Changes in Funding for Higher Ed

The Pell Grant program recently saw a boost from the American Recovery and Reinvestment Act (ARRA), and may undergo more changes with President Obama’s proposed 2010 budget. Following, we’ll examine the increase in funds for the program from the $787B stimulus bill and how the program will look according to the proposed 2010 Budget.

The Pell Grant program was put in place through the Higher Education Act of 1965 in an effort to increase the number of low-income students attending post-secondary institutions. Students must demonstrate significant need to qualify for a Pell Grant, with the amount awarded derived from information provided by the FAFSA form. The 2007-2008 Federal Pell Grant End-of-Year Report states more than 5.5M students received Pell Grants.

One of the main issues in the past with the Pell Grant program is the availability of funds to match not only inflation, but also the rising costs of tuition. Each year Congress approves the amount of funding going to the program, which resulted in a four-year freeze in the maximum award. From 2003 to 2007 the maximum Pell Grant award was $4,050. At its inception, the grant covered around 70 percent of tuition costs; it now covers around 30 percent.

The Stimulus Boost
Of the $90.9B included in the ARRA, $30.8B was set aside for higher education with $17B to be used “to close the shortfall in the Pell Grant program and boost grant amounts by $500 to $5,300 in the first year,” according to a Department of Education press release.

The ARRA also stipulates that the maximum Pell Grant award will go up next year. The increase in the maximum award could help an estimated seven million people access higher education.

Change to Come With the 2010 Budget
President Obama’s proposed 2010 budget would make funding for the Pell Grant program mandatory, eliminating funding issues for the program. The program’s funding would keep pace with cost of living increases by being indexed to the consumer price index plus one percent. The maximum grant award for the 2010-11 academic year would then be increased to $5,500.

The Pell Grant program isn’t the only program to see changes with the proposed 2010 budget — the student-lending program is also expected to see restructuring. Taxpayers could see $4B a year in savings if the federal government directly provides loans to students. The Office of Management and Budget estimates a 10-year savings of $41B for the government if all federal student lending falls under the Direct Loan Program. Private loan companies could still collect loans and provide other services through performance-based contracts with the Department of Education.

These changes and others to higher education funding would help increase access to education for low-income students, especially those seeking post-secondary education at community colleges or in vocational schools.

The Department of Education also emphasizes students using grants over loans, so changes to the Pell Grant program might make students more aware of the choices they have for funding higher education. While the amount awarded through the program is based on need, students can use the money for other education-related expenses besides tuition, making the program a good option for students, especially during this tough economic period.