- Associated Press - Sunday, February 13, 2011

WASHINGTON (AP) — President Obama’s budget plan would cut $100 billion from Pell Grants and other higher education programs over a decade through belt-tightening and use the savings to keep the maximum college financial aid award at $5,550, an administration official said.

Nearly $90 billion of the projected savings would be achieved through two changes, said the official, who spoke on condition of anonymity ahead of Monday’s release of Mr. Obama‘s 2012 budget. The spending plan applies to the budget year that begins Oct. 1.

Congress would have to approve both changes.

The first proposal would end the “year-round Pell” policy that let students collect two grants in a calendar year, with the second grant used for summer school. The official said the costs exceeded expectations and there was little evidence that students earn their degrees any faster.

The change would save $8 billion next year and $60 billion over a decade, the official said.

A second proposal would reduce loan subsidies for graduate and professional students. That reduction would free $2 billion next year and save $29 billion over 10 years, according to the official.

The government currently pays the interest on student loans for some graduate and professional students as long as they stay in college. But the official said experts think the subsidy has failed to encourage more students to attend graduate school and it isn’t well-matched to borrowers who have trouble repaying the loans.

The administration also has expanded other programs that help students reduce loan payments and ultimately forgive debt they can no longer afford to repay.

Another $4 billion in savings over 10 years would be achieved by broadening the use of IRS data to determine eligibility, reducing improper payments and easing the application process, the official said.

Faced with growing annual budget deficits and a national debt into the trillions of dollars, Mr. Obama has said his latest budget proposal would save $400 billion over the next decade, including through a five-year freeze on some discretionary spending and cuts to programs that he says even he cares about.

But at the same time, Mr. Obama wants to increase spending in areas he says are priorities, such as education and innovation, which he says are important for long-term economic growth and competitiveness.

“It would be a mistake to balance the budget by sacrificing our children’s education,” he said Saturday in his weekly radio and Internet address, in an apparent warning to Republicans.

House Republicans want to cut $100 billion from the budget proposal Mr. Obama submitted for fiscal 2011, and education and college financial aid are expected to take a hit.

Congress, then controlled by Democrats, did not pass a budget for fiscal 2011.

Pell Grants are the main federal college financial aid program for the poor. More than 9 million students receive these grants every year, according to the White House, and Mr. Obama increased the maximum award to $5,550. The money does not have to be repaid.

The administration is projecting a shortfall of more than $20 billion in the program for 2012. Without action, officials say, the maximum award would have to be cut by more than $2,500 to meet demand.

Demand increased sharply since the economic slump because more job seekers are going to school to learn new skills and they need help paying the tuition, the administration official said.

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