CBO Estimates Pell Program to Hit Troubled Waters in FY2014

Even with a higher maximum award, the nonpartisan Congressional Budget Office (CBO) expects the Pell Grant program to be on sure footing through fiscal year (FY) 2013 (award year 2013-14). However, FY 2014 (award year 2014-15) is expected to see a big increase in program costs, and that indicates trouble on the horizon.

To meet FY 2014 Pell program costs, Congress will need to come up with an estimated $30.1 billion from discretionary funds, according to the latest CBO. By contrast, FY 2013, with the help of Pell eligibility restrictions and savings from eliminated federal student loan benefits, will require only $21 billion. Pell program costs have risen dramatically in the last decade, largely because the quasi-entitlement program has seen a rise in eligible applicants over the last four years, spurred on by eligibility changes and a poor economy. In FY 2008 the discretionary cost of the program was just $14 billion and reached $23 billion in 2011.

In CBO’s estimates, Congress would use the surplus from the FY 2012 budget and savings from the Budget Control Act of 2011 to meet the Pell’s FY 2013 program costs. The extra funds allow Congress to allocate less funding in discretionary appropriations for FY 2013, creating the $20.1 program discretionary cost estimate. 

The increased FY 2013 Pell maximum of $5,645 will be reached through through $4,860 from discretionary funds and $785 from mandatory funds. Discretionary funding is set by Congress through the annual appropriations process and provides the majority of the program’s funding. However, mandatory funding has played a growing role in the program since 2007, when Congress created a new mandatory "add-on" to be added to the discretionary amount. 

The Budget Control Act of 2011 provided similar "add-on" mandatory funding to shore up Pell Grant funding for FY 2012.  The law eliminated the in-school interest subsidy for graduate students, directing $17 billion to the Pell Grant program’s FY 2012 and FY 2013 budgets. Most of that $17 billion has already been allocated for FY 2012, but $7 billion remains for FY 2013. 

The additional mandatory funds made it easier to maintain the FY 2012 $5,550 maximum Pell. But, in the FY 2012 budget, Congress enacted even more cuts to other student aid programs, including the elimination of the undergraduate interest subsidy for the six-month grace period and scaled back Pell eligibility time limits. These cuts provide savings that provide the FY 2013 Pell surplus of $2.1 billion. 

If Congress fails to address the looming shortfall, FY 2014 could mean more cuts to Federal Student Aid programs and more restrictions to Pell eligibility requirements. Given the last-minute approach to federal funding, answers to these questions are likely far off, at least until after the upcoming November elections.