The nonpartisan Congressional Budget Office (CBO) released estimates last week indicating that they expect the Pell Grant Program to be on sure financial footing through the fiscal year (FY) 2016 (award year 2016-17). However, FY 2017 (award year 2017-18) is expected to face a funding shortfall of $2.3 billion. This represents good news in the short-term, as it means other student aid programs will not have to be cut or modified to shore up Pell funding.
The long-term fiscal health of the program is less stable, according to the CBO, which projects a cumulative shortfall of $38 billion over the next 10 years. However, on a positive note, this estimate is down from the CBO’s $47 billion cumulative shortfall estimate last year.
Pell’s Recent Funding History
Pell has faced significant shortfalls in recent years for several reasons. Program costs have rose dramatically in the last decade, largely because of a rise in eligible applicants, spurred on by eligibility changes and a poor economy. In FY 2008 the discretionary cost of the program was just $14 billion and reached $33.6 billion in 2012 (the last year for which we have program data).
The Pell Grant Program operates under a complex, bifurcated funding structure of both mandatory and discretionary streams of money. 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 to plug program shortfalls of FYs 2012 and 2013.
The additional mandatory funding from the Budget Control Act helped, in part, to shore up Pell funding. But, Congress also 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 in order to plug the remainder of the shortfall.
CBO’s Pell shortfall estimates, while shaky in the long-term, offer a positive outlook for the program as it enters into the reauthorization process.
Publication Date: 4/23/2014