Pell Grant Changes May Decrease Available Aid

The U.S. Department of Education has revamped the formula it uses to calculate financial aid for college students, potentially disenfranchising about 90,000 students from receiving Pell Grants and other forms of federal and state tuition aid.

The U.S. Department of Education has revamped the formula it uses to calculate financial aid for college students, potentially disenfranchising about 90,000 students from receiving Pell Grants and other forms of federal and state tuition aid. The updated formula will be based on 2002 state and local tax data, in place of the current formula, which relies on tax information from 1988.

Students were left in the dark about the change—which was approved two days before Christmas.

“I had no idea [about the formula update],” said Natalie Caruso, A&S ’06. “I’m not happy about that. That [the number of students who could be ineligible for Pell Grants] is insane.”

“If I knew about it and I could have voted for/against it, I would have voted against it because college tuitions are ridiculous,” said Chen Lim, A&S ’07.

While many students at public, and some private, universities and colleges across the country may face a decrease in financial aid next fall, Boston College officials do not anticipate a drastic effect for its undergraduates, according to Dean of Enrollment Management Bob Lay.

“BC establishes financial need using a different and more current tax allowance table in awarding institutional scholarships and grants,” he said. “Furthermore, Boston College does a personalized financial aid review every year and will adjust aid to minimize the impact on any undergraduate.”

As a member of the 568 Presidents’ Working Group, BC uses a more accurate and up-to-date measure of state tax burdens. The University uses this data to establish the financial allowances a family may receive.

The formula’s effects reach beyond the Pell Grant, trickling down to a student’s eligibility for federal subsidized loans, state grants and loans, and private sector need-based scholarships. This potential decrease in financial aid from all areas could result in escalating debt and drop out rates, said Mark Kantrowitz, publisher of FinAid and the director of advanced projects for FastWeb.

“Since financial problems are the leading cause of students dropping out of college, I would expect the added pressure of the reduction in Pell Grant eligibility to increase the number of students dropping out of college,” he said in an online discussion on “Since student loan limits haven’t been increased in over a decade, many students have also exhausted their Federal education loans. This means many students will be forced to borrow from private education programs with higher interest rates and fees than the Federal student loan programs.”

Graduate students may also be affected. Although they are not eligible for Pell Grants, the change will affect the expected family contribution and eligibility for other need-based student aid programs, Kantrowitz said.

Current federal formula does not reflect the changes in the economy and state taxes since 1988. The new formula will use 2002 tax data, which government officials say will provide more accurate assessments.

Under the Higher Education Act, the government is required to update tax information every year but has failed to do so until now, said Lay.

“Their argument is the data was not available in the past. I don’t know how they can say that because we have been using our own tax tables from current consumer tax surveys for many years,” he said.

Federal data will rely on Bureau of Labor tables, which are based on state tax rates. Critics say the new formula will show families to have more money available for financing a college education than they really have. Also, some states, like California, still have old tax data on the books, resulting in inaccuracies, said Kantrowitz.

“The tables published by the U.S. Department of Education do not seem to correspond well with the ‘2002 State Individual Income and Tax Data, by State’ published by the IRS on its Web site,” said Kantrowitz. “Moreover, the current federal need analysis formula does not consider sales tax and property tax, and those have increased as well. As such, even the old allowance percentages did not adequately assess the state and local tax burden, and the new tables do a worse job.”

Students who reside in Massachusetts, Delaware, New York, Michigan, and Washington D.C., among other mostly northern states, will see the amount the Education Department forgives families for their local and state tax payments reduced by three or four percentage points. Students from New Jersey and Connecticut may actually see their Pell Grants increase.

The update will most affect those who receive the minimum Pell Grant award of $400 and who come mainly from middle-income families that earn between $15,000 to $45,000 every year.

The money saved from the formula change will amount to about $300 million, which will lower the program’s projected deficit of $4 billion. David Longanecker, former assistant secretary of postsecondary education in the Clinton administration, defended the federal government’s decision to adjust Pell Grant eligibility criteria in accordance with the law, but said he was disappointed that the $300 million will not be used to increase the maximum Pell Grant amount, which currently stands at $4,050.

“While that money would only be enough to boost the maximum grant by 2 percent, or $75—a small amount with respect to rapidly increasing college costs—it would nonetheless help a bit in offsetting tuition and other educational costs for all Pell recipients,” he said in an online discussion on

More than anything, the legislation sent a disheartening message to working class families, and Kantrowitz questioned the Bush administration’s dedication to higher education.

“One has to wonder about the Bush administration’s level of commitment to higher education,” he said. “The changes to the allowance tables certainly look like a back-door approach to cutting Pell Grant funding. Controversial changes will receive less attention during a holiday break.”

Despite the limited impact on financial aid for BC students, Lay said he is concerned that the Pell cuts will affect applications for admission.

“I am concerned however about losing next year some very talented students of modest means who may not apply for admission in the wake of these announced Scrooge-like cutbacks, seemingly calculated to generate uncertainty and fear during the Christmas season among those families least able to afford a private college education,” he said.

January 9, 2005