Past, Future Pell Grant Changes Offer Hope for Families

As Congress prepares to reauthorize the Higher Education Act, the Student Loan Ranger expects to hear a lot more conversation about the most quintessentially American part of the U.S. federal financial aid program: the Pell Grant.

The government established the Pell Grant in 1972 to help low-income and middle-class students pay for college. Over time, the dollar amounts of these awards have increased -- from an average of $628 in 1974-1975 to an average of $3,651 this past academic year. Unfortunately, the power of those dollars has decreased significantly.

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In the 1980s, the Pell Grant covered more than half of the cost of a four-year degree from a public college; today, it covers less than a third of that. If you're a student relying on this free money to cover your education costs, you surely feel this squeeze -- and you might even feel like there's no help for you.

Congress has struggled to maintain the value of the Pell Grant award over the past few years, and it has also taken positive steps in recent years to further improve this program. Even more progress may also be on the horizon.

To address the growing pressure to keep Pell amounts at least consistent, Congress created a 10-year mandatory funding source in 2007 to supplement the existing appropriations process -- an annual process in which Congress considers several measures that provide funding for things like national defense, education, homeland security, crime and general government operations.

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The new mandatory Pell fund helps award amounts keep up with the cost of inflation, while not subjecting the increases to the annual budget process.

In 2010, this mandatory funding was adjusted with the savings created by the elimination of the lender-based Federal Family Education Loan Program. Thanks to this change, Pell Grants should receive annual cost-of-inflation increases until 2017.

In addition to changing the funding mechanism, Congress also expanded the types of income excluded from Pell's eligibility formula in 2007. As a result, more families are now able to qualify automatically for the maximum grant award.

Policymakers continue to try and bridge the gap. This past spring, three senators, Mazie K. Hirono (D-Hawaii), Jack Reed (D-R.I.) and Sheldon Whitehouse (D-R.I.), introduced the Pell Grant Protection Act. This act aimed to improve the Pell program in several ways.

First, it would restore summer Pell awards, which were very briefly available in 2007. These awards would allow students attending school year-round to receive a second Pell Grant during the summer months. Second, this plan would convert the Pell program to an automatic spending program, with a built-in cost-of-living adjustment similar to the Social Security program. This would ensure consistent funding past 2017.

Over the years, there's been significant debate as to whether increasing financial aid causes the very problem that aid tries to solve: the high cost of education. (Spoiler alert: No one knows.) Regardless, there's no question that the Pell Grant is no longer as powerful a tool in accessing higher education.

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From 2007 to 2010, the cost of this program rose from $14.7 billion to more than $35 billion. However, despite this dramatic increase, as mentioned above, the Pell Grant still doesn't cover even the average tuition and fees of a four-year public college.

With all that spending ultimately amounting to very little help, some policymakers are moving the discussion away from how to fund a Pell Grant that will cover the cost of college to how to control these costs themselves.

But regardless of whether Washington can find a way to lower college costs to meet available funding, or increase the funding to meet college costs, one thing's certain: Pell Grants are here to stay for the immediate future, but they won't be eradicating the need for student loans anytime soon.

Betsy Mayotte, director of regulatory compliance for American Student Assistance, regularly advises consumers on planning and paying for college. Mayotte, who received a B.S. in business communications from Bentley College, is a frequent contributor to ASA's SALT Blog; responds to public inquiries via the advice resource "Just Ask;" and is frequently quoted in traditional and social media on the topics of student loans and financial aid.