More than a third of the more than five million low-income students who qualify for Pell Grants will see a decrease in their 2005-06 grant awards, while an additional 81,000 applicants will lose their aid altogether, according to a new report from the Government Accountability Office.
The report is an updated version of one put forth by GAO in January, which discussed effects that the U.S. Department of Education’s recent update of state tax calculations used in financial aid formulas have on student awards. Prior to 2004, the state and other tax allowance was based on 1988 tax data. The new tax tables, which take into account lower state taxes, translate into higher take-home income.
Higher income calculations correspond to an increase in the estimated family contribution to the cost of education, and a subsequent decrease in Pell Grant eligibility.
GAO conducted the report at the request of Rep. David Obey (D-Wisc.), who sought evidence of how the changes would affect the Pell Grant awards.
“Education’s 2004 update decreases the state and other tax allowance for most states for the 2005-2006 award year and will, thereby, increase the estimated family contribution for a majority of student-aid applicants; the increase in expected family contribution will, in turn, affect the allocation of federal aid,” GAO Director of Education, Workforce and Income Security Issues Cornelia M. Ashby stated in the analysis.
The report found that 21 percent of California students receiving aid would see their grant amount decrease compared to 36 percent on a national level. The average dollar decrease for California students is also lower, at $86, compared with the national average drop of $131. Those Californians eligible for an increase will see an additional $209, compared with a national average increase of $443 for the country. Collectively, Pell Grant expenditures will be cut by about $250 million.
Wisconsin and Massachusetts will be hardest hit by the reforms, with 80 and 81 percent of students seeing a decrease in their eligibility, respectively. New Jersey will see only 1 percent of its students with higher expected family contributions, while overall numbers in Connecticut will remain unchanged.
Other financial aid programs, such as Stafford and P.L.U.S. Loans, will also be affected by the changes. The analysis shows that those with an annual income of more than $25,000 are most likely to have their Stafford Loan amounts decreased.
The issue of tax table updates and reduced financial aid awards has proved a partisan debate.
Former Chairman of the House Committee on Education and the Workforce John Boehner (R-Ohio) has been a backer of the changes, pointing to evidence that the changes will result in higher aid for students in the lowest income brackets.
“The Bush administration is following the law by updating the Pell Grant tax tables — a law written and passed by a Democratic Congress more than a decade ago in an effort to target Pell Grant aid to the poorest students in the country,” Boehner stated in a press release earlier this year. “The use of the updated tables will make the Pell Grant program stronger, while protecting taxpayers and the poorest students in the country, who would otherwise have been dealt another blow in their hopes for an increase in the maximum Pell Grant award.”
Congressman George Miller (D-Calif.), senior Democrat on the House education committee, opposed the use of the new formulas and said that the reduction of Pell Grants represents a mistake.
“Congress must do a better job of maintaining and improving its commitments to college students, and it should start by increasing the Pell Grant scholarship,” Miller stated in a recent release. “Our nation’s continued economic success demands that we take the federal investment in higher education seriously.”
Congress has subsequently approved a $100 increase in the maximum Pell Grant award, although it is a smaller increase than Miller wanted.
In its January report, GAO recommended that various measures be taken to ensure that student financial aid is determined by the most accurate method possible. In the short term, GAO recommends that the federal secretary of education formalize procedures so that the department annually requests and obtains the most current tax data from the Internal Revenue Service.
In addition, the Education Department should revise the methodology for calculating the tax allowance to better reflect the varying tax rates paid by students and families in different income groups, it recommended.
For the long term, GAO recommends that the department determine whether more effective data sources or methodologies exist for deriving the allowance.
