The U.S. Senate on Monday began considering a budget plan for the 2005 fiscal year that would make eliminating the multibillion-dollar shortfall in the Pell Grant program's budget a key legislative priority.

Last week, the Senate Budget Committee approved a budget resolution that would keep the maximum Pell Grant award at $4,050 for the third year in a row. The plan would, however, reserve $3.7-billion for Congress to use to pay off the shortfall, which has plagued the Pell Grant program for the last several years.

Budget resolutions, which Congress attempts to pass each year, are not binding. They set only the broad outlines of how much money the federal government may spend in a given year.

As a result, the inclusion of the provision eliminating the shortfall does not guarantee that the program's deficit will be wiped out. Lawmakers would still have to pass a separate bill allocating the money for that purpose.

But budget resolutions give an indication of lawmakers' priorities. For that reason, college lobbyists were greatly encouraged.

"The shortfall has been like a noose around our necks," said Cynthia A. Littlefield, director of federal relations for the Association of Jesuit Colleges and Universities. "It has made it virtually impossible for us to get Congress and the administration to increase the maximum grant."

Still, the lobbyists were unhappy with several other provisions in the resolution. Among them were one that would change how lawmakers set the maximum Pell Grant each year, and another that would alter how Congress determines annually the amount of money that the Education Department needs to administer the direct student-loan program.

A threat to stability

The shortfall in the Pell Grant program's budget has been caused mostly by an unexpected surge in demand for the grants over the last few years. Lawmakers have also routinely provided insufficient funds to cover the program's costs. In January, for example, Congress agreed to set aside $12-billion for Pell Grants this year. That figure, according to the White House Office of Management and Budget, was $700-million less than was needed to pay for the program.

So far, the program's deficit has not directly affected Pell Grant recipients. Because the grants function like an entitlement, they are awarded to all eligible students, even if the program suffers financial losses.

But budget officials at the Education Department say that if the growth in the shortfall is not checked, it would pose a threat to the program's long-term stability.

Republican leaders of the Senate Budget Committee are taking that threat seriously. In a document outlining the resolution's provisions, they said that the Pell Grant program "may not continue to be financially viable unless this shortfall is addressed."

In addition to reserving $3.7-billion to wipe out the shortfall, the senators included a Bush-administration proposal that would prevent lawmakers from allocating less money than is needed to cover the cost of Pell Grants in a given year (The Chronicle, February 27).

Under the proposal, which was part of President Bush's 2005 budget request, Congressional appropriators in charge of setting the Education Department's budget would be required to abide by government officials' estimates of the cost of keeping the maximum grant at its current level or, if it is raised, at the new level. Early each year, the Office of Management and Budget and the Congressional Budget Office predict what the demand for Pell Grants will be and, given those projections, how much the program will cost.

For example, if the budget officials estimated that it would cost $12.7-billion to maintain the $4,050 maximum grant, the appropriators would be obliged to allocate that amount to keep the top grant at that level. If they decided to provide less than that amount, they would have no choice but to reduce the maximum award or cut other programs that fall under their jurisdiction, like spending for elementary and secondary education or the National Institutes of Health.

The senators said that the provision is needed to bring honesty back to the budget-setting process and to prevent future shortfalls.

Concerns about flexibility

While college lobbyists agree that the goals sound good, many of them worry that the proposal, if enacted, would remove lawmakers' flexibility in making spending decisions. As a result, the lobbyists say, the plan would make it more difficult for Congress to raise the maximum grant, since lawmakers would be forced to take away money from their favored programs to do so.

The lobbyists also question why Congress would rely on the government's predictions of future Pell Grant use to set the program's budget when it was faulty projections that produced the deficit in the first place.

College advocates are also upset that the Senate Budget Committee included a provision, backed by the Bush administration, that would allow lawmakers, through the annual appropriations process, to determine how much the Education Department could spend each year to administer the direct-loan program. Department officials currently set that budget each year, based on the program's projected costs.

Since 1994, the federal government has provided some loans directly to students through their colleges, eliminating the role that banks and guarantee agencies play in the guaranteed-loan program. Direct lending was championed by the Clinton administration, but Republican lawmakers, longtime supporters of the student-loan industry, have frequently taken steps to undermine it, and the Bush administration has made clear its preference for the bank-based program.

Bush-administration officials, who have been pushing Congress to make this change over the past several years, say they do not intend to harm the direct-lending program. They say the proposal is part of a broader effort to gain control over the costs of the government's entitlement programs.

But direct-lending supporters say that the plan would give the program's enemies in Congress the chance to starve its budget.

"If this change is made, the possibility exists that the funds needed to administer the direct-loan program will be withdrawn, and, as a result, the Education Department's ability to run the program would be undermined," said Eileen K. O'Leary, chairwoman of the National Direct Student Loan Coalition and director of student aid and finance at Stonehill College.

Senate leaders hope to finish their work on the budget resolution this week. The House Budget Committee is expected to introduce its version of the resolution on Wednesday.