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Summary of Legislation

The stimulus bill provides for the following increases in student aid funding:

• Pell Grant
  • $15.64 billion increase in discretionary Pell Grant funding. This funding increases the maximum Pell Grant under discretionary funding by $500 to $4,860 for 2009-10. Combined with the $490 amount from the mandatory Pell Grant funding, this yields an overall maximum Pell Grant of $5,350 for 2009-10. Since eligibility is based on discretionary funding, this will increase the number of Pell Grant recipients by about 800,000 to a total of about 7 million. Note that this $500 increase is just for the 2009-10 academic year. (Technically it is a $619 increase, since the combined maximum Pell Grant increased from $4,731 in 2008-09 to $5,350 in 2009-10. But the legislation increased it by $500 on top of a previous funding increase.) This funding also will reduce or eliminate the funding shortfall that has accumulated since 2006.

    Note also that eligibility for the Academic Competitiveness Grants (AC) and National SMART Grants (SMART) require the student to be eligible for the Pell Grant, so the number of recipients of AC and SMART grants will increase by about 13% due to increased Pell Grant eligibility. The AC and SMART grants are currently underutilized, so no increase in appropriations is necessary for these two programs.

  • $1.474 billion to eliminate a funding shortfall in the mandatory Pell Grant funding. This increases funding for 2009 from $2.09 billion to $2.733 billion and for 2010 from $3.03 billion to $3.861 billion.

• $200 million for Federal Work-Study (FWS). This will yield $267 million in additional funding for FWS when the institutional matching funds are included. That is enough for an additional 181,000 recipients.

• $60 million for Student Aid Administration.

• $160 million for the Corporation for National Service, of which $89 million is to make additional awards.

• $40 million for the National Service Trust.

• $53.6 billion for the State Fiscal Stabilization Fund, of which 81.8% is to be used for support of elementary, secondary and postsecondary education. States must agree to maintain at least the same level of support for higher education (excluding capital projects, research & development, and funds from tuition and fees) in 2009, 2010 and 2011 as they provided in 2006.

The stimulus bill includes the following tax provisions concerning student financial assistance:

• American Opportunity Tax Credit. This provision increases the Hope Scholarship for 2009 and 2010 to a total of $2,500 (100% of first $2,000 and 25% of second $2,000 of qualified tuition and related expenses) with the credit allowed for the first four years (instead of two years) of post-secondary education. The definition of qualified tuition and related expenses is expanded to include course materials (e.g., textbooks). Income phaseouts are increased to $80,000/$90,000 (single) and $160,000/$180,000 (joint). The credit is allowed to offset the AMT. The credit is 40% refundable, meaning that up to $1,000 of the tax credit may be refunded to taxpayers (dependent children are not eligible for refundability).

• Allows computer technology and equipment as a qualified higher education expense for section 529 plans for 2009 and 2010. This includes internet access and software, but excludes non-educational software for sports, games or hobbies.

• Mandates a 1-year study of the potential coordination of the Hope Scholarship with the Pell Grant to "maximize effectiveness at promoting college affordability" and to "examine ways to expedite the delivery of the tax credit".

• Mandates a 1-year study of the feasability of including community service requirements as a condition for receipt of the Hope Scholarship.

The following table illustrates the differences between the Hope Scholarship for 2008 and the American Opportunity Tax Credit for 2009 and 2010.

Provision	Hope Scholarship (2008)	American Opportunity Tax Credit (2009 and 2010)
Maximum Credit	$1,800	$2,500
Credit Computation	100% of first $1,200 50% of second $1,200	100% of first $2,000 25% of second $2,000
Years Allowed	2 years	4 years
Income Phaseouts	$48,000 to $58,000 (single) $96,000 to $116,000 (joint)	$80,000 to $90,000 (single) $160,000 to $180,000 (joint)
Offset AMT	No	Yes
Refundable	No	Yes, 40% ($1,000)
Qualified Expenses	Tuition and fees	Tuition, fees and course materials (e.g., textbooks)

Note that the following provisions from the original House and Senate legislation were not included in the conference bill:

• No increases in unsubsidized Stafford loan limits
• No fix for the CP-LIBOR index rate mismatch
• No additional Perkins loan capital contributions
• No money for Higher Education Facilities