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CBO Finds Third Consecutive Year of Good News on Pell Costs

Yesterday, the Congressional Budget Office announced some more good news for members of Congress: For the third consecutive year, the Pell Grant funding cliff is smaller and further away than we thought. After a few shaky years of funding during the recession, the updated CBO baseline will surely come as welcome news to lawmakers facing midterm elections and a tight budget. But should Congress start celebrating just yet?

Not quite. The new CBO estimates prove Congress has bought some time, but long-term estimates still suggest the program’s unfunded costs are lying in wait. And because the Pell Grant program runs like an entitlement program, in that all eligible applicants receive an award, lawmakers will have no choice but to deal with the shortfall eventually.

To date, Congress hasn’t provided a regular appropriation for the Pell Grant program larger than $22.8 billion, with another $5.5 billion kicked in for fiscal year 2014 awards through mandatory (entitlement) spending for the program. It’s filled in the rest, year after year, with short-term, emergency funding from a variety of sources, including the 2009 stimulus bill, student loan savings in the 2010 healthcare law, the Budget Control Act of 2011, and a series of eligibility changes to the program that reduced costs.

Starting with the 2013 CBO estimate, there was some surprising news: The program actually cost less than expected.

Then, starting with the 2013 CBO estimate, there was some surprising news: The program actually cost less than expected. As the rate of growth in the program flat-lined, the expected costs started to drop. Underestimating the numbers for fiscal year 2013 meant Congress could draw on an accumulated surplus in the program. Those funds--which actually come from funding provided in past years but never spent--are large enough that Congress can spread the surplus across fiscal years 2014 through 2017, added to a flat appropriation for the program. Based on a separate funding formula, the maximum grant also increases with inflation.

Here’s where it starts to get tricky. In fiscal year 2017, all that will be left of the surplus is $0.4 billion. And at the same time, the costs of the program are projected to increase as more students become eligible for Pell awards and the size of the maximum award increases from $5,730 this year (including the mandatory portion of the award) to $6,100. That will require a $25.0 billion regular appropriation, rather than the usual $22.8 billion. So in 2017, lawmakers are back where they’ve started, trying to patch together funding to keep the program going. And while the funding cliff is only $2.3 billion that year, CBO estimates it will grow every year thereafter, costing lawmakers more than $38 billion from fiscal year 2017 to 2024.

That means members of Congress aren’t off the hook in ensuring the Pell Grant program--the cornerstone of federal financial aid for low-income students--is financially stable. The CBO report is good news for the immediate future, but it’s not a cure. Lawmakers have bought themselves a few years to figure out the long-term future of Pell Grant appropriations. If they don’t, the Pell Grant funding cliff will come knocking again.