Obama to seek changes in Pell Grants

Education officials warn that Pell Grant cuts could force millions of students to drop out of college.

President Barack Obama’s budget plan would cut $100 billion from Pell Grants and other higher education programs over a decade through belt-tightening and use the savings to keep the maximum college financial aid award at $5,550, an administration official said.

Nearly $90 billion of the projected savings would be achieved through two changes, said the official, who spoke on condition of anonymity ahead of the Feb. 14 release of Obama’s 2012 budget.

The spending plan applies to the budget year that begins Oct. 1. Congress would have to approve both changes.

The first proposal would end the “year-round Pell” policy that let students collect two grants in a calendar year, with the second grant used for summer school.

The official said the costs exceeded expectations and there was little evidence that students earn their degrees any faster.

The change would save $8 billion next year and $60 billion over a decade, the official said.

A second proposal would reduce loan subsidies for graduate and professional students. That would free $2 billion next year and save $29 billion over 10 years, according to the official.

Education organizations expressed concern about the Pell Grant reduction proposal just hours after it was released to the public.

Molly Corbett Broad, president of the American Council on Education (ACE) said the Obama administration’s Pell Grant adjustments should be seen as a long-term effort to shore up the Pell Grant program’s “financial underpinning.”

Corbett Broad said the plan to cut Pell Grant funding would be met with skepticism by many in higher education. She added that ACE would “support the overall objective of ensuring a viable array of student aid programs anchored by the indispensable Pell Grant program.”

The government currently pays the interest on student loans for some graduate and professional students as long as they stay in college. But the official said experts think the subsidy has failed to encourage more students to attend graduate school and it isn’t well-matched to borrowers who have trouble repaying the loans.

The administration also has expanded other programs that help students reduce loan payments and ultimately forgive debt they can no longer afford to repay.

Another $4 billion in savings over 10 years would be achieved by broadening the use of IRS data to determine eligibility, reducing improper payments, and easing the application process, the official said.

Faced with growing annual budget deficits and a national debt into the trillions of dollars, Obama has said his latest budget proposal would save $400 billion over the next decade, including through a five-year freeze on some discretionary spending and cuts to programs that he says even he cares about.

But at the same time, Obama wants to increase spending in areas he says are priorities, such as education and innovation, which he says are important for long-term economic growth and competitiveness.

“It would be a mistake to balance the budget by sacrificing our children’s education,” he said Feb. 12 in his weekly radio and internet address, in an apparent warning to Republicans.

The Institute for Higher Education Policy (IHEP) said in a statement that the Obama administration’s budget showed that “cuts … had to be made” as the country faces its looming debt crises.

IHEP, however, said the White House should use “caution” in modifying the Pell Grant program, “as these cuts may sacrifice the ability of many Americans to access and attain the college degrees.”

The Student Aid Alliance (SAA), a nonpartisan coalition of 80 educational groups, called Obama’s Pell Grant proposal “very reasonable.”

The SAA recently wrote a letter to the House of Representatives saying a Pell Grant cut would “force millions of students to drop out of school” if House legislation — known as HR1 — becomes law.

SAA’s letter to the House pointed to labor economists’ estimate that the U.S. will need 22 million new workers with college degrees by 2018. The country, on its current pace, would miss that mark by about 3 million students, according to SAA.

“By denying students the opportunity and the means to complete their educations, the proposed cuts will result in a dramatic and immediate impact on the American economy and competitiveness, ultimately impairing the ability of millions of college students to achieve the American dream,” said David Warren, SAA co-chairman and president of the National Association of Independent Colleges and Universities.

House Republicans want to cut $100 billion from the budget proposal Obama submitted for 2011 and education and college financial aid are expected to take a hit.

Congress, then controlled by Democrats, did not pass a budget for 2011.

Pell Grants are the main federal college financial aid program for the poor.

More than 9 million students receive these grants every year, according to the White House, and Obama increased the maximum award to $5,550. The money does not have to be repaid.

The administration is projecting a shortfall of more than $20 billion in the program for the 2012. Without action, officials say, the maximum award would have to be cut by more than $2,500 to meet demand.

Demand increased sharply since the economic slump because more job seekers are going to school to learn new skills and they need help paying the tuition, the administration official said.

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