Cutting Pell Grants Is Unnecessary and Unwise

December 21, 2011 at 11:18 am

The appropriations agreement for fiscal year 2012 that Congress finalized last weekend included some harmful changes to the federal Pell Grant program, which helps nearly 10 million low- and moderate-income students afford college.  While the deal omits the most severe Pell Grant cuts in an earlier House-approved bill, it will still make it harder for many low-income students to afford college.

The Institute for College Access & Success (TICAS) estimates that more than 100,000 students will lose their Pell Grant entirely next year because of a retroactive cut in the number of semesters for which a student can receive a Pell Grant; thousands more will lose part or all of their grant due to other provisions in the appropriations agreement.

Pell Grants have been under pressure in this year’s budget process, for two reasons.  First, the Budget Control Act placed restrictive caps on overall discretionary funding starting in 2012, forcing Congress to find savings among these programs.  Second, Pell Grants in 2012 require an additional $1.3 billion over the 2011 funding level in order to continue serving all of the students who qualify.

Responding to these pressures, lawmakers cut Pell Grant eligibility in ways that will reduce the level of annual appropriations needed for the program by an estimated $11 billion over the coming decade.  The Pell Grant changes contained in the new legislation, which will take effect July 1 (and thus affect students starting with the 2012-13 academic year), will:

  • Cut the number of full-time semesters for which a student can receive a Pell Grant from 18 to 12. This provision is retroactive, so any students who have received grants for 12 semesters will be ineligible for more, even if they’re just a semester away from graduation.  Pulling the plug on these students’ grants will impose additional hardships and likely prevent some of them from finishing college.
  • Make people who lack a high school diploma or equivalent ineligible for all federal student aid programs, including Pell Grants, even if they have completed the requisite testing or obtained the needed credits for their post-secondary program.
  • Cut the income ceiling below which students automatically qualify for the maximum Pell Grant from $32,000 to $23,000. The automatic qualification simplifies the complex financial aid application process — which can discourage low-income students from considering college altogether — by allowing very low-income students to bypass some of the more complicated and cumbersome parts of the application form.  With this change, students in the $23,000-$32,000 range will no longer be eligible for automatic qualification.
  • Make ineligible for Pell Grants any students who would otherwise qualify for only a very small grant, usually because their families’ incomes are near the program’s eligibility ceiling.  (This Congressional Research Service report provides detail on the “bump” award, which this provision eliminates.)

Cutting Pell Grants is unnecessary and unwise.  While Pell Grant spending has grown significantly in recent years, this reflects: eligibility expansions that Congress approved on a bipartisan basis to encourage more low-income students to get a college degree; increases in the maximum Pell Grant award that offset only a portion of the grant’s decline in purchasing power in the face of large increases in tuition charges (see graph); and the economic downturn, which has depressed family incomes and led many people to pursue college in order to improve their education and skills.

Pell Grants Have Lost Purchasing Power
*We revised this chart on March 13, 2012

Moreover, the Congressional Budget Office projects that Pell Grant costs would decline and then stabilize in real terms over the coming decade even if none of these cuts were made (and the maximum grant, now $5,550, increased with inflation through 2017, as current law prescribes).

Both to expand equality of opportunity and to improve the productivity of our workforce, the nation should make college more affordable, not less so.  Cutting Pell Grants is a wrongheaded step that is ill-advised both from the standpoint of promoting the well-educated workforce that we need for economic growth and from the standpoint of providing opportunity to all Americans.

Taking Stock of the Safety Net, Part 5: Helping Families Stay Afloat During Unemployment Spells

December 20, 2011 at 5:15 pm

Unemployment Insurance (UI) replaces up to half of the income that workers lose when they become unemployed through no fault of their own.  That lessens the financial strain on their families while these workers look for new jobs.  In a weak economy like the current one, UI also helps sustain consumer demand, keeping a downturn from being worse and providing a boost for a recovery.

As in previous recessions, policymakers responded to the deep recession that began in December 2007 by giving additional weeks of federally funded UI benefits to workers who run out of regular, state-funded UI benefits before they can find a job.

The number of people receiving UI benefits in a given week quadrupled from about 3 million at the start of the recession to a peak of 12 million in early 2010, according to Labor Department data.  Although that number has since dropped below 7 million, jobs remain hard to find and the long-term unemployment rate is unprecedentedly high (see chart).  Two-fifths of the unemployed have been looking for work for more than 26 weeks, the most weeks that state UI programs typically provide.

Long-Term Unemployment Rate Is Unprecendented

UI has done its job well thus far, such as by keeping 4.6 million people out of poverty in 2010 — 3.2 million of them as a result of the federal emergency UI benefits.  But the prolonged economic slump has placed considerable strain on the UI system:

  • Federal benefits in danger.  Congress has never let emergency federal UI expire when the unemployment rate has been as high as it is now, yet the fate of federal UI benefits in 2012 remains in legislative limbo.  If Congress doesn’t act before the end of this year, almost 2 million workers face a loss of benefits in January.
  • State benefit reductions.  Arkansas, Missouri, and South Carolina reduced the maximum number of weeks of UI benefits in 2011, and three more states — Florida, Illinois, and Michigan — will reduce benefits in January 2012.
  • “Reform” proposals that weaken the system. UI has always been a social insurance program that helps workers who have lost their job through no fault of their own.  Proposals like those in the recent House UI bill, which would require drug tests for UI recipients, deny benefits to all workers who lack a high school diploma or GED certificate and are not enrolled in classes to get one, and allow states to use UI funds for purposes other than paying benefits, would alter the very nature of the program and make it harder to qualify for benefits.  They also would make the system more costly to administer.
  • Unaddressed solvency issues. A number of states’ UI trust funds were inadequately prepared for the recession because states had kept the employer tax that pays for UI benefits artificially low.   Most states have borrowed from the federal government in the past few years to help pay benefits, and that debt is creating significant pressure in state legislatures to cut UI benefits.

    Moreover, without reform, most state UI trust funds likely will face the next recession either still in debt from the current downturn or so weak that they will quickly be back in debt.  A bill introduced in the Senate earlier this year, building on a proposal by President Obama, would give states a framework to restore the health of their trust funds.  Unfortunately, Congress hasn’t acted on it — or any other proposal to improve UI financing for the future.

What Happens to the Unemployed if There’s No Deal on Jobless Benefits?

December 19, 2011 at 5:04 pm

About 1.8 million Americans will face a cutoff in unemployment benefits in January if Congress doesn’t extend emergency federal unemployment insurance (UI) before returning home for the holidays, according to estimates from the National Employment Law Project (NELP).  The maps below show the sharp drop in the number of available weeks of benefits across the country.

The first map shows the number of weeks of benefits now available through the regular state UI programs and the emergency federal programs (details available here):

Maximum Duration of UI Benefits Currently Available

The second map shows the number of weeks that will be available if the federal programs expire the first week of January.  Note that in six states, workers will have even fewer than the 26 weeks of benefits that state UI programs have historically provided because of cuts that these states made to the regular UI programs this year.

Maximum Duration of UI Benefits Available in January 2012 Without Continuation of Federal Programs

The NELP report (which includes state-specific estimates) says that the 1.8 million workers affected in January include:

  • Over 430,000 workers who became unemployed within the last six months and are receiving benefits through their state’s regular UI system, but whose benefits will expire in January, leaving them without access to any federal benefits.  (Several hundred thousand unemployed workers exhaust their regular benefits each month — a trend that will continue over the coming year.)
  • Over 700,000 workers who have been unemployed for over six months and have been receiving benefits through the temporary Emergency Unemployment Compensation (EUC) program, which will expire in January.  EUC provides benefits in “tiers” of weeks; people receiving EUC when the program expires at the beginning of the year will be allowed to complete their current tier but not move on to the next tier.  NELP estimates that over 700,000 workers will reach the end of their current tier and thus receive no further federal benefits in January.  Many more will lose EUC benefits prematurely in the months to follow.
  • Almost 650,000 workers who have been unemployed for over six months (most for over a year) and who are receiving benefits through the permanent Extended Benefits (EB) program.  Without congressional action, this program will not be available in any state after the first week of January, and all EB recipients will be cut off.

As we have explained, UI is critical both for unemployed workers and for the economy, and the economy is still too weak to allow the current programs to expire.

The holiday season will be a whole lot bleaker for millions of jobless workers and their families if Congress does not act this week or next to maintain these critical programs.

Taking Stock of the Safety Net, Part 4: Helping Families Afford an Adequate Diet

December 19, 2011 at 3:51 pm

As other posts in this series have shown, 2011 was another tough year for low- and moderate -income families.  One indicator is that over 2 million new people joined the Supplemental Nutrition Assistance Program — SNAP, formerly known as food stamps — between January and September (the latest month available).

SNAP now helps 46 million low-income Americans afford a nutritionally adequate diet, and it has been one of our most effective weapons against rising hardship and unemployment in the recession.  Indeed, the 46 million low-income Americans who now receive SNAP benefits include 19 million people who have come on the rolls since the recession started.  SNAP lifted 5 million people, including 2 million children, out of poverty in 2010, under the Census Bureau’s new Supplemental Poverty Measure, which counts the value of families’ SNAP benefits as income.

Every SNAP dollar that a low-income family receives to buy food increases the resources the family has available for food or other necessities, such as shelter.  (Low-income people generally need to spend, rather than save, nearly all of their income to meet daily needs like food and shelter.)  That, in turn, helps the broader economy because the added spending helps maintain jobs and boost other families’ incomes.  Economists estimate that a $1 increase in SNAP benefits when the economy is weak generates $1.72 to $1.79 in economic activity.

SNAP is due for renewal as a part of next year’s Farm Bill.  While the program is one of the safety net’s strongest, it can get even stronger.  In assessing the program, policymakers should (among other things):

  • Do no harm. A number of policymakers, most notably House Budget Committee Chairman Paul Ryan, claim that SNAP is growing out of control and must be cut.  This claim is false.  As we have explained, SNAP has done exactly what it is supposed to do:  respond to growing need during a severe economic downturn.  Congressional Budget Office figures show that, as the economy recovers, SNAP spending will fall nearly to pre-recession levels as a share of the economy.
  • Examine whether benefit levels are adequate. SNAP benefits are based on the Agriculture Department’s (USDA) estimate of the cost of a bare-bones monthly grocery bill, the “Thrifty Food Plan.”  Observers have long held that the plan underestimates poor families’ actual food costs and, as a result, that SNAP benefits are too low.  USDA is examining how the temporary boost in SNAP benefits enacted in 2009 has affected program participants; this research should help to inform a debate about how best to improve benefit levels permanently.
  • Reevaluate SNAP’s harsh treatment of childless adults. SNAP requires most unemployed childless adults to participate in at least 20 hours per week in a limited set of work activities or else lose SNAP benefits after just three months.  States, however, are not required to provide these individuals with a qualifying work slot.  As a result, the work requirement is a de facto time-limit on food assistance for unemployed people.

    Congress wisely suspended this requirement during the recession, and states have the flexibility to waive it for areas of high unemployment.  Soon, however, this harsh rule will return in large parts of the country.  Congress should reevaluate it and ensure that poor unemployed workers who are willing to work can obtain needed food assistance.

  • SNAP Error Rates Declining

  • Examine ways to further reduce errors and fraud. SNAP error rates have fallen steadily in recent years and are now at all-time lows.  Only 3 percent of all SNAP benefits represent overpayments, meaning they either went to ineligible households or went to eligible households but in excessive amounts (see graph).  USDA has also cut “trafficking” — the sale of SNAP benefits for cash, which violates federal law — by three-quarters over the past 15 years.  Still, policymakers should look for ways to make further improvements, such as new investments in technology and business practices that can reduce waste without compromising eligible people’s access to benefits. 

In Case You Missed It…

December 16, 2011 at 4:32 pm

This week on Off the Charts, we focused on the payroll tax cut, unemployment insurance (UI), federal taxes, health policy, state budgets, and our special series on safety net programs.

  • On the payroll tax cut, Richard Kogan explained why the cut in non-defense discretionary funding in the House payroll tax-UI bill would likely lead to cuts in important programs such as education, housing, and Head Start, rather than an extension of the current pay freeze for federal employees (which will likely occur anyway).
  • On UI, Chad Stone pointed to new data showing that 3.3 million people would lose benefits under the House payroll tax-UI bill, compared with extending current law.  He also debunked the claim that UI benefits have dissuaded millions of unemployed workers from taking a job.
  • On federal taxes, Chye-Ching Huang noted a recent Organisation for Economic Co-operation and Development (OECD) study that found large and growing income inequality in the United States and other countries and suggested ways to address it.
  • On health policy, Paul Van de Water highlighted our report on the problems with the new Ryan-Wyden premium support proposal for Medicare.  Edwin Park discussed why allowing insurers, as part of health reform, to measure the health status of their enrollees themselves would create a greater risk of error and fraud.  Judy Solomon also cautioned that a provision in the House payroll tax-UI bill to hike health reform subsidy repayments would likely cause 170,000 people to go without subsidized health coverage.
  • On state budgets, Phil Oliff explained why Florida Governor Rick Scott’s proposed increase in education funding would still leave the state in a big education funding hole.
  • On our special series on safety net programs, Arloc Sherman explained that these programs have held the line against poverty and hardship but warned that the expiration of temporary programs and coming budget cuts threaten to weaken the safety net.  Donna Pavetti emphasized the need for Congress to improve TANF upon its renewal in 2012, and Barbara Sard discussed the role of federal housing assistance in fighting homelessness and helping families obtain decent housing.

In other news, we released reports on the House UI proposal, a provision in the House payroll tax bill that would threaten health reform, a balanced budget amendment before the Senate, the Ryan-Wyden Medicare premium support proposal, key things to know about unemployment insurance, and problems with allowing insurers to withhold data on enrollees’ health status.