The House Education and Workforce Committee on Tuesday passed major changes to federal student aid programs that, if unaltered, will dramatically reduce Pell Grant support for community college students. Institutions would also have to return funds to the federal government for students who have not repaid their student loans, whether due to default or because the federal government has forgiven the loan.
The committee, which passed the measure along party lines, was charged with saving $330 billion over 10 years; the Congressional Budget Office put the savings at $351 billion.
Prior to Tuesday’s markup, advocacy by the American Association of Community Colleges (AACC) on the committee’s budget reconciliation legislation concentrated on three issues. First, it urged the committee to abandon the risk-sharing framework that was ultimately adopted — the same one advanced by the committee under the previous chair, Rep. Virginia Foxx (R-North Carolina). AACC also asked for inclusion of the Workforce Pell Grant and substantial additional funds to shore up Pell Grant financing.
Pell cuts come out of the blue
The bill’s significant changes to the Pell Grant program were not revealed until 24 hours before the committee markup — they had not been part of policy discussions. These changes would be particularly harmful to community college students. Under the legislation, students would have to take at least 7.5 credits to qualify for a Pell Grant. This is because the bill eliminates eligibility for “less than half-time students,” while defining “full-time” as 15 credits.
Under current law, students are considered full-time if they take 12 credits, and those taking fewer than half-time credits are eligible for support, a status they have held since 1992. Community college students who take 12 credits would now qualify for 80% of the Pell Grant maximum, currently set at $7,395.
The committee justified the Pell cuts, in part, to stabilize the program’s finances, which have gone deeply into the red with the enactment of the FAFSA Simplification Act of 2020. That legislation greatly expanded student aid eligibility, in addition to overhauling the Free Application for Federal Student Aid. Ironically, given the partisan nature of the reconciliation markup, the FAFSA Simplification Act was passed with overwhelming bipartisan support and has since been hailed across both parties.
In its advocacy on the reconciliation bill, AACC urged the committee to provide additional funding for the Pell Grant program. The committee responded positively, and $10.5 billion was provided to keep the program balanced over the next three years — good news. However, the student eligibility cuts are permanent.
Risk-sharing provisions and Promise Grants
Under the bill’s risk-sharing provisions, a complex formula is applied to each program offered by a Title IV-eligible institution to determine whether funds need to be repaid to the government. The formula considers the earnings of program completers compared to program costs, and then factors in the amounts of student loans they have not repaid for any reason, including loan forgiveness (of either principal or interest).
Non-completers also generate assessments, though using a different formula. Community colleges’ low tuition and low student borrowing rates generally result in relatively low assessments, especially compared to other sectors.
In the last Congress, the House education committee made available data that delineated the institutional charges. However, loan repayment requirements have changed dramatically since early 2024, when the legislation was advanced by the House Committee, making those estimates significantly outdated.
The approved reconciliation bill also contains PROMISE Grants, designed to reward institutions that graduate high percentages of students who receive Pell Grants. AACC has long backed federal support for graduation efforts, and the PROMISE Grants are all “carrot,” unlike the “stick” of risk sharing. In fact, according to committee documents from the last Congress, community colleges overall would receive more money from PROMISE Grants than they would have to pay via risk-sharing — certainly a good thing, in general.
However, AACC continues to oppose risk-sharing as a concept, but even more so because not every community college would gain funds; some would be net losers. If the PROMISE Grants were moved independently of the risk-sharing, the association would very likely support them. (AACC would propose changing the standard of 100% “on time” completion for a student to count towards a grant.)
Workforce Pell Grant
After sustained lobbying, a slightly altered version of last Congress’ Bipartisan Workforce Pell Act was included in the bill. Notably missing was the bill’s controversial offset.
Because budget reconciliation has special rules, some of the reporting provisions, Education Department approval processes and accreditation procedures have been stripped from the bill, which is welcomed. However, the stringent outcome measures that programs must meet were retained.
Most importantly, however, and most worrisome, is the addition of non-Title IV providers to the program, meaning that any provider meeting the bill’s other provisions can offer workforce Pell programs. It’s unclear how these non-institutional providers would be able to meet requirements that were initially crafted for colleges, but they are made eligible, and presumably, legislators thought some non-Title IV entities would become eligible.
Loan restructuring and repayment
The committee’s bill would eliminate the subsidized Direct Loan program. Interest on student loans would start accruing immediately but will not have to be paid while students are enrolled. This change is a reversal of decades-long federal loan policy and will ultimately increase the cost of borrowing for low- and moderate-income students.
The bill also includes new changes to annual, aggregate and lifetime borrowing limits. In a change welcomed by community colleges, the bill allows for institutional discretion to limit loan eligibility, provided that it is applied consistently to all students enrolled in such a program.
The bill also significantly overhauls student loan repayment policy. It streamlines repayment options to one fixed standard repayment plan and one income-driven repayment plan.
The bill alters the existing standard repayment plan to extend the repayment window based on the overall loan volume. The new Repayment Assistance Plan extends the forgiveness timeline to 30 years and assesses monthly payment amounts based on a percentage of adjusted gross income rather than discretionary income. While this change will lower monthly payments for some borrowers, others, including many borrowers with dependents, will see their payments increase.
Borrowers will likely have to repay a greater portion of their loans under the new plan, compared to the Biden administration’s SAVE Plan and the long-established REPAYE, PAYE and IBR plans. The House bill includes provisions to aid in full repayment, including eliminating interest capitalization and providing a mechanism to help lower-income borrowers pay down their principal amount. That aside, AACC continues to urge Congress to consider a shorter timeline to forgiveness for borrowers with lower loan balances.
What you should do
Community college officials should immediately assess the potential impact of the Pell Grant program changes and communicate it to their legislators. While the reconciliation bill will likely pass with Republican only votes, all members need to hear from their campuses, as the Pell Grant program remains solidly bipartisan, and perhaps on this issue the minority may have sway.
The two calculations that campuses need to make and communicate are:
- The amount of grant support that would be lost by eliminating Pell Grant eligibility for students taking on a credit load of less than 7.5 semester hours.
- The amount of aid that would be lost by redefining “full-time” as 15 semester hours.
No one wants to hamper the ability of low-income community college students to finance their education. Changing policymakers’ minds on this issue is possible.
Next in House
As a next step in the budget reconciliation process, the bills approved by the congressional committees will be stitched together and brought to the House floor for an up or down vote. That bill will also include the mammoth tax-cut legislation expected to be approved by the Ways and Means Committee in the coming weeks. AACC is working to have the Tax-Free Pell Grant Act included in the legislation.
Next in Senate
The next key step in the budget reconciliation process is pending action by the Senate Committee on Health, Education, Labor and Pensions. Its intentions concerning reconciliation are unclear, but indications are that legislation proposed by committee chair Sen. Bill Cassidy (R-Louisiana) in the last Congress will serve as a template for action this year. However, Cassidy’s bill did not address the Pell Grant program, so much focus will be there.
Cassidy’s bill also has a very different form of institutional accountability, tying Title IV eligibility to the earnings of program completers. AACC is currently lobbying the committee, whose markup schedule is yet to be determined. As in the House, Republican members will be key, but Democrats may have some sway as well on key issues.
Next with AACC
AACC will hold a webinar on May 8 at noon EDT on these issues and how you can advocate for your students and college. Additionally, please stay tuned for more detailed information about the positive role you can play in addressing these issues.
