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Improving Lives: State and Federal Programs for Low-Income Adults

Federal Programs

GI Bill

Description: The Montgomery GI Bill is an educational assistance program designed to attract men and women into the reserve branch of the Armed Forces. This program provides qualifying military personnel with 36 months of benefits to allow them to pursue some type of postsecondary education or training. Amount: As of 2003, full-time students enrolled in a regionally or nationally accredited college or university with three years of service in the Armed Forces can receive up to $35,000 to cover education benefits, including high-tech or vocational-technical programs. Students enrolled part-time can receive up to $18,000. These benefits are usually good for up to 10 years after military service ends.

Eligibility: Because of the detailed nature of the eligibility requirements for the GI Bill, it is not possible to provide a concise description. For information on the eligibility requirements, please visit http://www.va.gov.

Benefit to low-income adults: According to the GI Bill web site (http://www.gibill.va.gov), since the bill’s inception, 76 percent of all enlistees have enrolled in the program. In federal fiscal year 2002, approximately 340,000 veterans and active duty military personnel used the GI Bill to attend postsecondary education institutions. While specific numbers of military personnel considered “low-income” are unavailable, information presented in a 2001 Department of Defense report (U.S. Department of Defense, Population representation in the military services: Fiscal year 2001) suggests that a disproportionate share of enlistees come from low-income families. Because of enlistees’ pay structure and benefits package, very few qualify as low-income by the time they are eligible for the GI Bill. Still, it is likely that the benefits of the GI Bill play an important role in the decision of low-income individuals to enlist in the U.S. military.

For more information: http://www.va.gov.

Hope Scholarship and Lifetime Learning Tax Credit

Description: Established as part of the Taxpayer Relief Act of 1997, the Hope Scholarship and Lifetime Learning Credit are among the largest federal investments in higher education. The stated objective of these tax cuts is to expand opportunities to postsecondary education for students who otherwise would not be able to afford college.

Amount: Individuals who use the Hope Scholarship are eligible for a tax credit equal to 100 percent of the first $1,000 of tuition and fees they pay and 50 percent of the second $1,000. Those taking advantage of the Lifetime Learning Credit in 2002 received a 20 percent tax credit for the first $5,000 in tuition and fees paid. After 2002, the amount of tuition for which the 20 percent credit can be received is $10,000.

Eligibility: Generally, individuals who have any tax liability and out-of-pocket tuition expenses are eligible to claim these credits. The Hope Scholarship credit may be claimed for each eligible student who meets the following requirements: (1) is enrolled in the first two years of his or her postsecondary education; (2) is enrolled in a program that leads to a degree, certificate, or other educational credential; (3) is taking at least one-half of the normal full-time workload for any academic period during the current tax year; and (4) is free of any felony conviction for possessing or distributing a controlled substance. In contrast to the Hope Scholarship, the Lifetime Learning Credit is allowed for one or more classes, is not limited to the first two years of education, and includes tuition for graduate and nondegree courses. There is no limit on the number of years for which the Lifetime Learning Credit can be claimed, but taxpayers are limited to one $2,000 credit per tax return. This credit is phased out for joint filers who have between $80,000 and $100,000 of adjusted gross income, and for single filers who have between $40,000 and $50,000 of adjusted gross income.

Benefit to low-income adults: The primary benefit of both the Hope Scholarship and Lifetime Learning Credit is that they reduce tax liability. However, low-income adults generally do not have high enough tax liability for these programs to provide a significant cost savings. In addition, because only out-of-pocket tuition expenses can be counted, low-income adults who receive Pell Grants or other financial aid may find little financial relief from either program.

For more information: http://www.irs.gov/newsroom/article/0,,id=128874,00.html.

Tax Exemption for Employer-Provided Educational Benefits (Section 127)

Description: Under Section 127 of the IRS code, individuals may exclude up to $5,250 in employer-paid educational benefits from their taxable income. These benefits must be offered through an established program that meets IRS requirements and must be used to pay for tuition, fees, or books.

Amount: For an individual in the 15 percent income tax bracket who receives the full amount of $5,250 in educational benefits, this provision saves $788 in possible income taxes (subject to other deductions, credits, and exclusions).

Eligibility: All taxpayers and their dependents are eligible for this benefit. The only types of courses that are excluded are recreational courses, unless those courses are work-related.

Benefit to low-income adults: In 1999–2000, 15 percent of all undergraduates age 25 or older who were enrolled in for-credit courses received employer assistance, averaging $1,230. Many others may have received aid for noncredit courses, but there is no national data on these students. Low-income adults were less likely to receive this aid than other adults (6 percent of low-income adults versus 21 percent of adults with higher incomes). While this program provides a significant benefit to the low-income adults who receive employer assistance, more employers must commit to providing this aid to their lower-wage employees in order for this program to realize its potential for helping low-income adults succeed in postsecondary education.

For more information: http://www.irs.gov/newsroom/article/0,,id=128874,00.html.

Pell Grants

Description: Established in 1972, the Pell Grant program is the largest source of need-based grant assistance in the United States and serves as the foundation of low-income undergraduates’ financial aid packages. About one-quarter of all undergraduates receive a Pell Grant each year.

Amount: The Pell Grant program provides $11 billion in financial assistance to nearly 4.6 million students annually. Individual awards are determined by the amount of each student’s expected family contribution, attendance status (whether the student is enrolled full time, half time, or less than half time), and cost of attendance. Currently, the maximum grant students may receive is $4,050.

Eligibility: Pell Grants are awarded only to undergraduate students who have not earned a bachelor's degree. In order to determine eligibility, students must submit a Free Application for Federal Student Aid (FAFSA). The U.S. Department of Education uses a standard formula, established by Congress, to evaluate the information reported on the FAFSA. The department uses this formula to determine expected family contribution (EFC). Pell Grant eligibility is calculated by subtracting the EFC from the maximum Pell Grant award. The result is then adjusted according to the student’s total cost of attendance and attendance status to determine eligibility and grant amount.

Benefit to low-income adults: Pell Grants have no restrictions regarding age or enrollment status, making them a broadly available source of aid for low-income adults. Three out of four low-income adults who apply for federal student assistance, or approximately 830,000 individuals, receive a Pell Grant. However, because the amount received is based on attendance status (less-than-half-time students receive less aid than full-time students) and, to a more limited extent, cost of institution, low-income adults who attend low-cost institutions less frequently than half time receive less aid than other Pell recipients.

For more information: http://www.ed.gov/students/landing.jhtml?src=fp.

Stafford Student Loans

Description: The Stafford Student Loan program is the largest source of college financial assistance in the United States, accounting for 40 percent of all aid awarded to students, or more than $42 billion in 2002–03. There are two types of Stafford loans: Subsidized loans are awarded to students on the basis of financial need and carry no interest charges while the borrower is enrolled or during the first six months after they leave school. Unsubsidized loans are available to all students regardless of need. Students must pay the interest that accrues while they are in school. All Stafford loans offer below-market interest rates and favorable repayment terms, without regard to students’ credit worthiness.

Eligibility: Undergraduate and graduate students enrolled in for-credit courses on at least a half-time basis at an institution approved for participation in the federal student aid programs may borrow Stafford loans.

Amount: The amount that a student may borrow varies by their dependency status and academic level. Independent students (which include all students age 25 or older) may borrow from $6,625 to $10,500 per year as undergraduates, depending on their academic level. The total annual loan amount is divided between subsidized and unsubsidized loans (see chart below).

Benefit to low-income adults: Student loans provide valuable assistance to many low-income adults. Approximately one-third of low-income adult students, or 500,000 individuals, chose to borrow a student loan in 1999–2000, the most recent year for which data are available. The number of students borrowing has likely risen since then. The average amount that these students borrowed is approximately $5,300, so Stafford loans provide a significant amount of help to those who choose to use them. However, many low-income adults worry about going into debt to finance their education and avoid student loans, choosing instead to work, attend part time, or both. For at least some of these students, that fear may be justified. Default rates have reached the historically low level of 5 percent, but research has consistently shown that the students most likely to default are those who do not complete a degree program or who earn certificates in lower-paying fields such as cosmetology. As described in Low-Income Adults in Profile, a disproportionate share of low-income adult students fall into these two categories, making borrowing a more risky activity.

For more information: http://www.ed.gov/students/landing.jhtml?src=fp.

Childcare Access Means Parents in School Program

Description: The purpose of the Childcare Access Means Parents in School Program is to provide campus-based childcare services that support the participation of low-income parents in postsecondary education. This program, enacted in 1998, provides grants to higher education institutions to assist them in establishing or expanding childcare programs for infants and toddlers, as well as before- and after-school services for older children.

Eligibility: Higher education institutions are eligible to receive funding for this program if the total amount of federal Pell Grant funds awarded to students enrolled at the institution for the preceding fiscal year was at least $350,000. Priority for funding is given to institutions that (1) leverage significant local or institutional resources, including in-kind contributions, to support the activities assisted under this program, and (2) use a sliding fee scale for childcare services provided under this program to support a high number of low-income parents pursuing postsecondary education.

Amount: Funding for this program has decreased significantly, from $25 million in fiscal year 2001 to $16.2 million in fiscal year 2003.

Benefit to low-income adults: Among the many challenges that low-income adult students face in pursuing a postsecondary education, childcare is one of the greatest. This program makes an effort to reduce this challenge by providing low-cost daycare for low-income parents. Through this program, more than 400 institutions have received awards to open or expand campus childcare centers. However, because of a funding decrease from $25 million to $16 million, the Department of Education has cut funding to 87 of these institutions and does not plan to make any new awards.

For more information: http://www.ed.gov/programs/campisp/index.html.

Educational Opportunity Centers

Description: The Educational Opportunity Centers (EOC) program is unique among federal programs in that, rather than awarding financial assistance, it provides counseling services and information on college admissions and financial aid to low-income adults who want to enter or continue a postsecondary education program. An important objective of EOC is to counsel participants on financial aid options and assist in the financial aid application process. The goal of EOC is to increase the number of low-income adult participants who pursue postsecondary education.

Eligibility: Participants in EOC programs must reside in the target area served by an Educational Opportunity Center. Participants must be at least 19 years old, and two-thirds of all participants at a given center must be potential first-generation college students as well as low income. A variety of parties may conduct EOC projects, including higher education institutions, public and private not-for-profit agencies, and a combination of other institutions, agencies, and organizations. In exceptional cases, secondary schools also may participate.

Amount: Funding for the EOC program in fiscal year 2004 was $49 million, up from $47.6 million in 2003. In 2004, more than 130 centers received funding and served 210,065 participants.

Benefit to low-income adults: Unlike many of the federal programs that provide assistance to students for postsecondary education, Educational Opportunity Centers do not provide financial aid. Rather, the centers offer counseling and information on postsecondary education. This type of service is no less beneficial to low-income adults, many of whom are first-generation college students and have had little exposure to the process of applying to college.

For more information: http://www.ed.gov/programs/trioeoc/index.html.