UI officials said they are optimistic about the benefits students could receive from an increase in Pell Grant funding, as outlined in President Obama’s recent budget proposal.

The proposed budget calls to increase the maximum level of aid for the federally funded awards. Pell Grants are distributed based on financial need as determined by Congress. Unlike some other financial aid, students are not required to pay the money back.

The new budget would increase Pell Grants to $5,710 in 2011, an increase of $160 over the next academic year. It also suggests the maximum value of Pell Grant awards increase in connection with the Consumer Price Index to account for inflation plus 1 percentage point each year.

At the UI, 3,641 students — approximately 18 percent of undergraduates — benefit from Pell Grants, for a total dollar amount of roughly $13 million, said Mark Warner, the director of UI Student Financial Aid.

“The increase is always going to help provide additional support to our neediest undergraduate students,” he said.

The new budget would allocate $34.8 billion to the Pell Grant program — an increase of 92 percent over 2008. This would allow 1 million additional students to become eligible.

In addition to increasing Pell Grant funding, Obama also asked members of Congress to make the Pell Grant program an “entitlement” program similar to Social Security, which would guarantee aid to anyone eligible.

“President Obama’s proposal to tie the Pell Grant award to the CPI plus 1 percent is a significant victory for low-income students struggling to pay for college,” said Philip Day, the National Association of Student Financial Aid Administration.

The money to fund the increase will not come from taxpayer money or add to national debt.

Instead, money will come from the elimination of the Federal Family Education Loan Program, said Gary Steinke, the president of the Iowa Association of Independent Colleges and Universities.

The loan program uses local banks and communities, he said. These private lenders provide federally guaranteed loans to students.

With its elimination, Obama hopes for funding to come in the form of direct loans from the federal government, with the money saved expected to be $43 billion over 10 years. That money would go toward Pell Grants.

Members of Congress have not yet approved the president’s budget plan.

But Steinke said he remains hopeful that budgetary changes will have a positive impact on students.

“Students will benefit substantially without any doubt at all,” he said. “It will affect the average student in a dramatic way.”