The Pell Grant, introduced by Senator Claiborne Pell in 1973, provides free federal aid to low income students. However, tuition costs soared beyond expectations and quickly overshadowed the Pell Grant aid. Senator Cantwell, in her July 2007 press release, remarks on this problem. In the state of Washington, tuition costs rose 39% between 2000 and 2006, while the average household income increased only 19%.
Complicating the problem, federal aid money is moved from grants (free money) to loans requiring repayment. Shortly after the birth of the Pell Grant, 77% of federal aid was distributed by grants. By 2006, grants accounted for only 20% of federal aid.
The maximum amount of money distributed per student via the Pell Grant is determined by the federal government, generally through the Consolidated Appropriations Act. For example, the cap per student was $4,050 in 2005-2006 and $4,241 in 2008-2009.
The College Cost Reduction and Access Act (CCRAA) of 2007 boosts that maximum until the year 2013. This law allows for an additional $490 through the 2009-2010 academic year, $690 for the 2011-2012 school year and $1,090 for the 2012-2013 year. With the addition of these funds, the maximum for 2008-2009 rises to $4,731.
Money for federal financial aid is in constant competition with other government programs. Each year these funds run the risk of reduction due to agricultural, defense and other programs. In Addition, Pell Grant funds compete with other Department of Education initiatives. Money for one program is often siphoned from another. The CCRAA obtains funds to raise the Pell Grant maximum by decreasing subsidies to federal loan lenders.
The CCRAA didn't just deliver good news about the new Pell Grant legislation, it brought numerous other benefits. This act reduces interest rates on new subsidized Stafford loans over a period of four years resulting in a 3.4% rate by 2011.
Also included is new legislation called Income Based Repayment (IBR) which caps monthly loan payments at 15% of discretionary income (excluding PLUS loans). Under the IBR plan, qualified borrowers will be able to cancel remaining loan balances after 25 years.
Information about the new Pell Grant legislation includes a "subject to change" warning. The annual appropriations set by the government dictate the base maximum for Pell Grants. The CCRAA funds are added to this base. If the base is lowered, the additional money added by CCRAA is of little help.
The federal government also decides the total amount of funds allocated each year. A decrease in funds means less to go around. As has always been the case with Pell Grants, each college or university is given a limited amount of funds; when the money is gone, it's gone. Students who don't apply early may miss out on this free money. To apply, students or parents of dependent students should fill out the FAFSA application as soon as their tax return is completed (after January 1).