Senate 2012 Pell Grant Funding Bill Hits a Snag

The Senate’s plan for funding the fiscal year 2012 Pell Grant hit a snag last week – the Republican-controlled House Budget Committee blocked a provision in the Senate proposal that would use fiscal year 2013 funding to support the fiscal year 2012 grant. The House and Senate have each staked out a Pell Grant funding plan for the upcoming school year, but a final compromise bill is still weeks or even months away. Suffice it to say the two proposals are very different (see our earlier post here) so the recent budget ruling on the Senate bill will only complicate a final compromise bill.

The Senate bill (S. 1599), which has been approved by the appropriations committee, not the full Senate, would provide the $24.3 billion needed to maintain the $5,550 maximum grant in the 2012-13 school year. Except some in Congress claim the bill falls $896 million short of that target.

Specifically, the Senate’s proposed Labor-HHS-Education appropriations bill provides a regular appropriation of $23 billion for Pell Grants in 2012, plus a supplemental $1.3 billion. The supplemental funding is offset (i.e. paid for) by a provision in the bill that ends the interest-free benefit on Subsidized Stafford loans during an undergraduate borrower’s six-month grace period after leaving school.

This change, however, doesn’t fully offset the $1.3 billion in supplemental funding that the bill would provide in fiscal 2012. It only offsets $400 million, leaving $896 million not offset.

However, eliminating the interest rate benefit creates savings every year because it ends an ongoing policy, meaning that savings accrue in fiscal year 2012 and following years. The Senate bill uses those future year savings to allocate the Pell Grant program extra funding in fiscal year 2013. Then, the bill includes language allowing exactly $896 million of that extra fiscal year 2013 funding to support fiscal year 2012 Pell Grants.

While shifting the timing of these funds wouldn’t affect the operation of the Pell Grant program, members of the House Budget Committee successfully argued (successfully ruled might be more apt) it sets a precedent that funding provided for Pell Grants for a future year could be raided to pay for a current year – creating a massive funding cliff. Supporters of the Senate proposal, on the other hand, say the budget rules that apply to the Pell Grant program allow for the timing shift since the rules specifically reference “award year” and not “fiscal year.” (An award year overlaps two fiscal years.)

But those who have argued against the Senate’s provision make a good point. The debt ceiling law enacted earlier this year (the Budget Control Act) provided supplemental funding for Pell Grants in both fiscal years 2012 and 2013, giving the program an emergency lifeline for two years. Congress could use a provision like the one in the Senate’s proposed funding bill as a precedent to justify shifting the $7 billion the debt ceiling law provided for fiscal year 2013 into fiscal year 2012.

If the Senate proposal is ultimately enacted, students will not receive smaller Pell Grants than they otherwise would have without this new snag. But it does mean the Senate Labor-HHS-Education appropriations bill is over its spending limit and must be trimmed before becoming law. In other words, the bill has to spend $896 million less than it currently does. That isn’t a lot of money in the grand scheme of the Labor-HHS-Education appropriations bill.  Even so, “finding” $896 million at this stage in the appropriations process visibly pits one program (Pell Grants) against a lot of others.

That’s certainly a cause for concern among Pell Grant supporters, especially during these desperate budget times. And you know what they say about desperate times…