Pell Grant Emergency Seals Student Loan Reform Deal

Will Pell Grant funding save the student loan reform bill, or will the student loan reform bill save the Pell Grant program? With Congress set to vote in the coming days on a final version of health care and education legislation that Democratic leaders will move through filibuster-proof budget reconciliation, it looks like the answer is both.

Last week it looked like the education bill was dead — too much weight to add to an already complex and fragile health care bill. But then, Democratic leaders realized what Higher Ed Watch has been saying since December: Pell Grants need a massive infusion of cash in the upcoming appropriations bill or students will have their grants cut by as much as half.

Students are expecting a maximum Pell Grant of $5,550 in the upcoming school year. Congress is paying for that promise through a variety of sources: an appropriations bill enacted last year, some funding carried over from the 2009 economic stimulus bill, and an existing mandatory funding pot created in 2007.

But what about Pell Grants for the 2011-12 school year?

The economic stimulus money will be gone. And thanks to the recession, student eligibility for Pell Grants is on the rise while college enrollment is spiking. That means Congress needs to come up with at least a $30 billion appropriation this year if lawmakers want to maintain a $5,500 maximum Pell Gant for the 2011-12 school year. That’s more than double the $14 billion that went to the program just two years ago.

It’s no secret that this coming budget cycle won’t be fun for Democrats in Congress. Trillion dollar deficits two years in a row are starting to pinch, and the thought of funding another $30 billion Pell Grant is making Democrats squirm. According to Congressional sources, that’s what sealed the deal for student loan reform to move with health care legislation under fast-track reconciliation.

The pending bill would use savings ($68 billion over the 2010-2020 period) from eliminating student lender subsidies to make a one-time $13.5 billion infusion into the Pell Grant appropriation. The new funds will go toward the $30 billion needed to hold the grant at $5,550 in the appropriations bill Congress will consider later this year. In other words, the student aid bill allows Congress to mostly shore up Pell Grants without spending new money or adding to the deficit. The $13.5 billion is fully offset by savings in student loan subsidies.

Of course, that one-time infusion of cash means other spending first proposed by the Obama Administration and House Democrats last year had to be scaled back, including the centerpiece provision that would have funded a rising Pell Grant linked to inflation indefinitely. Under the reconciliation bill introduced yesterday, that provision won’t start until 2013 and levels off in 2017 when the maximum grant reaches $5,975. That’s a far cry from the original House bill, which would have started the increases in 2011 and funded a rising grant in perpetuity. But that version alone would cost $68.3 billion over the 2010-2020 period according the the Congressional Budget Office, more than all of the savings from eliminating lender subsidies.

So in the end, it looks like Democrats in Congress realized they needed to shore up the Pell Grant program without adding to the deficit ASAP. That made the decision to add student loan reform to reconciliation crystal clear.