Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Pell grants on the line

By Jennifer Liberto, senior writer


WASHINGTON (CNNMoney.com) -- On Sunday, the House is set to vote on an historic overhaul of the nation's health care system. It will also take up an issue that will get far less attention but could affect the wallets of millions of Americans.

The nation's popular Pell grant program, which provides federal grants to millions of Americans based on financial need, is facing a $19 billion budget gap.

The economic downturn is a big part of the cause. Federal officials who run the program were caught off guard by the sheer number of people who went back to school and earned low enough incomes to qualify for the grants. They underestimated the number of recipients for this year by 765,000.

Secretary of Education Arne Duncan warned this week that grants for 8 million students could be reduced next year if the legislation doesn't pass or Congress doesn't take other steps to fund the grants. And nearly 600,000 students could lose their grants outright.

This year, the maximum Pell grants were $5,350, in part because of extra funding contained in the Recovery Act. But in 2011, the maximum award is slated to drop to $2,150 if Congress does not act.

The Obama administration's funding solution now before Congress is part of a proposal to end federal subsidies to private lenders that make federally-backed student loans. If passed, the lending overhaul would produce $36 billion in savings that will be dedicated to Pell grants, including $13.5 billion to plug the current gap.

The bill wouldn't fill the entire shortfall and it's not clear how the rest of the $5.5 billion gap would get plugged.

Republicans who oppose getting rid of the subsidized private loan program say that the recent stimulus-related hikes in Pell grant funding were a windfall that taxpayers can't afford.

"We're facing billions in a shortfall, because the increases that were made were not sustainable," said Alexa Marrero, spokeswoman for Rep. John Kline, R-Minn., the ranking Republican on the House education panel.

As the recession started to set in, during the 2007-2008 school year, 27% of all undergraduates received an average grant of $2,600, according to the Department of Education. The grants tend to go to families making less than $40,000 a year.

Colleges and students have been hitting the halls of Congress to lobby for more money. On Tuesday, some 500 students will rally in Washington, said Lindsay McCluskey, vice president for U.S. Student Association.

"It hasn't been prioritized so it doesn't have the flexibility to cope for times like these," McCluskey said. "It's very vulnerable."

Kim Behrendt, a 28-year-old student at University of Wisconsin in Marinette, says he may have to drop out of school if the government doesn't cough up more Pell grant funding.

The father of four works at an auto parts foundry and went back to school to study business management after his workplace laid off 120 last year.

"The foundry is really really beating up my body," said Behrendt, who wants to open his own business like an arcade for kids. "I'm hoping to seek new opportunities." To top of page

Index Last Change % Change
Dow 16,204.97 -211.61 -1.29%
Nasdaq 4,363.14 -146.41 -3.25%
S&P 500 1,880.05 -35.40 -1.85%
Treasuries 1.85 -0.02 -0.86%
Data as of 6:49pm ET
Company Price Change % Change
Bank of America Corp... 12.95 -0.30 -2.26%
Facebook Inc 104.07 -6.42 -5.81%
Freeport-McMoRan Inc... 5.68 -0.04 -0.70%
Microsoft Corp 50.16 -1.84 -3.54%
General Electric Co 28.54 -0.64 -2.19%
Data as of Feb 5
Sponsors

Sections

Anheuser-Busch has been the exclusive beer advertiser featured during the Super Bowl since 1975, and it's spent more on Super Bowl advertising than any other company for the last five years in a row. More

The economy is better than it was, but not even President Obama is ready to declare it's booming. More

Laurie Segall sits down with Foursquare's new CEO Jeff Glueck to discuss the company's latest round of funding at a lower valuation, and their hybrid consumer/enterprise business model. More

Nonprofit JumpStart has launched a new $10M fund that will only invest in women and minority-led startups. The catch: You have to move to Ohio. More

Portland, Oregon, is often described as the last affordable cool city on the West Coast. But as more people move to the city, it's becoming increasingly unaffordable. More