ED Posts Updated Pell Tax Tables for 2005-06; Tens of Thousands Expected to Lose Pell Grants

After months of study, the Department of Education published on December 23 updated need analysis "state and other tax tables." The new rules, which take effect in Fall 2005, are in violation of the Higher Education Act "Master Calendar" statutory provisions. Experts believe a likely result of the update will be tens of thousands of Pell Grant recipients losing their awards entirely and more than a million Pell recipients having reduced eligibility.

ED updated other need analysis elements in June, but declined to update the tax tables at that time in order to allow the Secretary "to complete a thorough review of the available information from the Statistics of Income file data maintained by the Internal Revenue Service" and allow the Secretary to review a congressionally mandated report from the Advisory Committee on Student Financial Assistance. The Advisory Committee was directed "to examine the efficiency, effectiveness and fairness of the current procedures to update formula offsets and allowances."

According to today's Federal Register notice, the new tables, effective for Award Year 2005-2006, were promulgated now that the Secretary completed that task.

Experts believe that the likely result of the update will be tens of thousands of Pell Grant recipients losing their awards entirely and more than a million Pell recipients having reduced eligibility. It is difficult at this time to estimate the impact on other Title IV programs. Students in most states will experience some decrease in Title IV eligibility, but the magnitude of such a loss in eligibility is difficult to estimate due to the interactive nature of the Part F need analysis elements, the packaging philosophies of different student aid offices, and the possible use of professional judgment by aid administrators.

For "parents of dependents and independents with dependents other than a spouse" (in both the "under $15,000" and "$15,000 and up" income bands), aid recipients in all but two states will have less income protected under the newly published tax tables than is currently the case. The exceptions are New Jersey (for which the tax tables do not change) and Connecticut (which enjoys a 1% increase in the new tax tables above the current tax tables).

For "dependents and independents without dependents other than a spouse," most states' aid recipients will have less income protected under the newly published tax tables than is currently the case. The exceptions are Alaska, California, Illinois, Louisiana, Missouri, New Hampshire, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Washington, and Wyoming (for which the tax tables do not change), and Connecticut, Nevada, New Jersey (who will enjoy a slight increase in the new tax tables above the current tax tables for such recipients).

"Regrettably," said NASFAA President Dallas Martin, "the Education Department's decision to proceed with the outdated and methodologically flawed revisions to their federal need analysis state and other tax tables means that many needy students will be forced to go deeper into debt to pursue their postsecondary education plans in the next academic year."

"Further, the revisions are in direct violation of the statutory deadlines required by the Higher Education Act's master calendar schedule," Martin noted.

A Politically Volatile Issue

The proposed tax tables update has been the source of ongoing heated controversy and partisan squabbling in the past year.

Last year an amendment--sponsored by Sen. Jon Corzine (D-N.J.)--was passed to prevent the Department of Education from implementing a need analysis update of the Pell tax tables for FY 2004, and to salvage Pell Grants for the estimated 84,000 students that the Congressional Research Service (CRS) estimated in July 2003 would lose grants if the change were enacted.

Higher education official were hopeful that lawmakers would extend the amendment through this year, but during this past November's conference committee deliberations on the FY 2005 Omnibus Appropriations bill, lawmakers voted to reject the Corzine amendment, which would have postponed the tax tables update for an additional year

On November 23, NASFAA President Dallas Martin sent a letter to Secretary of Education Rod Paige urging him to use "executive discretion" and not publish updated state and local tax tables for use in the Federal Need Analysis Methodology for award year 2005-2006. Copies of the letter were also sent to Assistant Secretary for Postsecondary Education Sally Stroup and newly nominated Education Secretary Margaret Spellings.

However, "despite objections from NASFAA and many others about how these changes are being made, it appears that there is little likelihood of sufficient congressional support to stop this implementation," Martin said.

"The only scenario I can envision to forestall these changes would be for a person or persons with standing--who are negatively impacted by the change--to take legal action against the Department for not publishing these deadlines by the required June 1 deadline," Martin added.

House Democrats--who have led the charge in recent months to prevent an update to the tax tables--were quick to respond to the publication of the new Pell charts.

In a December 22 statement, Rep. George Miller (Calif.), the senior Democrat on the House Education and the Workforce Committee, lambasted Republicans and noted that the Bush Administration, "despite pleadings from governors, university presidents, and student groups, is finalizing a shift in student aid tax policy that will cut more than $300 million in financial aid for low- and moderate-income college students during the 2005-2006 school year."

Over 1 million students will have their Pell Grants either reduced or eliminated as a result, he said.

Unlike the tax tables that the Department was prohibited by Congress from promulgating in 2003 (which were based on IRS data from tax year 2000), NASFAA has been informed that the newly published tax tables are based on IRS data from tax year 2002. Many observers question the methodology used in developing the tax tables. Critics say the tax tables are inaccurate since they are limited to two income bands and are based only on tax filers who itemize.

NASFAA notes that approximately a dozen states whose students will be negatively affected by the new tax tables would have fared even worse under the tax tables the Department tried to implement in 2003--until the move was stopped by the congressional prohibition.

By Larry Zaglaniczny
NASFAA Director for Congressional Relations and
Elizabeth B. Guerard
NASFAA Assistant Director for Communications

Posted December 23, 2004 on www.NASFAA.org, the Web Site of the
National Association of Student Financial Aid Administrators (NASFAA).
Copyright 2004. Redistribution to non-NASFAA institutions is prohibited
Please submit Web Site questions or comments to web@nasfaa.org