Suddenly Ineligible

As details emerge on Republican plans to cut Pell Grant spending, many say it could be worse, while community colleges see a "body blow."
October 10, 2011

The House Republicans’ plan to change Pell Grant eligibility would disqualify hundreds of thousands of students in order to preserve the maximum grant at $5,550 for fiscal year 2012. The brunt of those changes would fall on the highest-earning families who are still eligible for Pell Grants -- who on average make slightly over $40,000 per year.

From many college associations, the plan has received what amounts to a tepid endorsement: in light of the circumstances, and given the House Republicans’ plan earlier this year to cut up to $2,000 across the board from the maximum grant, it could be worse, they say.

But at community colleges, which have the highest proportion of Pell Grant recipients and enroll many students who might be cut off, the view is different: the changes amount to a “body blow,” said David Baime, senior vice president for government relations and research at the American Association of Community Colleges.

The budget, proposed Sept. 29 by an appropriations subcommittee, would make several changes to the Pell Grant program. Among them: The grants could be used for 12 semesters, not the current 18; students enrolled less than half-time would no longer be eligible; and students who are eligible for less than 10 percent of the maximum grant would receive nothing, rather than $550 as they would have in the past. Students without a high school diploma or GED would no longer receive the grants.

Propose Change Students Affected (Estimate, not available for all changes) Savings (in 2012, Congressional Budget Office estimate)
Reduce the income protection allowance for independent and dependent students 250,000 (American Association of Community Colleges) to 350,000-400,000 (American Council on Education) $2.1 billion
Change the definition of untaxed income and benefits to include some benefits previously excluded Unclear, depending on which benefits are included and excluded, according to the American Council on Education $1.1 billion
Make ineligible students who attend college less than half-time 48,000 $140 million
Reduce the number of semesters for which students are Pell-eligible from 18 to 12 50,000-75,000 students $679 million
Change the income trigger for an expected family contribution of zero -- $352 million
Eliminate grants for students eligible for less than 10 percent of the maximum grant -- $46 million

The changes would also tweak the formulas used for determining eligibility: the income protection allowance, the amount of money set aside for basic living expenses when considering students’ incomes, would be lowered. So would the income threshold that results in an expected family contribution (toward the price of college) of $0.

In effect, the budget would undo many of the changes wrought by the College Cost Reduction and Access Act, the 2007 legislation that expanded the Pell Grant program and increased the maximum grant, contributing to the program’s burgeoning growth in recent years. About 14 percent of the growth since 2008 is attributable to those eligibility changes, said Jason Delisle, director of the Federal Education Budget Project at the New America Foundation, with the rest coming from enrollment growth (especially at for-profit colleges, whose students now receive a quarter of all Pell Grant money) and increases in the maximum grant.

In total, the changes would affect less than 1 million of the program’s 6.2 million beneficiaries, although estimates differ as to exactly how many. The biggest change would be the reduction in the income protection allowance: more of the money that students and their parents earn would be expected to go directly to cover college costs, rather than set aside for basic living expenses. As many as 400,000 students could lose eligibility for Pell Grants if the allowance is changed, said Bryan Cook, director of the Center for Policy Analysis at the American Council on Education. The American Association of Community Colleges estimates that about 250,000 students across all sectors will be affected.

The Congressional Budget Office estimates that change would save $2.1 billion in 2012.

Most of those disqualified would be students and families who make almost enough money not to qualify for the grants. “If you’re a household that was already just over the edge of eligibility for Pell, you see even the slightest reduction and boom, you’re out,” Cook said.

Almost 700,000 students -- 11 percent of Pell Grant recipients -- came from families who made $40,000 or more in 2008-9. Those students are the most likely to lose eligibility if the rules were changed.

One change, though, would fall mainly on poorer beneficiaries. Allowing more untaxed income (such as welfare benefits, the earned income tax credit and untaxed social security benefits) to count toward eligibility would have a bigger effect on needier recipients. That change, which the CBO estimates would save just over $1 billion in 2012, would make some students likely to receive less aid, but is unlikely to make the neediest recipients completely ineligible, Cook said.

Other changes -- especially excluding students who attend college less than half time and reducing the number of semesters for which students are Pell-eligible -- affect relatively few students. About 48,000 students were enrolled less than half-time in 2009-10, according to the community college group’s analysis, and less than 100,000 students use the grants for more than 12 semesters, Cook said.

The CBO estimated that cutting off students who are enrolled less than half-time would save $140 million in 2012, and reducing the number of eligible semesters would save $679 million.

A Loss for Community Colleges

The proposal came as a surprise. Just months ago, the agreement on increasing the federal debt limit set aside money for Pell Grants in 2012 and 2013 -- not enough to pay for the whole program, but enough to lead many supporters to believe that it was sheltered from cuts for at least another year.

So while many of the changes hew to suggestions from higher education economists earlier this year on how to cut the cost of the Pell program without burdening needy students, some at community colleges are questioning its necessity and fairness.

Community college students have the largest percentage of Pell Grant recipients of any sector -- 34 percent of all Pell Grants went to students at two-year public colleges in 2008-9 -- and the cuts are likely to hit their students hard.

“A couple of the proposed changes would be disproportionately harmful to our students compared to students attending other kinds of institutions,” Baime said, adding that he didn’t think college administrators in any sector were pleased with the prospect of reductions in Pell spending.

Two-thirds of the students who would be affected by the change to the income protection allowance are enrolled at community colleges. Other changes -- including ending Pell Grants for students enrolled less than half-time, and restricting eligibility to those with a college degree or GED -- would hit even harder, Baime said.

Of the 48,000 students enrolled less than half-time who receive Pell Grants, 33,000 are at community colleges, the two-year-college association estimated. Nationwide, about 836,000 students at two-year public colleges do not have a high school diploma or GED -- about 1 percent of total enrollment, although colleges in some states do not admit students without those credentials and the number might be inflated by high school students in “dual enrollment” courses that earn college and high school credit.

In California, where open enrollment policies allow students without diplomas or GEDs to enroll, that change is especially troublesome. Older students who have lost their jobs in the recession sometimes don’t have a diploma or GED, and requiring them to do the coursework to get one sets them back months or years, said Patricia Hurley, associate dean and financial aid director at Glendale Community College.

Community colleges are also the least likely to be able to make up the lost funds through institutional support for students, meaning that losing the grant could mean the difference between staying enrolled and dropping out.

“These are people who are recently unemployed and trying to train for a new job to support their families,” Hurley said. “If they can’t get into the community college, then the only other option for them would be a more expensive private school. For me it is, it shuts the door on a specific population of students or potential students, and they really don’t have any other resources at that point.”

For community colleges, the Senate proposal to eliminate subsidized interest during the grace period on student loans and use the savings to pay for Pell Grants seems like it could be a fairer option, albeit a still-undesirable one: it would affect students in all sectors and where the costs to students are spread out over the life of the loan, rather than having an immediate effect.

“To me, that’s less of a burden to students,” Hurley said, although she said she would prefer not to see changes to either Pell Grants or subsidized loans. “The focus on student aid should be to benefit students who are still trying to get through school.”

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