How Senate Democrats Would Steal the Pell Grant Surplus

Politico recently reported that Senate Democrats were trying to cut funding for the Pell Grant program as lawmakers work to finalize a big spending bill for fiscal year 2015. Republicans were trying to block the cut. Senator Harkin, the outgoing chairman of the two most important committee assignments for education programs, confirmed the plan and then cranked up his fog machine, saying, “No one will ever feel an effect from this.”

Harkin’s gambit is rooted in the Pell Grant budgeting crisis of 2010-2011. Between 2008 and 2011, costs in the Pell Grant program surged, due partly to the recession, but also because Congress enacted three separate bills to expand the program and increase the grants it provided during the same period. The cost of the program nearly tripled as a result. Instead of building those costs fully into the base budget for the Pell Grant (the regular appropriation), Congress and the president opted instead to split the program’s funding in two.

They would enact the regular appropriation and increase it slightly, and then use temporary supplemental funding to cover the massive cost increases the program was incurring. Much of that temporary funding came from redirecting funds in the student loan program, such as subsidies for private lenders and graduate students. But no matter how much lawmakers provided, the temporary funding always looked like it was going to come up short. By 2011, both the Obama administration and Congress decided it was time to start cutting the Pell Grant program itself. They axed the year-round Pell Grant on one bill and tightened several eligibility rules on another that same year.

By 2013, cost growth in the program abated, meaning the supplemental funding everyone thought was about to come up short would last much longer and Congress could postpone when it would need to up the regular appropriation. The program could get by with a flat funding level and rely on this new surplus to carry it through. In fact, lawmakers have now provided flat funding for the Pell Grant for four years in a row, each time drawing down about $6 billion in supplemental funding. (There is actually a third source of funding in the mix, which allows the maximum grant to increase, but for simplicity’s sake, we’ll leave that detail aside.)

Enter Senate Democrats. Instead of flat-funding the program for a fifth year, they would cut the fiscal year 2015 appropriation by $2 billion, sources tell us, to $20.8 billion. Then they would spend the $2 billion on something else. Benefits in the Pell Grant program would stay unchanged. The program simply draws down supplemental funding to plug the hole–but it would do so by $2 billion more than it otherwise would.

That brings closer the day when supplemental funding runs out and Congress would need to increase the program’s regular appropriation. According to the Congressional Budget Office’s latest estimates, it moves that date to the upcoming (fiscal year 2016) appropriations process, which starts in the spring of 2015. Otherwise, it was not set to hit until a full year later.

Conveniently for Senate Democrats, they won’t have to come up with extra funding for Pell Grants in 2015 or 2016. It will be the new Republican majority. That’s why the strategy looks so sinister. Spend an extra $2 billion this year on another program, keep Pell Grants at their current benefit level, and let the new Senate majority come up with the missing $2 billion.

This is a dangerous game for the students and families who rely on Pell Grants. In 2009 and 2010, Congress and the president opted to kick the can down the road on Pell Grant funding. That ultimately led to last-minute budget deals to cut benefits. Senate Democrats are recklessly setting up that same scenario again.

Note: We warned the education community to be on the lookout for lawmakers who might steal the Pell Grant surplus when the CBO first reported it in 2013. That post is here.