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Senate Subcommittee Nearly Solves the 2014 Pell Grant Funding Cliff

Published:  June 19, 2012

Last week a subcommittee in the Senate passed an appropriations bill to fund nearly all federal education programs for fiscal year 2013, which starts October 1, 2012. That isn’t big news because the details of a final bill that would be viable in both the House and Senate are contingent on some major roadblocks: It’s an election year; the Labor, Health & Human Services, and Education Appropriations bill is the most contentious funding bill; automatic, across-the-board spending cuts loom in January; and so on. The bill is even less newsworthy because the Pell Grant program is temporarily on sound financial footing and no year-end funding crisis is in play as in past years. That’s why many might miss that the Senate bill solves next year’s Pell Grant funding crisis—well, just about.

First off, recall why this year is an easy one for Pell Grant funding and why fiscal year 2014 and each year thereafter are not.

For the past four years, Congress has provided both regular annual appropriation and temporary funding for Pell Grants. The temporary funding is available through fiscal year 2013, but not beyond. If Congress doesn’t renew that funding next year at $7.8 billion, lawmakers must cut the maximum grant size and/or tighten eligibility rules. Let’s call this $7.8 billion the funding cliff.

In other words, this year’s funding bill (fiscal year 2013) is the last one before the cliff, taking a lot of pressure off of lawmakers for this year. Moreover, past funding bills actually overfunded Pell Grants by a cumulative $2.1 billion, and that money is available for Congress to spend on the fiscal year 2013 funding bill. It’s as if Congress reached into its pocket and unexpectedly found a wad of cash worth $2.1 billion just for Pell Grants. That “found money” means Congress could provide $1.8 billion less in the fiscal year 2013 appropriations bill than they provided last year while still supporting a maximum grant of $5,645.

That’s where the Senate bill makes an unexpected move to address next year’s $7.8 billion funding cliff. The bill doesn’t provide less for the regular appropriations in 2013, even though it could without cutting grants. It provides the same amount as in 2012. That effectively allocates the $2.1 surplus to the fiscal year 2014 grant and reduces the funding cliff by $1.8 billion. (It’s less than $2.1 billion because the costs of the program are higher compared to the prior year.)

Next, the Senate bill wrings savings from the federal student loan programs—as the president recommended in his fiscal year 2013 budget request—by cutting off the in-school interest subsidy on Subsidized Stafford loans after a student is enrolled beyond 150 percent of the normal time to complete a program and by reducing fees the Department of Education pays to guaranty agencies to rehabilitate federal student loans. The bill also would continue to award Pell Grants to eligible students attending distance learning program, but exclude room and board costs in calculating the grant.


According to a Congressional Budget Office estimate, those changes would make $3.5 billion available for Pell Grants in fiscal year 2014, reducing the funding cliff by the same amount. Indeed, the Senate reallocates those funds into the fiscal year 2014 Pell Grant.

Based on our math, that means the Senate bill closes the fiscal year 2014 funding cliff for Pell Grants by $1.8 billion, plus $3.5 billion, or $5.4 billion in total. Put another way, only about $2.4 billion of the cliff would remain when Congress begins drafting the fiscal year 2014 appropriations bill this time next year. That number is small enough that Congress could feasibly increase the annual appropriation at that time to reach the necessary $25.3 billion.

Of course, that is still only a one year fix. The fiscal year 2015 the funding cliff is still there.

As was mentioned earlier, Congress has a long way to go in completing the fiscal year 2013 Labor, Health & Human Services, and Education Appropriations bill. Even so, the version of the bill that the Democratic majority on the Senate subcommittee passed last week shows how lawmakers can take a few steps that would have a minimal impact on students while also addressing the 2014 Pell Grant funding cliff.

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