Coming Up Short on Pell Grants?

A perfect storm has been brewing on the 2009-10 Pell Grant funding front and media reports have incited fears that next year’s federal grant aid could be drastically reduced. Fear not, however, Congress is set to take action that makes this scenario much less likely.

The Pell Grant program is the cornerstone of federal grant aid for low-income college students. In academic year 2008-09 low-income students received Pell Grants worth $400 to $4,731 (the average grant award is likely to be $2,945) a piece to pay for tuition and other attendance related costs. Each year, Congress sets a maximum grant level and then appropriates what it estimates to be the necessary funding. Each student’s grant amount is determined by a formula based on his or her financial need.

Sometime in the coming months, Congress is expected to set the maximum grant level for the 2009-10 school year and appropriate the needed funds. Unfortunately, it looks as though they may need to come up with a lot more money than previously estimated to ensure next year’s grant level is at least as high as this year’s $4,731. Why?

More Pell Grants have been awarded in the past two academic years than expected. In response to this unexpected growth, the U.S. Department of Education has had to dip into next year’s funding to make sure each student gets his or her Pell Grant. But this “borrowed” money eventually catches up with Congress through budgeting rules, forcing legislators to “cover” the shortfall before providing any new funds for the upcoming year. (See the Federal Education Budget Project resource page for more information on this issue).

The current gap, or shortfall, now totals $2 billion, or 14 percent of last year’s funding. To fill this gap, a good-sized piece of next year’s funding will have to be used to pay for this year.

Luckily, Congress is set to pass a “continuing resolution” that provides stopgap funding for federal programs until final fiscal year 2009 approprations are passed. This continuing resolution (CR) is reported to include $2.5 billion to cover this past year’s shortfall. As a result, when Congress sets the maximum 2009-10 Pell Grant level over the coming months, it won’t need to fill in the shortfall from past years’ underfunding. This will take a lot of budgeting pressure off of the Pell Grant program. But…

…due to whole host of factors, the Department of Education reports that Congress will need to provide at least $18 billion (we think closer to $19 billion) to cover next year’s Pell funding; $4-5 billion more than was allotted this year. Why such a drastic change?

Congress changed eligibility rules so more students receive larger grants. And current economic and demographic trends have increased the pool of students who qualify as low-income. Ultimately, it appears that Pell will require a 29 percent funding boost from this year’s $14 billion just to ensure each student’s 2009-10 Pell Grant remains level next year.

In short, Congress will likely take the first step ($2.5 billion), albeit a small one, to preserve the current Pell Grant level. To meet need and maintain students’ current grant levels it will have to go much further ($18 billion). Stay tuned.

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