Briefing Book

The Quiet Raid on Student Aid

Trump’s threat to student aid, including Pell Grants, is very real for families. Education advocates must mobilize to stop it.

By Michael Dannenberg

Tagged Employmentstudent loansuniversity

President Trump is proposing to empty over half of the Pell Grant program’s rainy day fund at a time when the economy is relatively stable. The money is not going to boost college grant aid for students already forced to borrow too much. Instead, like all of Trump’s proposed cuts to non-defense domestic spending, student aid funds essentially would be redirected to pay for Trump’s proposed military buildup. We should find out in a few days if Congressional Republicans will be complicit in shifting Pell Grant aid in support of the military buildup or other partisan priorities.

The raid on student aid is a bigger deal for domestic policy than just another politician dipping his hand into the cookie jar. It’s a bigger deal than being emblematic of the Trump Administration’s prioritization of weapons over people in its first budget. It’s a threat around which education advocates should mobilize, but likely won’t, because the interaction between the Pell Grant program and federal budget rules are obscure and the implications delayed in time. But the consequences of emptying the Pell Grant rainy day fund are very real for families.

A little over six years ago, the Pell Grant program didn’t have a rainy day fund and confronted a $5 billion deficit—12 percent of total program cost at the time. Because of a unique “balanced budget” rule particular to the Pell Grant program, Congress cut education spending outside of the traditional Pell Grant program to reconcile the numbers. We don’t have so-called summer Pell Grants for undergraduates anymore, because of past tiny or non-existent Pell Grant rainy day funds. We don’t subsidize education loans for graduate students during their repayment grace period any longer, because of non-existent rainy day funds.

The Trump Administration would have Congress set up a scenario where, once again, there’s a Pell Grant program funding crisis—this time manufactured—that leads to other domestic discretionary program cuts. Here’s how things play out.

When the economy turns down, there’s an increase in Pell Grant program costs. Why? Family incomes decline, making more students eligible for Pell Grants. Typically, there’s also an increase in college enrollment, because more graduating high school students go on to college—be it community college, for-profit trade schools, or more traditional colleges—rather than face unemployment. Moreover, unemployed adults who graduated high school years prior go back to school to train or retrain in the hopes of acquiring new skills and a certificate or degree to help them get new jobs. Higher education enrollment swells during a recession.

Just as you can be sure the economy will slow someday, you can be sure this phenomenon will play out and, absent a rainy day fund, Congress will confront a “Pell Grant shortfall.” Overall Pell Grant program funding, which is discretionary (meaning it’s not on autopilot like Social Security and Medicare but is instead subject to the annual appropriations process), must grow in times of a shortfall more than projected years prior in order to fill the funding gap and serve poorer students while maintaining grant sizes from previous years as college costs continue to rise.

If the President and Congress empty rainy day funds now and, in turn, fail to close the inevitable Pell Grant shortfall when it arises later, actual Pell Grants to current and incoming college students will be cut. Cuts in Pell Grant awards result in some students forgoing college altogether and others dropping out of school after they’ve already invested in, and in most cases borrowed, student loans to finance work toward a certificate or degree. And this is a huge problem. College students who drop out are four times more likely to default on their student loans than those who complete their degree. Student loan default leads to devastating financial consequences for borrowers, and a spike in the aggregate defaults creates a drag on the health of the federal loan portfolio as well as the overall economy.

All this is why President Obama and Congress created a sizable rainy day surplus fund, knowing that the program will need fill-in dollars in the future. Sure, if Trump has his way, taking over $5.2 billion out of the Pell Grant rainy day fund in the next few months, there still will be over $4 billion left. But it’s a good bet that leftover sum will be raided in next year’s budget, and regardless, the remainder won’t be sufficient for the coming need.

So although the Congressional Budget Office currently projects no funding gap for the Pell Grant program for the next nine years due to the current rainy day fund, Trump’s raid would change that projection from black to red, all while the maximum Pell Grant covers its lowest share of college costs in over four decades. Its annual inflation adjustment is about to expire. Meanwhile, students still lack access to summer Pell Grants.

Under Trump’s plan, when the inevitable Pell Grant program funding shortfall arrives due to a downturned economy, Congress will be put in the position of either cutting grants for low-income college students, embracing emergency deficit spending, or having to work to find other domestic programs to cut in order to maintain the maximum Pell Grant and not force college students to drop out.

In other words, the Trump Administration’s plan to tap the Pell Grant rainy day fund is setting up Pell to act like a hatchet for conservative Republicans to use against other domestic spending, including other education programs—covering everything from kindergarten through college.

Because almost no one on either side of the aisle wants to pull the financial aid rug from under students, the Trump Administration and Congressional Republican allies are trying to create a situation, in which, a few years down the line, they can use Pell as an excuse to cut other domestic spending.

Bottom line: Trump’s raid on student aid is either reckless, devious, or, like much of the Trump agenda, a bit of both.

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Michael Dannenberg is the Director of Strategic Initiatives for the think tank arm of Education Reform Now and Democrats for Education Reform. He’s a past Senior Education Counsel to former Senator Edward M. Kennedy (D-MA) and founder of the Federal Education Budget Project.

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