The House early Thursday passed its massive fiscal year 2025 budget reconciliation bill – the “One Big Beautiful Bill Act.” This sets the stage for Senate action and subsequent negotiations between the two chambers.
The stakes could not be higher for community college students and institutions. Although the House-passed bill contains some positive features, overall, it would make college far more expensive for community college students and endanger their participation and success. Institutions would also face new vulnerabilities, including a new risk-sharing scheme and increased pressure on state budgets.
The American Association of Community Colleges (AACC) opposed the House bill, which cuts $352 billion from mandatory higher education funding over 10 years. For context, these total savings equal about the entire cost of the Pell Grant program over that time.
With House action completed, AACC’s advocacy efforts pivot to the Senate. Many members already have communicated to House members about proposed changes to the Pell Grant program, per AACC’s earlier communications. Next week, the association will advise campuses how they can speak to the Senate both in opposition to the highly problematic aspects of the House bill, as well as in support of the opportunities that the legislation provides. Much will ride on these contacts.
For now, here are some of the main features of the House bill and AACC’s take on them.
Pell grants
Most significantly, and most threateningly, the legislation cuts student Pell Grant eligibility in two key respects that will negatively affect community colleges.
First, the bill defines a full-time course load for the Pell Grant program as 15 semester hours. This is an increase from current law, which defines full-time enrollment as 12 semester hours. Under this proposed change, students taking 12 credits in a term will only receive 80% of the Pell Grant maximum, currently set at $7,395. Most community college students do not take 15 credits and would therefore suffer cut to their grants.
Second, and even more specifically negative for community college students, the bill eliminates Pell Grant eligibility for less-than-half-time students. Under the legislation, then, students taking fewer than eight credits would not qualify for a Pell Grant.
The loss of Pell Grant eligibility for less-than-half-time students would be disastrous for community college students. Hundreds of thousands of students would lose their grants, likely shutting them out of college with no place to go. Field estimates indicate that more than 20% of the roughly two million community college students who receive Pell Grants each year would lose their grants.
Related article: Wary of proposed changes to Pell eligibility
The Congressional Budget Office (CBO) estimates that only one-third of Pell recipients enrolled less than half-time would be able to increase their course load to maintain their Pell eligibility, and only one-fifth of Pell recipients could increase their course load to maintain eligibility for the maximum grant award across all sectors of higher education. Based on enrollment trends and student demographics, the students who would lose their eligibility are likely to be concentrated at two-year colleges.
One argument used to require greater course loads, in clear conflict with student realities, is that Pell Grant recipients complete their programs at lower rates than other students. In the aggregate, this is true — Pell Grant recipients have lower graduation rates than their higher-income peers. Pell Grant recipients are, by definition, financially in need and face challenges to complete that come with that circumstance. This in no way negates the huge benefits to individuals and the economy from the education that millions of students receive because of this support. There are other smaller cuts to the Pell Grant program as well.
The House reconciliation bill would provide $10.5 billion in additional Pell Grant funding to address the looming shortfall in the program. AACC lobbied for additional Pell Grant funding in the reconciliation process and cheers the House’s action. But these funds, essential as they are, cannot compensate for cuts to the program’s heart.
Workforce Pell
The House Committee’s bill includes a slimmed-down version of the Bipartisan Workforce Pell Grant Act (BWPA) from the 118th Congress, with key exceptions. Community colleges enthusiastically support this inclusion. AACC also welcomes the exclusion of some of BWPA’s reporting and accreditation-related requirements.
However, the new eligibility has one wrinkle — it makes non-institutional, non-accredited providers eligible for workforce Pell grants. Therefore, as AACC advocates for Senate inclusion of legislation in this area, it will also urge the Senate to remove this provision, which undercuts the spirit of the rigid “guardrails” that have been attached to program eligibility.
Risk-sharing
As expected, the House bill contains the risk-sharing provisions included in last Congress’ College Cost Reduction Act. The risk-sharing scheme would assess a financial penalty for institutions based on several factors, but most principally, the share of total loan volume not repaid by former students.
AACC has always opposed risk-sharing, in all its forms, and does in this case as well. Community colleges’ opposition to risk-sharing is based on several factors:
- Colleges don’t collect on loans, and loan repayment and collection policy is not determined by colleges. Furthermore, institutions cannot control student behavior once they leave college.
- Most importantly, community colleges simply do not have money on hand to write checks to the federal government. Furthermore, the specter of the risk-sharing tax undermines institutions’ ability to financially plan and allocate resources to best serve students.
- Community colleges would welcome new grants to support student success, particularly since these efforts can be costly, but not at the price of risk-sharing.
The House-passed bill does include PROMISE Grants, which provide funding in some circumstances based on, among other things, Pell Grant recipients who graduate within 100% of the “normal time.” In isolation, PROMISE Grants would be welcomed. However, the grants do not compensate for the threat of risk-sharing assessments.
Looking towards the Senate and the policies that it might propose in this area, Senate HELP Committee Republicans have previously advanced a proposal that might answer broad calls for federal “accountability,” without unduly hampering student success. The Senate’s likely proposal (foreshadowed in legislation introduced in the last Congress by now Chair Sen. Bill Cassidy (R-Louisiana)) would amount to “gainful employment for all,” in which individual Title IV program eligibility is tied to the earnings of those who enroll in a program.
If the Senate’s framework is adopted, AACC’s priority will be to limit any loss of programmatic eligibility to the student loan program. There are other priorities that AACC will ask its members to reinforce.
Tax policy
The House-passed bill did not include H.R. 2543, the bipartisan “Tax-Free Pell Grant Act,” a key AACC priority. Currently, the Tax Code treats Pell grants as “scholarships,” which requires students to pay taxes on the portion of their Pell Grant used to cover educational expenses that exceed tuition and required fees.
Also, because of the tax treatment of Pell grants and complexities in the law, community college Pell Grant recipients often don’t qualify for the $2,500 American Opportunity Tax Credit (AOTC), while students and families with far more resources or attending higher-cost institutions do. The Tax-Free Pell Grant Act would fix these things, and in the process simplify the Code.
AACC members from areas represented by Republican members on the Finance Committee are strongly encouraged to contact them in support of the Senate version of the bill, S. 1610. Both Sens. Charles Grassley (R-Iowa) and Thom Tillis (R-North Carolina) have cosponsored the bill
Student loans and repayment
The House legislation makes major changes to the federal loan programs and repayment policy, which provide the bulk of the reconciliation bill’s budget savings. A big setback for community college students is the elimination of the undergraduate in-school interest subsidy for students who qualify. The bill’s repayment changes would require students to repay more on their student loans, in part by extending repayment timelines for borrowers in both standard and income-driven repayment plans. On the positive side, the bill includes new institutional discretion to lower loan limits based on program, a longstanding AACC priority, and ties loan maximums to enrollment intensity, another AACC priority. When the Senate acts on these proposals, AACC will emphasize the importance of the subsidized loan program, a mainstay of student borrowing and need-based financial assistance since the 1970s.
Medicaid and SNAP
The bill includes significant changes to the Supplemental Nutrition Assistance Program (SNAP) and Medicaid, which could impact community college students who participate in the programs and put significant strain on state budgets.
Under the House bill, both SNAP and Medicaid recipients will be subject to new work requirements. For SNAP, the bill extends the age range for individuals subject to the work requirement to 64 and requires parents to meet the work requirements as soon as their children are old enough to be in school. While the bill did not make changes to the student eligibility rules, the changes may lead some students to lose benefits if they live in a household with a family member who is subject to the new work requirements and does not fulfill them.
For Medicaid, the bill will newly require recipients to participate in work, education, or volunteer activities for 80 hours a month to maintain their health coverage. While most community college students participating in Medicaid will likely meet this threshold through a combination of school and work, it would introduce additional steps in enrollment, certification, and recertification processes that could serve as significant administrative burdens for students.
The more significant impact of the bill’s SNAP and Medicaid changes will be on state budgets. The House bill would require states to pay a greater portion of SNAP administration costs and would newly require them to pay 5% to 25% of benefit costs (currently the federal government pays 100% of benefit costs). For Medicaid, the bill limits taxes that states can levy on Medicaid providers, a key revenue source to pay for the state share of Medicaid expenses.
Taken together, the bill dramatically shifts SNAP and Medicaid costs to the states. These changes will put enormous pressure on state budgets and will spell an incredibly difficult fiscal environment for state funding for higher education.
What’s next
House Republicans’ passage of the reconciliation bill is a landmark achievement for the party. However, before President Trump can sign the measure that he so strongly supports, the Senate must act, and the two chambers must agree on a compromise product. All the votes will come from Republicans. To that end, AACC will be advising campuses imminently on how they can advocate for a final bill that will not unduly limit community college student success and even enhance it in some areas.
