Debt-ceiling bill includes $17B increase in Pell Grants

capitolresized — Lawmakers gave Pell Grants for low-income college students a $17 billion boost at no additional cost to taxpayers by eliminating the in-school interest subsidy on subsidized loans for graduate students.

After weeks of political posturing, the agreement reached by lawmakers to raise the nation’s debt ceiling contains some good news for low-income undergraduate students—and bad news for other education stakeholders.

With just hours left before the national debt bumps against its cap, emergency bipartisan legislation to allow the government to borrow more money faces one final test in the Senate. Expected passage there sends the bill to President Barack Obama, averting a potentially disastrous, first-ever government default and making a down payment toward taming budget deficits.

The legislation, which easily passed the House on Aug. 1, is virtually assured to clear the Senate shortly after noon Aug. 2 by a bipartisan tally. The White House promises Obama will sign the measure into law.

The legislation pairs an increase in the government’s borrowing cap with promises of more than $2 trillion in budget cuts over the coming decade, including cuts to federal education spending. However, Pell Grants for low-income college students will receive $17 billion more in funding at no additional cost to taxpayers by eliminating the in-school interest subsidy on subsidized loans for graduate students.

That means graduate students would have to pay interest on their loans while still in school. The deal also eliminates the current student loan interest rate reduction for on-time loan payments. Together, these two changes are expected to generate $22 billion in savings, with $17 billion allocated for Pell Grants and the remaining $5 billion helping to reduce the deficit.

“This $17 billion in dedicated mandatory funding for Pell Grants helps close the program’s funding gap, protecting Pell Grants from harmful cuts without impairing other critical discretionary programs,” said Pauline Abernathy, vice president of The Institute for College Access & Success, in a statement. “More than nine million students depend on Pell Grants to attend and complete college. Even with a Pell Grant, recipients are more than twice as likely as other students to have to take out student loans, and they graduate with significantly more debt than other students.”