination of the “year-round” Pell Grant (2011)
• Elimination of the interest-free benefit on subsidized federal loans for graduate students (2011)

In order for Congress to maintain the current maximum Pell Grant ($5,550 per year) it must appropriate $24.3 billion for FY12. This is an increase of $1.3 billion from FY11.

An examination of the House and Senate proposals (i.e. the release of the Labor-HHS-Education appropriation bills) shows the multiple ways each chamber is attempting to reach the fiscal target to maintain the Pell Grant. The different approaches leave room for a compromise in a final omnibus appropriations bill.

U.S. Senate

The U.S. Senate’s proposed appropration bill (S. 1599) would appropriate the full $24.3 billion to maintain the maximum grant in the 2012-13 academic year. The funding is offset by eliminating the interest-free benefit on Subsidized Stafford loans during an undergraduate borrower’s six-month grace period after leaving school. This would create savings of $1 billion which is allocated to support the 2013 Pell Grant and another $3.5 billion for the program between 2017-2021.

U.S. House

The U.S. House’s appropration bill does not add funding to the Pell grant and actually cuts funding when compared to FY11. The caveat being that the bill would still maintain the maximum grant of $5,550 in the 2012-13 academic year. The bill maintains the maximum grant by making significant changes to Pell Grant eligibility rules. These changes include:

• Reducing he maximum number of semesters a student can receive a Pell Grant from 18 to 12
• Eliminating eligibility for students that are attending school less than half-time
• Reducing the amount of a student’s personal earnings that can be excluded from a Pell Grant award calculation
• Reducing the maximum family income that would automatically qualify a student for the maximum grant from $30,000 to $15,000.
• Eliminate eligibility for students who quality for less than 10% of the maximum grant.

These changes would lower the appropraiton needed to fund a maximum grant of $5,550 by $3.6 billion in 2012 and about $4 billion each year thereafter because fewer students would be eligible for grants and some students would receive smaller grants.

Late Sunday congressional leaders appeared to have reached a deal to increase the nation’s debt ceiling. Though the impacts to higher education may not be the worst-case scenarios feared among advocates, as details come clear it is apparent that the plan leaves much long-term uncertainty for higher education.

Impacts to Financial Aid

In a fact sheet provided by the White House, funding for Pell Grants was protected. The plan “provides specific protection in the discretionary budget to ensure that there will be sufficient funding for the President’s historic investment in Pell Grants without undermining other critical investments.” Prior plans from both the Senate and the House would have directly appropriated funding for the Pell Grants in FY 12 and 13.

Despite the preservation of the Pell Grant, the deal does reduce some higher education benefits. Among the changes is the elimination of the interest subsidy for graduate student loans and the elimination of repayment incentives for federal student loans.

The Plan- Impact to Higher Education

The plan gives President Obama the authority to increase the debt limit by at least $2.1 trillion. The plan immediately enacts discretionary spending caps for 10-years for nearly $1 trillion in deficit reduction to be balanced between defense and non-defense spending. 

In addition a bipartisan committee is established to identify an additional $1.5 trillion in deficit reduction. The Committee is required to put their recommendations into legislation by November 23, 2011 and Congress is required to vote on the recommendations by December 23, 2011.  If the Committee fails an enforcement mechanism will trigger spending reductions beginning in 2013  to be a fifty-fifty split between domestic (i.e. discretionary spending and some entitlement programs) and defense spending. Social security, medicare beneficiaries, and low-income programs are protected from further reductions.

It still remains unclear exactly what discretionary spending would fall under the reductions if the enforcement mechanism is used.  Further discretionary reductions could impact several key higher education programs, including Perkins Loans, the Supplemental Educational Opportunity Grant and TRIO programs. As the details come to light, what is known is that higher education will be competing for a slice of an increasingly smaller federal pie.