Ed Money Watch

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House Proposed Changes to Pell Grant Eligibility Have Unexpected Effects on Cost

Published:  October 6, 2011

As we wrote earlier this week, the House Appropriations Committee’s Labor-HHS-Education Appropriations bill for fiscal year 2012 makes numerous changes to eligibility rules for the Pell Grant program. These changes lower the cost of the program by $3.6 billion in 2012, meaning Congress needs to the fund the program at only $20.7 billion to maintain the maximum grant of $5,550 for the 2012-2013 school year. That’s down $2.3 billion from 2011 levels. Naturally, some of the eligibility changes affect the cost of the program more than others. According to a preliminary Congressional Budget Office (CBO) estimate, however, the changes that lower the cost of the program the most are surprising.

Upon first reading the House Committee’s appropriations bill, the change that most struck us at Ed Money Watch is the elimination of Pell Grants for students attending school less than half-time. This change would prevent students going back to school at night to earn a degree over several years from receiving Pell Grants. But while this would have a significant effect on individual students, the cost reduction from this change are actually quite small – $109 million in 2012 and $555 million over five years. In other words, if Congress approved the less-than-half-time eligibility change, the annual appropriation needed to fund a maximum grant of $5,550 would be $109 million less than it would be without the change.

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The proposed reduction in the maximum number of semesters a student can receive a Pell Grant – from 18 to 12 – results in relatively large cost reductions: $535 million in 2012 and $2.7 billion over five years.

But the change that would result in the greatest savings is the reduction in the amount of a student’s personal earnings that can be excluded from a Pell Grant award calculation. This change, which affects different types of students differently, would reduce the appropriation required to keep the maximum grant at its current level by $1.6 billion in 2012 and $9.1 billion over five years.

While there is currently little information available on how this change would affect Pell Grant recipients, it’s worth reviewing what role the income protection allowance plays in determining who gets a Pell Grant and how much aid a student could receive.

Pell Grant awards are based on a student’s Expected Family Contribution (EFC). The EFC is determined by subtracting a family’s expenses (including living expenses, retirement needs, and tax liability) from its total income and, in some cases, assets and then identifying a reasonable percentage of that remaining income to support postsecondary education costs. The EFC is calculated slightly differently for students depending on whether they are dependents, independents with dependents (such as children), or independents without dependents. Importantly, if a student is independent, then the calculation does not include any financial information from his or her parents.

Once a student’s EFC is calculated, a student’s Pell Grant award size is the lower of (1) the total maximum Pell Grant (currently $4,860) minus the student’s EFC, or (2) Cost of Attendance (COA) at the student’s institution of higher education minus that student’s EFC. Students that are attending school less than fully time receive an award that is ratably reduced. After a student’s basic award is calculated, a mandatory award of $690 is added to the total amount (resulting in a total maximum award of $5,550).

The change in the income protection allowance means that more of a student’s personal earnings would be included in their EFC calculation than are currently, resulting in a smaller Pell Grant award overall. And students who may have otherwise qualified for a small grant may get none.  But the change would be different for different students. For some students, the amount of personal income they can exclude from their EFC calculation would decrease by as little as $2,710. But for others, the exclusion would decrease by $7,000 or more.

For dependent students, the amount of personal earnings that would be excluded from the EFC calculation would decrease from $6,000 to $3,290. For independent students without dependents who are single or who are married to spouses who also receive Pell Grants, the amount would decrease from $9,330 to $6,620. For independent students without dependents who are married to spouses that are not receiving a Pell Grant, the personal income exclusion would drop over $4,000 from $14,960 to $10,620. The personal income exclusions for independent students with dependents, which changes depending on the total size of the student’s family, would decrease by significant amounts starting with $6,850 for a family of two. Click here to see a side by side comparison of these changes to the personal income protection exclusion with the current law.

In the end, each of the changes the House appropriations bill makes to Pell Grants will have varying effects on the discretionary cost of the program (we’ll leave a discussion of the effects on the mandatory/entitlement cost for another time). Some of the changes are relatively insignificant, saving less than $100 million in 2012, while others are huge, like the personal income exclusions described above. But each of these proposed changes will be important bargaining chips as the House and Senate negotiate a final fiscal year 2012 appropriations bill over the coming weeks and find a way to pay for the 2012-13 academic year’s Pell Grant.

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