CRS Report: More Funding Needed to Maintain Pell Awards

"Additional funding may still be required in order to maintain the current eligibility parameters of the [Pell Grant] program in FY2012," according to a new Congressional Research Service (CRS) report.

Congress provided $17 billion in mandatory funding to shore up the Pell Grant program as part of the Budget Control Act of 2011 (BCA), but it may not be enough. The additional mandatory funds will make it easier to maintain the $5,550 maximum Pell, because lawmakers won't have to designate as much discretionary funding to the program to maintain the maximum award.

As Congress looks at ways to cut spending, the recent growth of the Pell Grant Program has drawn attention from many Republican lawmakers looking to make drastic cuts in entitlement programs and federal student aid. The Pell program has grown from roughly 6 million students in 2008 to an anticipated 9.4 million students in 2012-13. The federal government is expected to distribute $36.5 billion to 8.9 million students for the 2010-11 award year. Recent negotiations indicate that some members of Congress will look at implementing an income threshold or graduated allowances to reduce the cost of program without harming the neediest students.

"As a long-term strategy, Congress could consider ways to change the distribution of overall benefits by targeting aid to the most needy students or by revising the program's award rules and eligibility parameters," the report states.

The CRS report, "Federal Pell Grant Program of the Higher Education Act: Background, Recent Changes, and Current Legislative Issues," states that a rise in the number of eligible applicants, legislative changes that have expanded the program's eligibility requirements and a bad economy have all contributed to the rapid growth of the program.

Despite the increasing cost, the average purchasing power of the Pell Grant has declined over recent years. The total maximum award of $5,550 is expected to cover approximately 34 percent of the average tuition, fees, room, and board at public four-year institutions. The purchasing power of the Pell Grant was at its peak relative to average college costs during the 1970s, when the maximum covered nearly 80 percent of college costs at a four-year public institution. 

Though there is no absolute income threshold that determines who is eligible or ineligible for a Pell Grant award, Pell Grant recipients are primarily low-income. In FY2008 (AY2008-09), an estimated 62 percent of dependent Pell Grant recipients had a total family income at or below $30,000, according to the CRS report. An estimated 83 percent of independent Pell Grant recipients had a total income at or below $30,000. A small percentage of Pell Grant awards, though smaller than the average award, go to mid- and high-income families.

The Pell Grant program's budgetary problems, however, are complicated. Congress has turned to creative funding mechanisms to plug Pell Grant program shortfalls over the past few years by enacting a number of legislative amendments and policies that have created a mish-mash of discretionary and mandatory funding to support the program.

Currently the $5,550 maximum award is funded through $4,860 from discretionary funds and $690 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 provides similar "add-on" mandatory funding on top of the program's discretionary allocations. The bill takes away student loan subsidies for graduate students and directs those funds to the Pell Grant program. Student loan funding comes from the mandatory side of the budget.

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