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Pell Grants: It’s Not the Shortfall, It’s the Funding

Published:  December 10, 2009

There’s buzz around Capitol Hill and within Washington’s education policy community that the Pell Grant program faces serious funding challenges. Much attention has incorrectly fallen on a possible “shortfall” in funding, which occurs when Congress accidentally underfunds the program one year and has to backfill it in the next. A close look at the numbers, however, suggests a shortfall isn’t the main cause for concern. The real funding challenge stems from increased student eligibility, college enrollment trends, and a higher maximum grant that have brought program costs from $14 billion in fiscal year 2008 to a projected $32 billion in 2011. In other words, at this rate Pell Grants will likely account for half of the entire discretionary budget of the U.S. Department of Education in 2011.

How did this come to be?

As part of the America Recovery and Reinvestment Act enacted early this year, Congress increased the maximum Pell Grant from $4,731 to $5,350 for the 2009-10 school year. While that may not look like much from a student’s perspective, the increase required an enormous appropriation of $26.8 billion, and another $2.7 billion in a separate mandatory funding account. (Some of the funding was used to fill in a shortfall from the prior year.)

Right now, Congress is finishing up the 2010 education appropriations bill, including funding for the 2010-11 Pell Grant, and both the president and the Democratic congressional majority want a further increase in the maximum grant to $5,550 in that bill. Doing so requires a 2010 appropriation of $20.6 billion even though actual costs will be about $27 billion. Luckily, $6.5 billion in unspent stimulus funds is waiting in the wings to make up the difference. (Another $4.0 billion in a separate mandatory funding account will also be used.)

This is where the big funding challenges come in. Notice that a maximum Pell Grant of $5,550 requires a fiscal year 2010 appropriation of $20.6 billion. The bill that Congress is about to pass provides only $17.5 billion. That means when Congress begins the 2011 appropriations cycle this coming summer, it will have a $3 billion shortfall to fill in. What’s more, the economic stimulus money will run out at the same time. That means Congress will have to provide $32 billion for Pell Grants in one fell swoop if it wants to keep the maximum grant at $5,550 in the 2011 appropriations bill. (Approximately $5 billion more in a mandatory funding account will also be needed).

But what about new Pell Grant funding in student loan reform legislation (the Student Aid and Fiscal Responsibility Act, SAFRA) under consideration in Congress? Won’t that funding take some of the pressure off the annual appropriation? Not really. The proposal would indeed provide new funding for Pell Grants and could help fund a rising grant each year. But Congress still needs to provide the foundation for the program through an annual appropriation of around $30 billion, and that figure is likely to grow every year. The funding formula proposed in SAFRA will only supplement that funding by about $2 billion in fiscal year 2011.

So the cause for concern isn’t really a “shortfall.” It is the $30-plus billion annually for Pell Grants as far as the eye can see. Many people will surely cheer such a large funding commitment to the program, but budget hawks will no doubt bristle at these figures, which to them, show a spending program out of control.

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