Short-Term Stability, But ...

A last-minute compromise debt deal appears to have kept Pell Grants largely intact, but leaves plenty of uncertainty going forward.
August 1, 2011

WASHINGTON -- Congressional leaders appeared late Sunday to have reached a deal on increasing the nation’s debt limit that would avoid many of higher education’s worst-case scenarios: cuts to Pell Grants, the end of subsidized student loans, or a government default that would leave student financial aid and other funding for colleges in limbo going into the fall semester.

But as details about the deal began to emerge Sunday evening, it became clear that the plan leaves colleges and universities with plenty of long-term uncertainty.

The plan, which will be presented to Congress today, gives President Obama authority to increase the debt limit by at least $2.1 trillion and calls for at least $2.4 trillion in spending cuts over the next 10 years. About $900 billion in cuts would take effect immediately through discretionary spending caps. The rest would be decided on by a Congressional "super-committee." If the committee does not reach an agreement by Thanksgiving, $1.2 trillion in cuts would automatically go into effect in 2013, including cuts to defense spending, domestic discretionary spending and some entitlement programs.

Some details on the deal were still unclear as of last night, including what discretionary spending would fall under the automatic cuts (although the White House mentioned education as one of the areas that would face automatic cuts if the committee could not agree) and how the $900 billion in immediate cuts will be distributed. But the situation is overall less dire for federal financial aid programs than it seemed earlier in the debt talks, when proposals were put forward to cut Pell Grants and eliminate subsidized student loans.

The White House said in a fact sheet posted online Sunday night that the deal was "designed to protect crucial investments like aid for college students," giving "specific protection in the discretionary budget" to ensure that there will be sufficient funding to keep Pell Grants at their current level. Previous plans from both Senate Majority Leader Harry Reid and Speaker of the House John Boehner had directly appropriated funding for Pell Grants in 2012 and 2013.

A broad consensus has formed in recent years that Pell Grants need reform, and higher education organizations seemed resigned to making concessions on eligibility requirements in order to keep the grants alive. But the deal that Congress is poised to pass appears to keep the maximum Pell Grant for all students at $5,550, without significant cuts. That result is “striking,” said Sarah Flanagan, vice president for government relations and policy at the National Association of Independent Colleges and Universities, reflecting "truly deep bipartisan support at a time when it's really difficult to support it,” given the growth of the program and increasing concern about deficits.

Still, the spending cuts going forward mean that all programs would face a difficult Congressional environment.

“It gives some stability to the Pell Grant program for a couple of years,” said Becky Timmons, assistant vice president for government relations at the American Council on Education. “Going forward, with the second part of the deal calling for pretty drastic cuts, it’s anybody’s guess how deep that will go.”

As the Pell Grant Program has grown, along with concerns about the debt, other financial aid programs have been sacrificed to keep the maximum grant at $5,550: year-round Pell Grants; LEAP grants, which provided money to states for need-based financial aid; and in this latest deal, the interest subsidy for graduate student loans.

“There really isn’t a program that’s safe,” Timmons said.

Further discretionary cuts could hit Perkins Loans and the Supplemental Educational Opportunity Grant, as well as TRIO programs that help low-income students prepare for college. Without details on how the budget-cutting committee will deal with mandatory and discretionary spending, it is difficult to say what will happen to federal student loans, Timmons said.

But all programs will be competing for a slice of an increasingly smaller federal pie. “It will pit everything that we care about against everything else that we care about,” she said. “That’s the new reality.”


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