Federal

Under Budget Bill, Some Students Facing a Reduction in College Aid

By Vaishali Honawar — December 07, 2004 5 min read
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More than 1 million students could be required to pay more out of pocket for college under the catchall spending bill Congress approved last month, analysts say.

The bill would clear the way for the Department of Education to update the state tax information used in calculating students’ eligibility for Pell Grants for the first time since 1994. The federal aid program, which will receive more than $13 billion in 2005, helps families of modest means pay for college, and any changes in its provisions raise worries that some students will lose out on aid.

Such would be the case with a revision in the tax information the department uses as one factor in determining eligibility for the grants. Families in some states would be found paying less in taxes than under the older tax tables, and therefore would be deemed to have larger incomes. That would reduce or even eliminate their children’s grants.

The anticipated change would reduce the average allocation by $300 for some 1.2 million Pell Grant recipients, out of some 5 million total recipients annually, and could cause 90,000 students who receive the minimum annual grant of $400 to lose the awards completely, said Brian K. Fitzgerald, the director of the Advisory Committee on Student Financial Assistance, a group created to advise Congress. The federal government would save $300 million under the change in fiscal 2005.

The students most likely to lose their grants would be those coming from families with annual incomes between $35,000 and $40,000. Students whose families make below $25,000 a year would not be affected by the change, Mr. Fitzgerald said.

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The Education Department has not said when it would start using the new tax information. In addition to families’ state tax burdens, eligibility is based on a number of factors, including family income and family size and the number of family members in college.

A Congressional Research Service report had estimated that 84,000 students would lose their Pell Grants if the change took effect for the 2003-04 academic year, and that the federal government would save $270 million that year.

The Education Department first tried to implement an update of the state tax information on its own in 2003. But in a move led by Sen. Jon Corzine, D-N.J., Congress blocked such a revision with an amendment that suspended the change for one year.

Blocked Last Year

Democrats like Sen. Corzine argued that using the tax information—the most recent available dates back to 2001—would be out of step with reality because it would appear as if families are paying lesser tax although many states’ taxes have increased, not decreased, over the past three years.

Some members also wanted to wait to make the change as part of a still-pending reauthorization of the Higher Education Act.

Pell Grant Eligibility

Eligibility for federal Pell Grants is calculated by subtracting the expected family contribution, or EFC*, from the maximum Pell Grant award. It is also affected by whether a student is enrolled full time or less. Individual awards vary from $400 to $4,050 per year.

The formula lets families deduct some of what they pay in state taxes. Last year, the Department of Education proposed, for the first time in a decade, to update state tax information used to calculate the EFC. For families in some states, that revision would reduce the deduction they could take off their expected contribution, thereby reducing their children’s Pell Grant awards.

Congress barred the department from using the updated tax information in the fiscal 2004 federal budget, but it recently passed an omnibus spending bill for fiscal 2005 that would allow the change.

*The EFC is calculated using information that includes family income, family size, number of family members attending college, and assets from the previous calendar year.

SOURCE: Education Week

But an amendment introduced this year to again suspend the new formula was left out of the compromise education spending measure for fiscal 2005, which is part of the nearly $400 billion catchall appropriations bill. When Congress clears up an unrelated glitch in the bill and President Bush signs it, as expected, the way will be clear for the Education Department to use the new tax information.

Mr. Fitzgerald said the state tax information should have been automatically updated each year, but the Internal Revenue Service had failed to provide the information for the past several years.

“The cumulative effects of that are great,’’ he said. The Pell Grant program now has a shortfall of $4 billion, and the maximum grant has been frozen at $4,050 for the last three years.

James Boyle, the president of College Parents of America, an advocacy group based in Arlington, Va., said it was time that the federal government updated the tax information so that the shortfall in Pell Grant funding could be reduced and the maximum grant amount increased.

“The reality is it is ludicrous to be basing the grants on tax information that is several years old,” he said.

But Democrats in Congress criticized what they said was a “punitive” measure that would hurt students’ access to college. Sen. Corzine called the measure a “backdoor attempt to cut funding from the Pell Grant program.”

“We need to expand opportunity in this country, not relegate it to only those who can afford it,” he said in a statement, adding that the cuts would particularly hurt families at a time when the economy is sluggish and tuition rates are rising.

Rep. John A. Boehner, R-Ohio, the chairman of the House Education and the Workforce Committee, warned that a failure to update the formula could cause a steep shortfall in Pell Grant funding in future years.

Debate About Access

He said in a statement that data used to determine Pell Grant eligibility were last updated under President Clinton’s administration in 1994, using state tax tables from 1988. Congress, he said, had delayed subsequent efforts to update the tax tables and the formula used to calculate families’ eligibility.

“If the department continues to use the 1988 tables, it’s conceivable the current Pell Grant budget shortfall will be deepened by hundreds of millions of dollars,” Rep. Boehner said.

But some education advocates said they were disappointed by news that some students would see cuts in their Pell Grants.

“Making Pell Grants available to fewer low-income students when it is important for more and more students to go to college is a step in the wrong direction,” said Michael Cohen, the president of Achieve, a Washington-based advocacy group for strong academic standards, and a former assistant U.S. secretary of education under President Clinton.

Becky Timmons, the director of government relations for the American Council on Education, a Washington-based lobbying group for higher education, said the move “causes enormous concern about what it will do to students’ access to college.”

She said the impact would be significant because college tuition rates have been increasing each year. Tuition increased by 10.5 percent at public four-year colleges for the 2004-05 academic year, and by 6 percent at private institutions. The College Board estimates that the average tuition for in-state students at four-year public colleges is $5,132 this year.

Ms. Timmons said that while the ACE doesn’t deny that the tax tables need to be updated, “had the department been making the tax changes annually, it would have the effect of keeping the needs analysis tightly drawn to focus on the neediest students.”

Rep. Boehner said not updating the formula would have hurt the students most in need of federal aid. Unless the formula is updated, he said, “it may be many more years before Congress can again increase the maximum Pell Grant award that goes to our nation’s neediest students.’’

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