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New Pell Grant Estimates Buy Time, Long-Term Fix Still Needed

Published:  February 7, 2013

The Congressional Budget Office this week released updated cost projections for the Pell Grant program – and the estimates show an unexpected surplus over the past several years. The figures are much awaited because they dictate what lawmakers must allocate to the program in the upcoming fiscal year 2014 appropriations process if they want to keep the program running at its current level of benefits and with existing eligibility rules.

In 2010 and 2011, those estimates sparked panic. The program was burning through money faster than anyone expected, prompting Congress and the Obama administration to shift funding from other programs and cut parts of the Pell Grant program itself three separate times. (A more complete history and funding table is available here.)

The funding emergency was exacerbated by the fact that congressional lawmakers and the Obama administration had tried to maintain a large increase in the maximum grant, first funded without any long-term funding plan by the American Recovery and Reinvestment Act of 2009. The latest round of temporary funding was set to dry up in 2014, leaving a $5.8 billion hole in the program. In 2015, the number would jump to $8.7 billion, and stay at about that level indefinitely.

Luckily for procrastinators in the White House and on Capitol Hill – and for Pell Grant supporters – the latest Congressional Budget Office estimates have come to their rescue. According to CBO, the program was actually overfunded the past few years, leaving a surplus of $9.2 billion. The CBO doesn’t give much explanation as to what changed. For that we’ll have to wait for the president’s budget request due in late March.

But this means that Congress can fund the Pell Grant program with the same appropriation it provided in 2012 for two more fiscal years without supplemental funding or eligibility changes. Moreover, the fiscal year 2015 appropriation needs to be only $1.4 billion larger, rather than $8.7 billion larger, because lawmakers can apply a big chunk of the $9.2 billion surplus to that year’s funding. (To be sure, a $1.4 billion increase will be no easy feat, given that lawmakers must now contend with spending caps on appropriations enforced by sequestration.)

CBOPellEstimate20134.png

Still, for the long term, the Pell Grant program needs a funding plan. Come fiscal year 2016 and each year thereafter, lawmakers will need to increase the annual appropriation between $7.2 billion and $4.9 billion, depending on the year (see above table). If not, lawmakers will have to drastically reduce the maximum grant or change eligibility rules. Favorable estimates from the CBO can delay the day of reckoning, but they won’t solve the underlying problem: Temporary funding is only temporary.

As a final note, Pell Grant supporters – who no doubt are excited about the new estimates – should understand that lawmakers could steal the Pell Grant surplus to pay for something else. There is some tricky accounting involved here. Technically speaking, Congress could use the surplus to supplant regular appropriations funding this year (or in 2014) for Pell Grants, and then spend the surplus on some other program. The temptation to carry out such a scheme will be intense given the ongoing budget battles on Capitol Hill. That would jeopardize college aid to millions of students from low-income families. And it would make the tough spending choices and eligibility changes Congress and the Obama administration made to shore up the program in the recent years all for naught.

Got that, Congress? Don’t steal the Pell Grant surplus. We’re watching.

 

2/7/2013: Table was updated to correct the 2015 Pell Grant funding shortfall.

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