In the Continuing Resolution passed by Congress on December 21, 2010 one line specifies that the maximum Pell Grant award amount shall not exceed $4,860. These grants, which do not have to be repaid, are an essential part of making college affordable. However, not many are aware of the history of the grant, who actually receives the money and how much the grant is worth in the real world. NPP is here to help!

The Pell Grant came into existence as the Basic Educational Opportunity Grant via the Higher Education Act of 1965. In 1980, the program was renamed after Senator Claiborne Pell (D-RI) who had been a longtime advocate. The grants are “need-based grants to low-income undergraduate and certain post-baccalaureate students to promote access to higher education.”

Qualifying for a Pell Grant requires a number of steps. First, a student must fill out the Free Application for Federal Student Aid (FAFSA), which provides the Department of Education with the information necessary to determine eligibility. Because these grants are need-based, the student's Expected Family Contribution (EFC) must be 0 to be awarded the maximum amount; the value of the grant goes down as the EFC goes up, with the EFC cutoff being $5,273. [Note: The EFC is calculated by a Congressional formula which takes into account the student's assets (savings, cash, property, stocks) and their parents' or spouse's assets, if applicable.]

Besides a student's EFC, there are other requirements for receiving a Pell Grant. The student must be under 24 years of age and working on their first bachelor's degree (or a teaching credential that does not lead to another degree). If they are male, they must register with the Selective Service. If a student meets all of these requirements and suffered the loss of a parent in Iraq or Afghanistan, they qualify for the maximum grant automatically.

One other requirement has been in the news lately: to be eligible for federal financial aid (sometimes referred to as Title IV aid after the section containing it in the Higher Education Act of 1965), the student must be a US citizen or permanent resident. The Development, Relief, and Education for Alien Minors Act of 2010 (the DREAM Act) proposed to make immigrants brought into the U.S. as children eligible for a variety of federal benefits, including access to aid for higher education such as Pell Grants. This bill was filibustered in the Senate and has little hope of being passed when the 112^th Congress convenes this month.

Funding for the Pell Grant program has been a wild ride in the last two years. The American Recovery and Reinvestment Act of 2009 (the stimulus bill) provided a one year bump in funds, making the maximum Pell Grant $5,350 for the 2009-2010 academic year. Previously, the Pell Grant was frozen for several years at $4,050 until it began to climb in 2006. The stimulus maximum was over $600 more than the 2008-2009 maximum.

More recently, the Student Aid and Fiscal Responsibility Act (SAFRA) passed in March of 2010 as part of the Health Care and Education Reconciliation Act (HCERA). SAFRA increased the limit even further, to $5,550, and indexes it to the Consumer Price Index. This means that the maximum award should increase if inflation increases.

So wait – if the maximum award in 2010 was $5,550 and the resolution only allows up to $4,860, isn't that a steep drop? Not quite! The 2007 College Cost Reduction and Access Act (CCRAA) mandates some funding for Pell Grants beyond however much Congress appropriates. The American Council on Education produced a chart that visually explains the hybrid funding quite nicely. Essentially, as long as Congress provides that $4,860 in discretionary funding (that is, Congress doesn't have to provide it; it's available at their discretion), the CCRAA mandatory funding will combine to keep the Pell Grant maximum stable (and give it a little rise over time). [Note: The Obama Administration's 2011 budget – not yet passed – proposed to reclassify all Pell Grant funding as mandatory spending. This issue hangs in the balance with the rest of the FY2011 budget. The Continuing Resolution mentioned above expires March 4, 2011.]

Why is this such a big deal, and why now? The Washington Post reports that in the late 1970s, a maximum Basic Educational Opportunity Grant covered approximately two-thirds of tuition and fees at a public university. Now it covers one third. Tuition and fees for an in-state student at a public four-year university increased 439 percent between 1982 and 2007. Many schools are facing higher than normal increases in rates as states dial back funding for public higher education due to budget deficits. As the cost goes up, Pell Grants have not been keeping pace.

At the same time as schools become more expensive, more people than ever are attending. U.S. freshman enrollment increased by 144,000 between fall of 2007 and fall of 2008, which at 6% is the largest gain in the last 40 years. The recession is a large factor in driving college enrollment; when high school graduates are unable to find jobs on the workforce, they turn to college to gain valuable skills and wait out the poor economy.

Rising costs and rising grant recipients combine to strain the program today. Current economic conditions are pressing the issue, and Congress has answered the call, for now. With a Republican Congress looking to make across-the-board cuts come January, the Pell Grant program is not out of the woods yet.