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Debt Deal Boosts Pell Grant Funding, Cuts Student Loans

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COLLEGE GRADS
AP

WASHINGTON -- The proposed compromise between congressional negotiators and the White House to increase the nation's borrowing limit would cut spending by more than $2 trillion, but the deal would also increase federal spending on higher education.

The Budget Control Act of 2011, which is expected to be voted on by the House of Representatives on Monday evening, would make subsidized student loans less generous to graduate students, but it would place more money in Pell Grants, which offer financial aid to help students attend college. According to the Congressional Budget Office, the changes to federal student aid would increase direct spending by $7.4 billion during the next four years, but it would decrease spending by $4.6 billion over 10 years.

The Pell Grant program -- which was expected to run a deficit this year -- would see a boost of $17 billion over the next three years under the new proposal.

The Obama administration has increased the maximum Pell Grant by $819 to $5,550. But coupled with the recession, which made more students eligible for the program, that hike has made the cost of the Pell Grant program double in the last two years, to $32 billion during the 2010-11 academic year.

Pauline Abernathy, vice president of the Institute for College Access & Success, hailed the changes to federal student aid in a statement sent to The Huffington Post. But despite that hike, the program has failed to keep up with the rising cost of attending college, and Abernathy pointed out that Pell Grant recipients are still likely to take out student loans and incur debt before graduating.

"Even after the recent increases in the maximum Pell Grant, it will cover less than a third of the cost of attending a four-year public college next year—the smallest share in the history of the program," Abernathy said.

While the White House has touted that Pell Grants have been preserved, the fact sheet put out by the administration Sunday night did not mention the cuts to the federal student loan program, which could increase the debt burden on the nation's graduate students.

The compromise would eliminate the federally subsidized student loan program for almost all graduate and professional students. Unlike private student loans, federally subsidized loans do not accumulate interest while students are in school.

The agreement also would bar the Department of Education from running certain programs that encourage borrowers to repay their loans. Borrowers who pay on-time will no longer get rebates off certain fees, effectively paying more on up front costs, but borrowers who pay through electronic debiting would still be given interest rate reductions.

Combined, these changes would save the government more than $21 billion over 10 years, according to CBO estimates.

The Committee for Education Funding, a non-partisan coalition that pushes for equitable education funding, wrote in a letter that it didn't support the deal: While the non-partisan education coalition lauded the increase in Pell spending, it decried the chopping of in-school graduate student exemptions and loan payment incentives because "both of these provisions will increase the cost of loan repayment and thus the cost of college attendance." The letter added that the bill leaves a Pell shortfall of $1.3 billion in 2012.

Last week, Tea Party members of the House were upset that earlier proposals would increase spending on education, the Hill reported. Some have called Pell Grants a form of "welfare" and declared the increase would be part of the reason they would vote "no" on the deal. But House Majority Leader Eric Cantor (R-Va.) pointed to the Pell Grant hikes as evidence Republicans were making compromises.

The higher-education spending has also met pushback from conservative website Redstate, which called the Pell Grant increase a "handout to Big Education."

Boehner omitted the increase from a slideshow of the deal he presented to his caucus on Monday.

Joy Resmovits contributed to this report.

Correction: An earlier version of this report incorrectly said that the Department of Education would save over $21 billion by eliminating certain programs to encourage borrowers to repay their loans. The department will save that money because of that change and by limiting loan access to student in graduate and professional schools.

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