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Congress Modifies Pell Grant Program in Year-End Budget Action

December 19, 2011

Even without a deficit reduction plan to debate due to the failure of the supercommittee, Congress entered December with a long to do list that included: completing the FY12 appropriations process; extending the payroll tax holiday, unemployment benefits, and reimbursements for doctors who treat Medicare patients; and taking care of several expiring tax provisions. Congressional negotiators again brought the federal government to the brink of a shutdown in trying to find a path forward, but a deal ultimately was struck late Thursday evening to keep the government running and to finalize the 2012 federal budget.

Changes to the Pell Grant Program

Overall, federal discretionary spending is down for the second year in a row. Budget writers, however, were able to protect the Pell maximum award of $5,550, but made several modifications to the program:

  • Students will only be eligible for Pell Grants for a total of 12 semesters (six years), down from 18 semesters (nine years); this provision is prorated for part-time students.
  • The zero Expected Family Contributions (EFC) income level is cut back from $30,000 to $23,000. This is the maximum amount a family can earn before being required to contribute to paying for undergraduate education.
  • Pell Grant recipients are required to graduate from high school or to take a GED exam to receive a Pell Grant. In the past, many home-schooled children could qualify by taking “ability to benefit” tests. Current students will be grandfathered in and will not have to take a GED exam.

Additionally, in order to help pay for the Pell Grant program, Congress temporarily eliminated the interest subsidy during the grace period on subsidized undergraduate Direct Loans. This provision applies only to Federal Direct Stafford Loans made between July 1, 2012 and July 1, 2014. Typically, the government pays the interest for six months after a student graduates or leaves college.

The 12-semester limitation could prove to be a significant problem for students as early as this summer. The limitation is not phased in nor is it prospective, meaning that students nearing completion may lose their Pell eligibility. It is also troubling for part-time students and students that apply federal aid to enrollment in remedial coursework.

While NACUBO is somewhat disappointed to see an erosion of benefits, the final agreement represents a compromise from the plans drafted by the House and Senate earlier this year. The House plan originally set out to reduce the Zero Expected Family Contribution to $15,000 and to expand the definition of “untaxed income” to include five items that are currently not included as income, a change that would have excluded a significant population of lower income students from benefiting from the Pell Grant program.

Other Programs

It appears that Congress has level-fund the Supplemental Educational Opportunity Grant and the Federal Work Study programs. Funding for the National Institutes of Health is budgeted to increase by 1 percent in FY12, or $300-million. However, there will likely be an across-the-board cut of 0.189 percent applied to the amounts allocated in the spending measure.

Congress to Return in Late January

Complicating the budget negotiations were efforts to extend the current payroll-tax break, unemployment benefits, and Medicare payments to doctors. Legislators abandoned efforts to extend expiring tax provisions earlier in December, with the hopes of addressing those early in 2012. Although it had appeared that a deal had been worked out on Friday, congressional leaders and the White House remain at odds over extending the payroll tax cut and unemployment benefits and freezing scheduled cuts to Medicare payments to doctors. An effort included a provision to fast-track the approval process for a controversial oil pipeline has also made negations difficult.

Tax Credits Expiring

While the popular American Opportunity Tax credit does not expire until December 31, 2012, the “above-the-line” deduction for tuition and education-related expenses is set to expire on December 31, 2011. Also expiring is the charitable IRA rollover incentive, which allows donors 70 ½ or older to make a direct, tax-free rollover of up to $100,000 from a traditional or Roth IRA to a qualified charitable organization. Many Washington insiders believe Congress may act to extend these provisions retroactively upon their return to Washington when the second session of the 112th Congress convenes in January.

For More:

Contact

Liz Clark
Director, Congressional Relations
202.861.2553
E-mail