college

Stimulus gives students financial boost

Highlights
  • Pell grant allowance increased for next two years.
  • More generous tax credits offered to students.
  • New tax breaks expire after 2010-11 school year.

A jump-start for the economy means a helping hand for many new college students entering the 2009-10 school year.

Thanks to the recent passage of the 2009 American Recovery and Reinvestment Act, students from both low- and middle-income households will receive increased financial help this year.

However, the financial breaks won't last forever. One major problem with the stimulus bill is that the changes are temporary, says Lauren Asher, director of the Berkley, Calif.-based student finance think tank The Project on Student Debt.

What will happen in future years remains uncertain, Asher says. But she hopes the bill will provide a springboard for further boosts in federal financial aid.

"Students need access to even more need-based aid," she says. "But hopefully this (bill) will help families continue to invest in education so when the economy does bounce back, they're well-positioned to benefit instead of go deeper in the hole." 

Here's how the stimulus bill affects students and their tuition-paying parents in the next two school years

Larger Pell grants -- and more of them
A $17 billion increase in the Pell grant -- as well as the new eligibility requirements -- offers the most direct way students will benefit from stimulus legislation.

Starting July 1, the maximum Pell grant annual allowance will increase from $4,731 to $5,350 for the 2009-10 school year, the largest increase since the program began. It will increase again to $5,550 for the 2010-11 school year.

The increased grant will cover approximately one-third of the total annual cost of attendance, room and board included, at the average public, four-year in-state school, or about 15 percent of one year at the average private college or university, according to the College Board.

The increased Pell grant doesn't just sweeten the pot for those who already qualify for the award; it also means a greater number of students are now eligible for the grant.

Pell grant changes
Funding for the Pell grant has been increased, and eligibility requirements have been changed:
  • Maximum 2009-10 allowance: $5,350.
  • Maximum 2010-11 allowance: $5,550.

To determine who gets a Pell grant, the U.S. government calculates the amount each family is expected to contribute to college based on a number of factors, including income, assets and how many children are attending school at once, then compares it to the maximum annual Pell grant allowance.

Families expected to contribute 95 percent or less of the maximum Pell grant award receive a grant from the government. Thanks to the award increase, an additional 800,000 students will now be eligible to join the 7 million students who currently receive the Pell grant.

All of the newly eligible students come from borderline middle-income households that typically don't qualify for need-based aid.

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"For every $100 they raise the Pell grant, an additional 130,000 to 160,000 (students) qualify," says Mark Kantrowitz, publisher of the financial aid Web site Finaid.org. "Families with incomes of around $50,000, maybe even up to $55,000, will be eligible for the grant this coming year."

However, the increases in the Pell grant are a temporary measure. After the 2010-11 school year, the Pell grant maximum will drop by $300 and stay at that level until new legislation is introduced.

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