Pell Grant Budget: The Not-So-Rosy Scenario

Earlier this week we wrote that the Congressional Budget Office has again lowered its expectations for cost growth in the Pell Grant program. In particular, the agency showed that lawmakers don't need to start increasing the annual appropriation for the program until 2018 if they want to keep the program going in its current form.

CBO's new estimate says Congress and the president will need to provide a $2.3 billion increase to the appropriations bill they enact for that year and they will need to sustain and build on those increases each subsequent year. That means over the next 10 years, appropriations will need to be $31.8 billion higher in total.

Unfortunately, those figures assume that the maximum grant for which students qualify is frozen after 2017 at $6,000. That's because the figures reflect current law, and under current law, a provision that funds automatic increases to the maximum grant to keep it in line with inflation expires after 2017. The budget projections for the Pell Grant program are therefore far too rosy.

A more accurate assessment would show the funding cliff assuming lawmakers make the inflationary increases to the maximum grant permanent. (President Obama proposed making the inflationary increases permanent in his budget this year). That change makes the Pell Grant program's finances look much more troubling -- particularly because the inflationary increase would need to be extended at exactly the same time the funding cliff in the program is projected to occur, in fiscal year 2018.

The nearby table details the funding cliff under the two scenarios. As it shows, extending the inflationary increases more than doubles the size of the funding cliff. In total, lawmakers will need to come up with $73.8 billion in additional funding over the next ten years if they want to keep the program in its current form and continue providing inflationary increases to the maximum grant beyond 2017.

While recent trends have helped hold back cost growth in the Pell Grant program, it will take more than good news to avoid a $73.8 billion funding cliff.

Note: The calculation for the cost of extending the inflationary increase is adjusted to approximate the budget authority required. The adjustment shifts outlays to one year prior to approximate the budget authority. Publicly available estimates show only outlays instead of budget authority, the more commonly understood measure for Pell Grant funding.

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