Every year, millions of students in the United States depend on money from the government Pell grant program to earn a college education.  For students who want to complete a degree or those interested in starting college, Pell grant money is designed to offer financial assistance when income levels are not sufficient enough for these individuals to achieve their goal.  Although specific criteria must be met for qualification, this money has paved a way for many people to not just earn a college degree but then go out into the real world to secure gainful employment.

Over the past year, the amount of money available for the Pell grant program has decreased.  As a result, a college education has been much harder to achieve for many people but in addition to this, the cut forced educational institutions to make dramatic changes.  For many colleges and universities, this reduction has meant denying some people from being accepted as students but also, many colleges and universities have had to create unique funding programs to help students needing financial aid.  As a result, the cost of tuition and other fees have gone up to help absorb the additional cost.

Now, President Obama has proposed a major change to the Pell grant program that could prove devastating both short and long-term.  The current proposal would mean a decrease of more than $20 billion in Pell grant money for the academic year 2011 to 2012.  However, the proposal also consists of another reduction of Pell grant money in the tune of $100 billion over the next 10 years.  In a press conference, Arne Duncan, the United States Secretary of Education confirmed the facts of President Obama’s budget reduction.

While most Americans would agree the recent financial crisis resulted in a dark cloud hanging over the country from an economic standpoint, if the proposed Pell grant reduction were to be enacted, the number of low income students wanting a college education would be massive.  Unfortunately, because people with the greatest need are the ones who depend on financial aid of this type most, the loss of funding would mean the opportunity to earn a degree and thereby, secure a stable and good paying job would be eliminated or at minimum, greatly altered.

Experts estimate that more than 9 million students throughout the United States currently receive a Pell grant reward of some level.  Because of the way this program was developed, students of greatest need receive the highest rewards whereas those with the least need receive a lower amount of financial aid.  Obviously, the number of returning students and those trying to get into college with the greatest financial need would decrease if the proposal by President Obama were to be approved.

According to colleges and universities around the country, while the proposed budget cut would equate to an extra $2 billion savings by loan subsides for graduate students being reduced and program consolidation, it also means that educational institutions would be forced to restructure a variety of academic plans.  For instance, attendance of part-time students would drop significantly and for many people, a delay of going to college would be evident.

Now, as a caveat, Carmel Martin the assistant secretary with the United States Department of Education stated that with this proposal, instead of people being provided money upfront, the outcome would ultimately be much better.  Martin went on to say that President Obama’s goal was to make college a priority for people with low incomes and that by making this change, overall spending within the department of education to accomplish this would increase by $2 billion, pushing the new budget for education to just under $5 billion.

It is important for people to remember that President Obama’s proposed budget cut to the Pell grant program is just that, a proposal.  For this proposal to become law, it would likely face heavy scrutiny in Congress.  At current time, no significant changes have been or will be made.  With higher education being a major focus for the majority of people in this country, the final decision remains to be seen.

Many students use a Federal Pell Grant to help pay for the high cost of college.  Years ago, the process involved for application and approval of this type of grant was not only simple but also quick.  Unfortunately, things have changed, making the application and approval of the Federal Pell Grant more complicated and longer.  Because of this backup in getting current and potential students approved, college and university officials have serious concern on how education will be impacted for the school year of 2011 and possibly beyond. The Pell Grant backup is expected to continue.

Another problem that is making the issue with the Federal Pell Grant backup worse is that the number of people interested in going to college for the coming year has increased dramatically.  With that comes a much greater need for financial support to get through school but without the ability to get aid, things could prove bleak.  In fact, the potential problem is so huge that the federal government estimates the backup could be as high as $5.7 billion.

Obviously, compromising the ability for students to receive financial aid through a Federal Pell Grant is not an option.  Therefore, lawmakers are working hard to come up with a solution that would allow the lower income students to get the help needed.  Earlier discussions had occurred but the results were not successful so while new discussions are taking place, the gap between the current situation and money from a Federal Pell Grant becoming available has left school officials, as well as students frustrated and even angry.

As deadlines approach for students to enroll in the winter and possibly spring classes, not having financial assistance from a Federal Pell Grant has created a lot of discord.  One of the biggest concerns is that without students having access to this government money, many will turn away from four-year colleges and universities, choosing community colleges instead simply because of lower price.  Since the current economy is challenging, most people regardless of age or area of education look for affordable solutions, which includes completing college.

It is important to understand how beneficial the Federal Pell Grant is so the degree of this backup problem can be appreciated.  Just for the school year 2010, this particular grant covered more than $32 billion in financial aid.  Then in March of 2010, the federal government passed a new law in which students would be allowed to receive a maximum financial award from the Federal Pell Grant of $5,550 for the 2010/2011 year.

The current backlog of $5.7 billion means if this serious problem is not quickly resolved, students would only receive $4,705 instead of the $5,550.  As a result, $845 would be blocked and when you look at the cost of tuition, books, lab time, etc, that money would be a huge hit.  Remember, the House and Senate are currently working on a solution to bridge the gap into what students should receive and what they will receive but just as the initial discussions fell through, everyone is holding their breath to see what happens.

The concern is that as 2010 nears closure, the House, and Senate will likely focus on more pressing issues.  However, for people wanting to complete an education in the 2010/2011 school year and for the four-year colleges and universities, the wait is devastating.  The backup associated with financial aid from Federal Pell Grants has become so serious that some colleges and universities have begun to create some type of aid package that would prove beneficial starting in January of 2011.

Another blow is that only recently lawmakers tried to push Pell Grant funding into the $1.1 trillion omnibus bill but this too failed.  Of all blows, this one makes it clear to many educational institutions that the Federal Pell Grant may not work.  As a result, many educators and administrators believe a different government program similar to Social Security needs to be developed.  That way, funding would come from the government annually so a backup in financial aid such as the one associated with the Federal Pell Grant would be avoided.

A perfect example of this scenario can be seen with the University of North Carolina at Chapel Hill.  Rather than wait for the government to fix the Federal Pell Grant backup, financial aid for the 2011/2012 school year is being budgeted for with money being put aside now.  Although this particular university is optimistic that the Pell Grant issue will be resolved quickly, they also realize that other plans of actions are needed.  Because the Federal Pell Grant plays such a huge role in helping low to low-to-middle income students get an education, schools are putting plans in motion to budget for the missing $845 while anticipating at least the minimum $4,705 would go through.

Now, in addition to the backup of money for Federal Pell Grants pushing some students to more affordable educational institutions, another problem is beginning to surface.  In this case, another group of low and low-to-middle income students is turning to financial aid in the form of private student loans.  As most people know, these loans have high interest, which means students graduate with horrific debt whereas the Federal Pell Grant is money that does not have to be repaid.  Because of this, students who graduate using government money have less debt and therefore, the opportunity to move forward with a career using the degree earned without suffocating.

Here is the bottom line – if the backup of money being paid to students via Federal Pell Grants for the 2010/2011 school year is not corrected soon, more than six million low and low-to-moderate income students would be affected, as well as one million students with moderate income.  Additionally, the amount of the private student loans could increase anywhere from 10% to 30%.  If you look at that scenario long-term, potential exists for students to default on the loans, which then has a ripple effect to the lenders and the population in general.

While some students would have the option of taking out a private loan, sadly, many would not even quality.  Since criteria for loan approval has been tightened, qualifying has become very difficult.  Then when you consider that the majority of students that would need to fill the Federal Pell Grant are in the low and low-to-medium income groups, being approved for a private school loan is near impossible.  Therefore, many people trying to better themselves through education would be left out in the cold.

Keep in mind that while the amount of private school loans would increase, the amount is not expected to be significant, at least initially.  However, officials from Sallie Mae believe that if the issue surrounding Federal Pell Grant does not reach quick resolution the amount of open private loans within the next year, possibly two could easily surpass the $20 billion mark.  Overall, people deserve to get a college education and they deserve to receive government financial aid when needed but without the full amount of Federal Pell Grants, many parties would be affected in a negative way.

Built within a health-care reform bill that became the focus of Washington the last 14 months or so, was a reform for education programs and student loans. In essence, the health care bill reforms Pell grants as well. Part of the reconciliation bill that Congress passed Thursday, college students will now have access to larger programs, and those students taking out government loans will have a much easier time repaying them.

The changes represent a major change of the college assistance programs that the government has offered previously. Essentially, the government now will control federal student loans, and lieu of private institutions and banks.

One of the beneficiaries of the savings from the switch to the government taking over student loans is an increase in Pell grants. Many students in fact nearly 9,000,000 students attend college with the help of Pell grants. Many students and borrowers will see lower interest rates and higher approval rates on student loans as well.

While Pell grants will not increase dramatically, many are praising the bill. “The increases in the Pell Grant are better than nothing, but they are still quite anemic,” said analyst Mark Kantrowitz, publisher of the student assistance Web site FinAid.org.
Some of the key components of the reform are, Pell Grants would rise from $5,550 for the coming school year to $5,975 by 2017. Lawmakers had initially hoped to reach a $6,900 cap and More eligible students could get a full Pell Grant. Most grants go to students with family income below $20,000, but students with family income of up to $50,000 may also be eligible.

College graduates who have taken out student loans will have an easier time repaying loans. The government will basically insure that workers in low-paying jobs will be able to lower their payments. The current law caps monthly payments at 15 percent of these workers’ incomes; the new law will lower the cap to 10 percent.

Again, the increases somewhat modest, but it increases an increase in more students will have more money available through Pell grants to help offset tuition cost for attending college. Changes will become official once the legislation is signed by Pres. Obama, which is expected to take place quickly.