By Catherine Brown, Senior Director, Policy and Advocacy
Reading time: Six minutes
The Congressional Budget Office (CBO) recently updated its cost projection of the Pell Grant program. It is now predicting that the program’s surplus will run out this year.
According to the newly released estimate, the program will end fiscal year (FY) 2025 with a $2.7 billion shortfall, meaning the obligations of the program will exceed the amount that is available to spend.
While CBO’s update may sound alarming, it’s important to note that Pell Grants for the 2024-25 and 2025-26 school years are safe and adequately funded. The Pell Grant program is forward funded, meaning leftover funding from FY24, funding
for FY25, and, if needed, funding for FY26 can be used to fund the program. Students and families should not be concerned that Pell Grants included in financial aid offers made this year will not be honored or that Pell Grants students are currently
receiving to fund their education will be at risk.
This report does however underscore the need for additional Pell advocacy, especially in the current political climate where massive cost cutting,
even of Congressionally-appropriated funding, appears to be on the table.
Here is a quick Q&A of what you need to know:
Q: What is the Pell reserve? A: In contrast to most education programs where Congress provides a certain amount of funding per year that can be spent, Pell Grants are funded through a combination of mandatory and discretionary funding
but allocated to students based on a formula and maximum award that are written into (separate) statutes. As a result, the program sometimes ends the year with more funding than is needed to cover its obligations and sometimes with less. If more students
draw down Pell Grants than Congress anticipated, the program will run a shortfall. If the opposite occurs, the program is said to be running a surplus. Funds appropriated for Pell in prior years but not spent can be saved for years when demand exceeds
supply. Similarly, funds appropriated for the next fiscal year can be used to fill holes in the current one, if necessary.
Q: Why is CBO projecting a shortfall? A: CBO did not release its assumptions, but there are likely two major factors causing this change. First, in an unexpected update to its initial release, the National Student Clearinghouse (NSC) reported that enrollment in post-secondary education grew by 5.5% this fall. This increase occurred in spite of the widespread disruptions to the Free Application for Federal Student Aid (FAFSA) that led to a nearly 10% drop in completion rates among high school seniors.
Second, Pell eligibility was expanded in 2019 through the FAFSA Simplification Act to allow more students to receive maximum, minimum,
and partial Pell Grants. In December, the US Department of Education (ED) reported that 730,000 more Pell-eligible students are enrolled in postsecondary
education than last year.
CBO likely used these factors to update their projections of the cost of the program, but the actual cost for academic year 2024-25 will not be known for several months. It’s worth noting that the enrollment increase reported by NSC was fueled by shorter-term
programs where many students pay out of pocket, and that FAFSA completion rates among high school seniors and postsecondary enrollment rates have never diverged before in the seven years the National College Attainment Network (NCAN) has been tracking
this data. Whether Pell runs a shortfall or a surplus in future years depends in part on how much the program costs in the current year. Even small decreases in the projected cost of the program this year could delay the shortfall in the future. Still,
experts have been predicting a shortfall is coming for years so the question is likely when - not whether - it will materialize.
Q: What’s the risk of a shortfall? A: In short, eligibility cuts. According to law, the program is only allowed to be in shortfall for one year before the award is automatically cut to adapt to the amount of funding that’s available.
A crude estimate reveals that if the shortfall of $2.7 billion proves accurate and must be absorbed by 7.5 million students receiving a maximum Pell, each student’s award would fall by $360 to $7,035, wiping out most of the landmark recent increase from 2022. Faced with an impending shortfall, Congress has a choice. It can either shore up the program by providing adequate funding to meet the need or it can respond by cutting eligibility.
The Committee for a Responsible Federal Government recently recommended some ways that eligibility could be restricted, including changing the formula to provide
Pell Grants only to students who qualify for the maximum award, increasing the number of credit hours required, “limiting grant renewals for low-performing students, tightening means testing of Pell awards, or limiting the full award to students taking
at least 15 credit hours.” All these options would negatively impact college access and success.
It’s important to beware the stealth cut. While the Pell maximum is determined by Congress and enacted into law each year in annual appropriations bills, that value alone doesn’t tell the full story of Pell funding. Congress could hold the maximum Pell
Grant constant, which has been the case in recent years, but restrict eligibility, leading to a perception that the program has been spared when actually a reduction in access has occurred.
Q: What now? A: What happens now in part is up to us. While current federal spending for FY25 expires on March 28, Congress does not need to cover the Pell shortfall until FY26, giving NCAN members a window for direct advocacy. CBO’s
projection makes it less likely the maximum Pell award level will increase or that the program will be expanded to include short-term programs.
But the program as it exists today enjoys bipartisan support. Just last March, Congress provided $3 billion in mandatory funding for the program and Pell was quickly exempted from the recent funding freeze.
Congress could also address the shortfall in the budget reconciliation bill that is being developed now. Senator Lindsey Graham (R-SC) recently announced that the Senate Budget Committee will begin marking up a budget resolution this week, and the draft bill instructs the Health, Education, Labor, and Pensions (HELP) Committee to find at least $1 billion in savings. In January, the House Budget Committee published an extensive list of options that could be used as offsets as part of a budget reconciliation bill, including some major changes to higher education programs and policies, Perhaps there could be a bipartisan agreement to fund Pell with a small
portion of those savings.
We are looking forward to welcoming NCAN members to Washington on March 31-April 1 for our upcoming inaugural Leadership Summit, which will provide an opportunity for our community and the students we serve to make their voices heard. We also encourage
you to consider writing a blog or op-ed describing the importance of Pell in your life and sharing it on social media.
We will be in touch with additional advocacy opportunities soon. Questions? Don’t hesitate to reach out to me at cbrown@ncan.org.
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