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Congress cuts federal financial aid for needy students

Pell grants are on the chopping block as part of the spending bill negotiated this week in Congress. (AP Photo/Butch Dill)

Congress will cut $303 million in funding for a federal program that allows many of the nation's poorest students attend college, part of a massive spending package to keep the federal government open through the end of the year.

The measure, championed by Senate Democrats, would cut Pell Grants in order to free up money to pay companies that collect student loans on behalf of the Department of Education.

Nine million students benefited from the $33.7 billion Pell Grant program in the 2013-2014 school year. The program, created in 1972, awards money that does not have to be repaid to students whose household incomes are typically $30,000 or less. Nearly two-thirds of African American undergraduates receive Pell funding, as do 51 percent of Latino undergrads, according to the Education Trust.

Student loan advocates say that while the program is currently running a surplus, the cuts in the spending bill could create a funding shortfall beginning as soon as next fall.

"We constantly worry that any spending bill is going to involve negotiations over Pell. We have seen funding shortfalls in the past and Congress always ends up having to find additional dollars elsewhere to fund the program," said Jennifer Wang, policy director at Young Invincibles. "Why put students in that position again?"

Sen. Tom Harkin (D-Iowa), outgoing chairman of the sub-committee, first introduced a proposal over the summer to reduce funding for the $22.5 billion grant program by $303 million to pay companies, such as Great Lakes, that collect student loan payments on the behalf of the Department of Education. A 2013 budget deal eliminated mandatory payments to many of those loan servicers, creating a funding gap.

Harkin's staff said if the sub-committee neglected the funding needs of the servicers, it could lead to furloughs and disruption in service to the 40 million borrowers repaying their student loans.

Harkin was not available to comment on this story. But in a statement announcing the spending agreement, he hailed the bill as a win for Pell because the maximum grant will be increased by $100.

"The bill invests in high-quality early childhood care and education, provides programs that support working families, allows for an increase in the maximum Pell Grant award and number of recipients," Harkin said.

Republicans on the appropriations sub-committee that handles education have been pushing back against the Democratic plan to cut money from the college grant program to fund other programs, according to congressional aides.

During negotiations, the sub-committee considered as much as $2 billion in cuts to the Pell program, but dialed back the number amid pressure from student advocates, according to congressional aides. Harkin remained quiet on the issue during negotiations. But Democratic aides pointed out that Pell program is running a $4.4 billion surplus as a result of money that went unused from previous years.

That surplus is destined to become a deficit by 2017, though, even if Congress maintains the amount of money it provides for Pell grants, according to the Congressional Budget Office.

Harkin's office contends that the shortfall is not a done deal.

“The demands placed on Pell during the recession, when thousands of people entered or went back to school, have changed as the economy has improved,” said Harkin spokesperson Susannah Cernojevich. “This bill provides sufficient funding to increase the maximum award, reinstates eligibility to some students cut off in 2012, and invests $4.1 billion in new surplus funding that Senator Harkin believes will be sufficient to ensure the Pell does not face any significant funding gap in FY 2016.”

Advocates say that is a shortsighted view. Dozens of groups, including Young Invincibles and the Institute for College Access and Success, have been waging a campaign to protect Pell, writing letters to members of the appropriations sub-committee and urging students to call their representatives in Congress to head off the proposed cuts.

President Obama doubled Pell funding in 2010 through savings eked out of reforms to the federal student loan system, but congressional budget agreements the following years imposed eligibility restrictions that ultimately cut program costs by $5 billion a year.

In April, House Budget Committee chair Paul Ryan (R-Wis.) proposed cutting the congressional funding for Pell and freezing the maximum grant award at its current level of $5,730 for 10 years. He argued that the federal budget could not afford to support the growing number of recipients and overall expansion of the program. The proposal was shot down in the Senate, where Democrats, led by Harkin, supported a year-round expansion of Pell.

Given Harkin's history of advocating for college affordability, student advocates were disappointed that he would jeopardize such a critical source of education funding.

"It's a dangerous bet, but a little shrewd because he'll be gone by the time the program faces a shortfall," said Jason Delisle of the New America Foundation. "It's just a really, really short term view, you know the kind you'd expect from someone retiring in a few weeks."