In January, the Congressional Budget Office (CBO) released new supplemental projections for the Pell Grant program. Unlike the last Pell baseline (released in June 2024), CBO now projects the Pell program will face a funding shortfall this year. Because this week’s release is not a baseline, but rather a supplemental table, these updated projections are unlikely to impact current funding negotiations for FY25. However, they will quickly rear their head in the context of the upcoming FY26 funding cycle. If program funding is not shored up, students could face eligibility or funding cuts for the first time in more than a decade.
This is the news advocates have been bracing for—the June 2024 baseline was published amidst the lengthy, troubled rollout of the new FAFSA, which caused CBO to project a significant decline in college enrollments. As we explained last summer, “only time will tell whether CBO’s dire enrollment predictions come to pass”—and it appears that CBO has updated its projections to account for a rebound in enrollments.
Funding gaps can lead to harmful cuts, as in the wake of the Great Recession, when Congress faced a significant chasm between the amount appropriated for Pell and the amount needed to cover program costs. To close this gap, in FYs 2011 and 2012, Congress cut Pell program costs by more than $50 billion (over 10 years). Many of those cuts have not been restored.i
For more than a decade, the Pell Grant program has had enough funds to cover its annual costs and to keep funds in reserve for a rainy day. However, in recent years, policymakers and advocates grew increasingly concerned that the Pell program was in imminent danger of a funding gap, in which the program would not have enough funding in a given year to cover the cost of providing grants to eligible students.
Due to the Pell program’s unique and complex funding structure, policymakers and advocates must always be on alert for a potential funding crunch, which would leave students vulnerable to aid and eligibility cuts. The program functions like an entitlement program (such as Social Security or Medicare), where every eligible student in a given academic year is legally entitled to receive their Pell award.ii However, unlike other entitlement programs, the program does not rely entirely on mandatory funding. Instead, it relies on both discretionary (funding annually appropriated by Congress) and mandatory (automatic funding that is set by authorizing legislation) funding from the federal budget.iii
But, because Congress appropriates discretionary funds for the program based on projections of how much it will cost in the upcoming year, there is an inevitable annual mismatch between how much the program costs and how much funding is actually available.iv This creates significant complication for policymakers and ongoing risks for students who rely on the grant.v
To prevent harmful program cuts in the short term, lawmakers must shore up program funding. Otherwise, students will pay the price. The only way to fully eliminate this annual uncertainty is to shift the Pell program to be funded entirely on the mandatory side of the budget. This shift, which is proposed in the recently re-introduced Pell Grant Preservation and Expansion Act, would eliminate the need for annual appropriations and provide for automatic adjustments in program funding based on changes in student participation.
i These cuts included the elimination of “year-round” Pell Grants—which had allowed students to use Pell Grants to pay for summer coursework—and the enactment of an immediate, retroactive lifetime limit on Pell eligibility (a reduction from 18 semesters to 12 semesters), which immediately eliminated eligibility for millions of students.
ii “The Pell Grant program operates as an entitlement to eligible students once the maximum grant, award rules, and payment schedule are established. The Higher Education Act does not provide for the denial of an award to any student who meets the qualifying conditions, nor does it allow for the reduction of any student’s award level.” See the Education Department’s Congressional Justifications for the President’s FY2025 Budget Request for more: https://www2.ed.gov/about/overview/budget/budget25/justifications/q-sfa.pdf.
iii The College Cost Reduction and Access Act (enacted in 2007) authorized mandatory funding to support increases to the Pell Grant maximum award set in each fiscal year’s appropriations act. The Health Care and Education Reconciliation Act (enacted in 2010) amended that provision and increased the maximum award by $690 for award years 2010-11 through 2012-13, and by the Consumer Price Index (CPI) from 2013 to 2017. Beginning with the 2018-19 award year, the add-on award is equal to the award year 2017-18 level and is not increased by the CPI.
iv Lawmakers sometimes make additional “mandatory” Pell investments to supplement the annual amount that appropriators provide.
v Researchers can forecast Pell shortfalls and surpluses using CBO projections on how much the program is expected to cost in future years. Program costs are based on how many students are expected to enroll in a given year and how many of those students will be eligible for Pell funding.
