As we wrote last week, congressional budget resolutions are always light on details. At best, lawmakers include vague descriptions of policies that Congress could enact to meet spending goals. That’s exactly what House Republicans did for Pell Grant reforms in the fiscal year 2013 budget resolution that passed the House of Representatives last week. The document offers only a few hints about how lawmakers might fund Pell Grants as the program nears a major funding cliff in fiscal year 2014.
Using those hints, we’ve done some detective work to put together what we think the House Republicans might be after with respect to Pell Grant funding levels. The results suggest that House Republicans do in fact have a long-term plan for Pell Grants that would stave off a big cut to the maximum grant and/or avoid radical eligibility changes come 2014 – but their plan includes a few key tradeoffs.
The report accompanying the House-passed budget resolution says it will make Pell Grants sustainable, referring to the funding cliff Congress must address for the fiscal year 2014 appropriation and each year thereafter. The funding cliff is the $30.7 billion annual appropriation needed to maintain the maximum grant under current law. (Keep in mind that the upcoming fiscal year 2013 appropriation isn’t problematic due to a current surplus of $2.1 billion and funding provided through other sources like the Budget Control Act of 2011. More information on funding history and the cliff is here.) To address the upcoming funding cliff, House lawmakers propose several policy and eligibility changes.
As part of their sustainability plan, House Republicans would set the maximum grant at $5,550 indefinitely – the same level as in fiscal years 2010 through 2012. That is a major concession over past proposals. House Republicans last year vowed to return the program to its “pre-stimulus” levels (a maximum grant of $4,731 at a cost of $16.2 billion). Congress first set the $5,550 maximum grant level using funds from the 2009 America Recovery and Reinvestment Act. Republican lawmakers have now proposed to fix that “post-stimulus” grant level in perpetuity.
Under current law, the maximum grant is scheduled to rise with inflation for five years starting in fiscal year 2013. The change proposed by the House budget – forgoing the five years of inflationary increases – reduces the cost of the program by about $1.5 billion in 2014 and a bit more each year thereafter based on figures from the Congressional Budget Office’s March 2012 baseline. It’s important to understand that House lawmakers would end the portion of the grant funded as an entitlement (not the portion funded through the appropriations process) to achieve the cost savings.
The entitlement funding source provided $5.0 billion in 2012 when the maximum grant was $5,550. Therefore, we assume that even though the House proposal would end entitlement funding currently in law for Pell Grants, lawmakers would move $5.0 billion each year from that funding source to support the annual appropriation in future years. Therefore, the portion of the entitlement funding that is eliminated by capping the maximum grant is the only actual reduction in program costs ($1.5 billion in 2014) that stems from eliminating the entitlement funding.
Other savings stem from changes House lawmakers would make to eligibility rules for Pell Grants (see this side-by-side). These include eliminating Pell Grants for students attending school less than half time, reducing the individual income threshold that automatically qualifies a student for the maximum grant from $23,000 to $20,000, and limiting grant eligibility to students below an absolute income threshold, though the proposal doesn’t specify what that income level would be. The first two proposals result in minor savings according to previous Congressional Budget Office estimates.
The latter proposal, however, could be the source of major savings depending on where lawmakers set the income ceiling. Current rules don’t set an absolute income limit for Pell Grant recipients. Eligibility is instead determined by a formula that takes income and other factors into account. Data from the U.S. Department of Education show that more than $7 billion in Pell Grants went to families earning incomes of $30,000 and above. For our estimate, we assume the House budget envisions an income cap of $45,000, which we approximate would lower the cost of providing a maximum grant of $5,550 by about $2.5 billion per year.
Finally, we assume that savings generated by the House resolution’s proposal to end the interest-free benefits on Subsidized Stafford loans for undergraduate students would be used to fund Pell Grants. Ending the interest benefit produces large savings according to a Congressional Budget Office estimate released in 2010. It would free up about $4.8 billion annually to be reallocated to Pell Grants indefinitely.
When you add up the reallocated funding and the cost reductions that stem from the proposed eligibility changes, the House proposal would require Congress to appropriate annually about $21 billion. (See table below.) That’s about $9 billion less than what would be needed under current law starting in 2014 and each year thereafter. Furthermore, a $21 billion annual appropriation is in line with what Congress has provided through the regular appropriations process in recent years, bolstering the House Republican’s claim that their plan makes the Pell Grant program “sustainable.”
Of course, it is possible that House Republicans would not reallocate savings achieved by the various proposals into Pell Grants. Still, House Republicans state in their budget resolution that they want to support a maximum Pell Grant of $5,550 indefinitely. That concrete proposal gives us a good sense of how much funding Congress will need to provide each year for the program (after the proposed eligibility changes are made). Our calculations suggest that to eliminate the 2014 funding cliff and support a maximum grant of $5,550, most of the savings associated with the proposed spending cuts would have to be reallocated to Pell Grants.
If our assumptions are right, we think the House Republicans have a feasible proposal that trades cuts to other aid programs, a freeze to the maximum Pell Grant, and a few eligibility changes to fund maximum Pell Grants at $5,550 for the long-term. Now the question is: Will House Republicans provide all the details behind their proposal?