Is the Pell Grant Reserve Fund in Trouble?

By Owen Daugherty, NASFAA Staff Reporter

As millions of families across the country grapple with the financial hardships brought on by the COVID-19 pandemic, experts are concerned that more students becoming eligible for Pell Grants in the fall and coming years could leave the program’s reserve fund vulnerable to depletion.

While the Pell Grant program has typically had strong bipartisan support in Congress, it has also suffered from stagnant funding compared with the rate of inflation, leading many to believe an influx in new recipients could lead to a rapid depletion of the program’s reserve fund if Congress isn’t proactive in addressing the issue. And with more than 20 million Americans filing for unemployment benefits in the last few weeks in response to the ongoing pandemic, an uptick in Pell Grant recipients is almost sure to follow.

"It's reasonable to expect that there are going to be more students who are qualifying for Pell in upcoming semesters because of the recession that we're entering,” said Mamie Voight, the vice president of policy research at the Institute for Higher Education Policy. “As students are losing their jobs, or as their parents and families are losing jobs or having decreased wages, more students are likely to be eligible for a Pell Grant.”

While the maximum Pell award for the 2020-21 academic year ticked up to $6,345, a slight increase from the previous year, that increase came at the price of a $500 million rescission from the program’s reserve fund — money set aside to ensure students receive funding should the program face a funding shortfall, as it did during the Great Recession.

Furthermore, federal funding proposals have called for pulling billions from the Pell Grant reserve fund as President Donald Trump last year took flack after the White House in a budget request called for shifting billions from the Pell Grant reserve to fund a spending increase for NASA.

Concerns over a speedy depletion of reserve funds aren’t unwarranted — the program faced a shortfall not even 10 years ago on the tail of the Great Recession.

In times of economic hardship, college enrollment tends to increase, Voight noted. And as enrollments grow, demand for Pell Grants also rises — during the most recent recession, the share of undergraduate students receiving Pell Grants spiked from about 26% in 2008-09 to a high of 38% in 2011-12, and the program subsequently faced a funding shortfall.

Voight said the combination of an increase in both enrollments and Pell Grant recipients “could lead to increasing pressure on the program's finances and could dip into that Pell reserve fund that has been there for the past several years.”

Due to the fact that the government cannot predict how many Pell Grants will be disbursed annually to students, any excess money goes into a reserve fund, which helps prevent the interruption of student aid in years where the amount of students utilizing the program exceeds the amount of funds initially budgeted.

Currently, the Pell Grant reserve fund has an estimated surplus of $10.8 billion, according to the Congressional Budget Office’s (CBO) March baseline. However, the CBO states that its estimates are based on the forecast completed in January, and “do not account for changes to the nation’s economic outlook and fiscal situation arising from the recent and rapidly evolving public health emergency related to the novel coronavirus.”

While nearly $11 billion in the reserve fund may seem like a significant amount, Voight and others warn it could be depleted quickly — and it’s more important now than ever to ensure the fund does not reach a shortfall. The CBO in a report earlier this year estimated that the reserve fund will be emptied by 2025 if Congress continues to allocate the same level of discretionary funding for the Pell Grant program as it did this year and freezes the maximum award.

Tamara Hiler, director of education at Third Way, said lawmakers should use legislation addressing the coronavirus as an opportunity to make necessary adjustments to the Pell Grant.

“We know that higher education has already gotten some stimulus funds, and it's going to need more,” she said. “Rather than that just going all to institutions, it should instead go to students, and increasing the Pell Grant amount and restoring the purchasing power is an important and effective way to make sure that stimulus funding is going to the Americans who need it the most.”

While overall funding for the Pell Grant program has steadily increased over the years, it’s “purchasing power” has failed to keep up with inflation. Instead of letting the trend continue, Hiler said lawmakers should be proactive in addressing the issue — perhaps by doubling the maximum award.

“Congress has the ability and can put more money into the Pell Grant program without going through the more typical appropriations process,” she said. “A lot of advocates right now would like to see Congress actually put stimulus dollars into the program ... with hope that would actually just be a permanent change in order to try to increase the amount of money that is available and make sure that we're not having to just wipe out this reserve that we've put in place.”

Hiler noted that when the country fell into a recession in 2008, Congress allocated more funding for the Pell Grant, but also tightened eligibility requirements. Both Hiler and Voight said they hoped similar measures would not be taken if and when Congress addresses the Pell Grant program this time around.

Congress “makes cuts to the program in ways that limit the amount of Pell Grants that individual students get in an effort to save money and address that shortfall,” Voight said. “Depending on how many people go back to school, how many people become eligible for Pell, and how long this current recession lasts, there could be some efforts in the years to come to try and trim eligibility for students yet again, in order to make up the difference.”

Advocates are hoping history doesn’t repeat itself, as Voight said the tendency for lawmakers to trim eligibility during a shortfall is concerning and has a negative impact on students’ opportunity for future economic mobility.

“When students are facing great economic hurdles and economic stressors in the current environment, it's really important that we look at Pell as the investment it is in students and in their futures and in their ability to access higher education and succeed,” she said.


Publication Date: 4/24/2020

Mary A | 5/3/2020 9:44:54 PM


Mary A | 5/2/2020 9:41:39 PM


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