Debt deal cuts graduate loans to boost Pell grants

WASHINGTON  A federal subsidy that aids graduate students would be eliminated to boost funding for Pell grants that help low-income undergraduates, under the compromise debt-ceiling bill moving through Congress. That trade-off is one of the few program changes specified in the bill.

The maximum Pell grant of $5,550 would be preserved for an estimated 9 million undergraduates, according to the White House.

To pay for that, graduate students who get federally subsidized loans would see the interest on those loans begin to accrue while they're still in school, beginning July 1 next year. Currently, that interest doesn't begin accruing until the students graduate. That saves lots of money for doctoral candidates, medical school students, law students and others in long-term graduate programs.

White House officials decided the trade-off was worth it, according to Gene Sperling, director of the National Economic Council.

"Those are kind of tough choices this president is willing to make to protect what he thinks are the most critical investments," Sperling told reporters in a conference call Monday. "The president recognizes we have to cut spending."

A spokesman for the National Association of Independent Colleges and Universities said his organization is pleased that cuts in Pell grants were averted.

"Millions of low-income students will be able to stay enrolled in college as a result," said spokesman Tony Pals. "However, it is unfortunate that it was paid through the elimination of the in-school interest subsidy for graduate student loans. Our hope is the subsidy is eventually restored once the nation's economy and budget outlook rebound."

But finding money in the federal education budget to reverse those cuts will be difficult. The debt-ceiling bill would limit discretionary spending in fiscal 2012 to $1.043 trillion, $7 billion below fiscal 2011 levels.

How that money would be spent is the jurisdiction of the House and Senate Appropriations Committees.

The $1.043 trillion cap is $33 billion higher than the budget bill drafted by GOP Rep. Paul Ryan of Wisconsin that House Republicans passed earlier this year. The House already has passed parts of the fiscal 2012 budget based on Ryan's blueprint. If the compromise debt-ceiling bill is enacted, they'll have breathing room to restore some cuts opposed by Democrats.

"This was a compromise budget, but one that we believe makes the necessary room for the most important investments in winning the future in innovation and research and education," Sperling said.

The deal also means the Democratic-controlled Senate and Republican-controlled House will be working from the same budget blueprint, reducing the likelihood of a budget impasse in the fall.

Vice President Joe Biden, speaking to reporters at the Capitol, said the deal takes the debt ceiling issue off the table until 2013.

"We have to get this out of the way to get to the issue of growing the economy," Biden said. "The normal process will now go forward."