Blog Post | June 27, 2024

The Pell Grant Program May Have Averted a Funding Gap—For Now. But Students Need a Permanent Fix.

Author: Michele Shepard Zampini

Last week, the Congressional Budget Office (CBO) released its updated budget projections for fiscal years (FYs) 2024-2034. Congressional appropriators use the projections to determine how much funding they need to allocate to cover the cost of various federal programs, including the Pell Grant program.

For over a decade, the Pell Grant program has had enough funds to cover its annual costs and to keep funds in reserve for a rainy day. However, in recent years, policymakers and advocates grew increasingly concerned that the Pell program was in imminent danger of a funding gap, in which the program would not have enough funding in a given year to cover the cost of providing grants to eligible students.

Funding gaps can lead to harmful cuts, as in the wake of the Great Recession, when Congress faced a significant chasm between the amount appropriated for Pell and the amount needed to cover program costs. To close this gap, in FYs 2011 and 2012, Congress cut Pell program costs by more than $50 billion (over 10 years). Many of those cuts have not been restored.1These cuts included the elimination of “year-round” Pell Grants—which had allowed students to use Pell Grants to pay for summer coursework—and the enactment of an immediate, retroactive lifetime limit on Pell eligibility (a reduction from 18 semesters to 12 semesters), which immediately eliminated eligibility for millions of students.

Before the release of CBO’s latest projections, many feared a Pell funding gap could come as soon as this year. Instead, CBO projects that the program will not face a funding gap until FY 2029.2CBO assumes no increase in Pell spending over the course of its projections. This is due to a significant decrease in the number of students that CBO expects to receive Pell Grants in 2024. Compared to its May 2023 projections, CBO’s 2024 baseline estimates a nearly 8% decrease in Pell recipients (5.94 million versus 6.43 million—a drop of nearly 500,000 students).

Why the projected decline? CBO has said they expect much lower college enrollments for the upcoming academic year due to the lengthy, troubled rollout of the new FAFSA. As of mid-June 2024, FAFSA submissions are down approximately 12% relative to last year. (CBO’s projections may ultimately prove to be pessimistic, as they were finalized when the outlook was even worse: as of the end of March 2024, FAFSA submissions were down more than 30% relative to last year.)

CBO also projects fewer Pell recipients in 2025 and 2026 compared to its May 2023 estimates; its estimates converge in 2027 and, starting in 2028, it predicts a greater number of recipients than it did in its 2023 baseline.

Only time will tell whether CBO’s dire enrollment predictions come to pass. However, they illustrate the fundamental precariousness of the Pell Grant program’s funding structure. Policymakers and advocates must always be on alert for a potential funding crunch, leaving students vulnerable to aid and eligibility cuts. If more students choose to enroll than expected, that risk grows.

This is due to the Pell program’s unique and complex funding structure. The program functions like an entitlement program (such as Social Security or Medicare), where every eligible student in a given academic year is legally entitled to receive their Pell award.3“The Pell Grant program operates as an entitlement to eligible students once the maximum grant, award rules, and payment schedule are established. The Higher Education Act does not provide for the denial of an award to any student who meets the qualifying conditions, nor does it allow for the reduction of any student’s award level.” See the Education Department’s Congressional Justifications for the President’s FY2025 Budget Request for more: https://www2.ed.gov/about/overview/budget/budget25/justifications/q-sfa.pdf. However, unlike other entitlement programs, the program does not rely entirely on mandatory funding. Instead, it relies on both discretionary (funding annually appropriated by Congress) and mandatory (automatic funding that is set by authorizing legislation) funding from the federal budget.4The College Cost Reduction and Access Act (enacted in 2007) authorized mandatory funding to support increases to the Pell Grant maximum award set in each fiscal year’s appropriations act. The Health Care and Education Reconciliation Act (enacted in 2010) amended that provision and increased the maximum award by $690 for award years 2010-11 through 2012-13, and by the Consumer Price Index (CPI) from 2013 to 2017. Beginning with the 2018-19 award year, the add-on award is equal to the award year 2017-18 level and is not increased by the CPI.

But, because Congress appropriates discretionary funds for the program based on projections of how much it will cost in the upcoming year, there is an inevitable annual mismatch between how much the program costs and how much funding is actually available.5Lawmakers sometimes make additional “mandatory” Pell investments to supplement the annual amount that appropriators provide. This creates significant complication for policymakers and ongoing risks for students who rely on the grant.6Researchers can forecast Pell shortfalls and surpluses using CBO projections on how much the program is expected to cost in future years. Program costs are based on how many students are expected to enroll in a given year and how many of those students will be eligible for Pell funding.

The only way to fully eliminate this annual uncertainty is to shift the Pell program to be funded entirely on the mandatory side of the budget. This shift, which is proposed in the recently re-introduced Pell Grant Preservation and Expansion Act, would eliminate the need for annual appropriations and provide for automatic adjustments in program funding based on changes in student participation.

In the meantime, appropriators must protect the funds that are already in the Pell program. Otherwise, students will pay the price.