College students face shorter Pell Grants

WASHINGTON (CNNMoney) -- Thousands of college students may soon feel a financial pinch and another 100,000 may not be able to complete degrees after Congress pushed ahead with changes to federal student aid, education experts said.

Congress on Saturday passed a budget to fund the federal government over the next nine months. And the budget makes some big changes to certain federal student loan programs.

The good news for students is the budget sets maximum level of the popular Pell Grant awards at $5,550 -- the highest it has ever been -- for the most financially-strapped students heading to college in fall 2012. (Calculator: How much will that college really cost?)

But to bridge a billion-dollar gap in the Pell Grant program, Congress is making it tougher for some students to be eligible for federal financial aid.

The two most important changes: A reduction in the number of years students can receive Pell Grant money and the temporary elimination of a six-month grace period on interest payments on federal student loans.

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With the cost of college skyrocketing, demand for Pell Grants is at an all-time high. Over the past three years, Congress plowed billions of dollars more into Pell Grants. More than nine million students were awarded grants in 2011.

But each year, lawmakers have had to scramble to find the money to maintain the funding. A budget deal in August that raised the debt ceiling and imposed lower federal spending requirements left Pell Grant funding $1.3 billion short.

The changes to financial aid are expected to save the government $11 billion over the next decade, according to the House. Other changes include requiring Pell Grant recipients to have a high school diploma or pass a General Educational Development test.

"The rapidly rising costs of the Pell program cannot be sustained -- especially in this time of tight budgets and sky-rocketing deficits," said Jennifer Hing, spokeswoman for the House Appropriations Committee.

But the trimming of the number of years that students can receive Pell Grants threatens some 100,000 students and would hit African-American and transfer students particularly hard, according to one student aid group.

Rep. Danny Davis, an Illinois Democrat, called the changes "draconian" and "mean-spirited," adding "everybody knows that without as much education as one can possibly get, there's very little hope for real success in life."

African-American students comprise 24% of Pell Grant recipients but make up 41% of Pell Grant recipients working toward a degree after six years, according to the Institute for College Access & Success.

And the Pell Grant eligibility cuts apply to all students as of July 1, 2012 -- even students already enrolled.

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"I don't know that lawmakers realize they're going to permanently eliminate -- for more than 100,000 students -- access to college next year, including some who maybe a semester away from completing a degree," said Pauline Abernathy, vice president of the Institute for College Access & Success.

Another change could add a few hundred dollars to the cost of subsidized federal student loans issued the next two academic years. Congress suspended the six-month grace period on loan interest for graduates with subsidized Stafford loans.

Stafford loan borrowers will still get a six-month reprieve upon graduation from having to pay back their loans, but the principal on the loans will accumulate interest during that period for loans issued between July 1, 2012, and July 1, 2014.

Higher education experts called the change minimal but confusing, especially for students who have to repay Stafford loans issued in years that both do and don't qualify for the interest-free grace period.

"It's not a big hang-up for borrowers, " said Jason Delisle, an education budget expert at the left-leaning New America Foundation. "But you'd think that Congress would be moving in the direction of making student loan programs less confusing."

Also the temporary elimination of the grace period comes at a time when the interest rate on those loans is slated to double to 6.8% from 3.4%.

Paying for college keeps getting tougher. Last year, college seniors who took out loans owed an average of $25,250, or 5% more than the class of 2009, according to the Institute for College Access & Success.

Meanwhile, the default rate on student loans rose to 8.8% in 2010, up from 7% in 2009, according to the Department of Education.