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CBO Releases 2013 Pell Grant Funding Target

Published:  March 13, 2012

Lately, it has seemed like every year brings yet another funding crisis for the Pell Grant program. Not so this year.

Today the Congressional Budget Office (CBO) released its March baseline, which the agency will use to measure (i.e. “score”) the spending and revenue effects of any legislation Congress considers this year. The March baseline also establishes how much funding lawmakers will need to provide for Pell Grants in the fiscal year 2013 appropriations process to maintain the scheduled maximum grant of $5,645. The appropriations process will officially get underway this spring—although the hard deadline for Pell Grant funding is actually sometime early next year when Congress has to finalize funding for grants made in the 2013-14 school year.

In past years, the CBO March baseline estimates have been the harbingers of change to Pell Grant eligibility rules or shifts in funding from student loans to Pell Grants. Those March estimates showed big funding gaps that Congress needed to plug through upcoming appropriations if it wanted to maintain the maximum grant. In 2010, funding gaps developed because of enrollment growth and broader eligibility rules, but gaps in more recent years resulted from lawmakers’ attempts to fund the program with one-time supplemental funding that inevitably created a funding gap at the beginning of every new budget cycle. To fill those gaps, lawmakers have cut funding for student loan programs and moved it to Pell Grants and enacted a series of eligibility changes that allowed them to maintain the maximum grant with less funding.

While those funding “emergencies” and student aid reshufflings have been dizzying, the room just stopped spinning—at least for one year.

According to the CBO March baseline released today, Congress needs to provide $21.0 billion in the fiscal year 2013 appropriations bill to support a maximum grant of $5,645 for the 2013-14 school year. That is actually $1.8 billion less than lawmakers provided through the appropriations process last year. Careful readers will also notice that the maximum grant under that funding scenario is scheduled to increase above the $5,550 level provided for the past three years. As always, the reasons for this counterintuitive outcome are complicated. The table provided here details the various funding sources.

Pell%20Table%20March%202012%20Baseline.p

As expected, prior year funding for Pell Grants was more than enough to fund the program over several recent school years by a cumulative $2.1 billion. The CBO estimate out today lets Congress count that “surplus” against the upcoming appropriation. In other words, the appropriation that Congress needs to provide to support the maximum grant of $5,645 only needs to be $21.0 billion instead of $23.1 billion because of the unspent funds available this year. This surplus, booked in the fiscal year 2013 appropriation, allows Congress to provide less funding through appropriations than the year before, but makes more total funding available overall.

There are two more sources of funding that will support the fiscal year 2013 grant.

Last year, as part of the Budget Control Act (the debt ceiling agreement), Congress ended Subsidized Stafford loan benefits for graduate students and moved $17 billion of the savings over to Pell Grants. Most of that funding has already been allocated to earlier grants, but $7 billion of it remains for the fiscal year 2013 grant. (There is also another $0.6 billion in supplemental funding available from student aid changes enacted on the fiscal year 2012 omnibus appropriations bill—temporary suspension of the Subsidized Stafford grace period interest benefit and entitlement savings from Pell Grant eligibility changes—that is allocated to the Pell Grant appropriation in fiscal year 2013.)

Additionally, the entitlement formula, which Congress created in 2007 and expanded in 2010, provides an add-on to the maximum grant. This portion of the program is permanently funded and does not require an annual appropriation. In past years, the entitlement formula funded $690 of the $5,550 maximum grant. But in fiscal year 2013, it is scheduled to provide $785 due to an automatic inflationary increase.

All in all, this year’s appropriation process will be an easy one for the Pell Grant program. Congress can actually fund the program with slightly less than it did last year and still allow the maximum grant to go up.

However, this year is only the calm before the storm. Next year at this time the supplemental funding from the Budget Control Act will have all been used up and the CBO March baseline will say that Congress needs to come up with $30.7 billion to maintain the maximum grant scheduled for the 2014-15 school year. That nearly $10 billion increase is sure set off another funding panic. But lawmakers and the education stakeholder community shouldn’t wait until then to put the Pell Grant program on a more sustainable funding path. They should use this year’s reprieve to develop policies that will put the program on more stable footing.

More on that later.

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