Legislators maintained full funding for Pell Grants in last week’s deal to avoid a credit default by the United States, but this came at the expense of programs that subsidize graduate student loans and lower payments on federal student loans.

As part of the legislation signed by President Barack Obama to avert a credit default by the United States, the Pell Grant program received $17 billion in funding for the fiscal years 2012 and 2013. The maximum Pell Grant award is $5,550 for the upcoming academic year.

This will allow many low-income students to remain enrolled in school, said Tony Pals, director of communications for the National Association of Independent Colleges and Universities.

But this came at the cost of affordability for graduate students, since incentives for repayment of loans and subsidies for graduate students will no longer be available. These options had facilitated the payment of loans for many students.

The federal government currently offers subsidies for federal student loans. This relieves the borrower from having to pay an interest rate that builds up while the student is in school, and puts off the growth of the interest until the student has completed their education.

The government also provides a discount on the payback of the loan if the first payment on the loan is made on time.
As of fall 2012, interest on graduate student loans will begin to build up as soon as they are taken out and the discount for making the first payment for federal loans on time will no longer be offered.

“There were some tradeoffs,” said Carolyn Henrich, legislative director for federal policy at the University of California Office of the President. “On the one hand, we’re thankful they’re putting in more money (to the Pell Grant), but they’ve cut some benefits in student loans for graduate and professional students.”

Cutting these programs could result in graduate students paying loan amounts which are 16 percent higher, Pals said. About 1.5 million students nationwide would be affected by these cuts, he added.

“The bottom line is it’s going to be more expensive to attend graduate school,” Pals said.

The increased difficulty of paying for graduate or professional school might discourage some students entirely from continuing on to higher education, especially if the payoff of their degree does not come in a reasonable amount of time, said Michael Weismeyer, president of the Graduate Students Association at UCLA.

“Graduate students will have to be more carefully evaluating how they finance school and how they look at what possible sources of income they have,” Weismeyer said. “It could potentially cost some time to think about what the value of their degree is for (graduate students) who are currently in school and for some that are potentially going into school in the future,”

The choice between the Pell Grant and the loan programs was one the legislators had to make, said Ronald Johnson, director of UCLA’s Financial Aid Office.

He said cutting the Pell Grant would have forced low- and middle-income students, who may have already had to take out loans to finance the cost of a college education, to take out more.

Johnson said graduate students are not the only group impacted by the cuts. He pointed to removal of the year-round Pell Grants, which some undergraduate students used to go to summer school and get ahead in classes to graduate faster, as an example.

Eligible undergraduate students will continue to receive Pell Grants through 2013, with the future of the program relying on further funding from Congress to stay afloat beyond that time.

Graduate students will have subsidized loans for this academic year, but beginning in the fall of 2012, the loans will no longer be subsidized.

And even though Pell Grants were the top priority in the deal, there is still long-term uncertainty about the program’s health, Pals said.

The program has been given enough funds for the next two years. But Pell Grants will still requires $1.3 billion in this fall’s appropriations to maintain the maximum award amount beyond 2013, according to a statement by the NAICU.

A special Joint Committee in Congress with six members from each party, hailing from both Houses, will be designated the task of cutting an additional $1.5 trillion in federal spending by November 23.

If a deal is not reached by Thanksgiving Day, an enforcement mechanism in the legislation will result in cuts across the board to discretionary programs, which include higher education and financial aid, Johnson said.