Future trends in Pell Grant funding

Federal aid for low-income students faces uncertain future

EAB's quick take

Despite six straight years of GOP budget proposals calling for reductions to the program, Congress has not significantly cut Pell appropriations. But with Pell-eligible populations growing fast and spending rising in other areas, many lawmakers worry that the program—which at $30 billion annually represents the single largest federal expenditure on education—is unsustainable.

New eligibility requirements or lower maximum awards could limit access for low-income students and threaten a key source of institutions’ revenue from federal aid.

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Waning political support and increased enrollments threaten funds

Political Factors Increase Likelihood of Future Cuts

-Coming HEA reauthorization may bring new funding model or eligibility requirements

-Program projected to run deficit by 2017, making current funds unsustainable

1. Proposals to cut Pell budgets all bark, no bite—so far
Recent budget deals have kept Pell funding level, but a 2014 budget agreement tapped $300 million in surplus funds meant for use in future years to maintain spending levels, which could strain the program moving forward. Meanwhile, GOP members of Congress have continually targeted Pell for spending reductions: in 2016, for the sixth straight year, the GOP’s budget proposal suggested freezing the maximum Pell award at its current value and cutting hundreds of millions of dollars from the program over the next decade.

Number of Pell Grant Recipients In Millions

2. Post-recession Pell enrollments nearly double, with more expansion possible
Enrollment in the Pell program exploded in the wake of the recession because more students returned to school and more families were eligible under Pell’s income rules. Congress and the Obama administration further encouraged this growth by expanding eligibility and increasing the maximum Pell award using stimulus funds.

Pell enrollments may continue to expand in the wake of recent simplifications to the FAFSA, including the use of prior-prior year income data. An estimated 2.3 million Pell-eligible students do not currently apply for federal aid, and as more of those students apply, Pell enrollments will continue to grow.

Growth by family income range, 2000-13

3. Growth in low-income populations will continue to strain Pell program
Lower-income families represent the fastest-growing demographic by income level. As these populations grow in size and more students apply for aid, substantial growth in Pell program enrollments could follow. Because Pell recipients persist and complete at a lower rate than other populations, some institutions may alter admissions policies toward low-income students or consider expanded investments in student success and retention for those populations.

Projected Spending Increases in Billions of Dollars

4. Competing spending priorities make funding difficult to maintain
In the federal budgeting process, appropriations for financial aid programs like Pell are made alongside appropriations for other programs of the U.S. Department of Education, the Department of Labor, and the Department of Health and Human Services. As the need to fund health services increases with the implementation of the Affordable Care Act and the graying of the population, future Congresses will be faced with the choice to minimize Pell program costs or make cuts in other areas.

5. Even before potential cuts, Pell covers lowest share of cost in history
When Congress established the Pell program, the maximum award covered nearly all of the cost to attend a public institution. Over time, the inflation-adjusted value of the maximum Pell award has remained steady, but college costs have more than doubled. The decreased purchasing power of the award forces most low-income students to borrow to cover costs: 84% of Pell recipients graduate with loan debt. Cuts to the program could only exacerbate this trend and potentially limit access for low-income students.

Maximum Pell Award versus Cost of Attendance In 2014 Dollars

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