Pell Grant Maneuver Aims to Placate Budget Hawks

The Pell Grant program, the federal government’s largest source of financial aid for undergraduate students from low-income families, has been weighing on Democratic Congressional leaders’ minds for months now as supplemental funding for the program under the American Recovery and Reinvestment Act starts to run dry. But the issue could be addressed shortly. Higher Ed Watch has learned that the House Appropriations Committee is likely to include $5.7 billion in funding for Pell Grants in its version of the fiscal year 2010 emergency supplemental appropriations bill Congress is expected to pass in the coming days. If Congress ultimately passes the House version with the Pell Grant funding intact and the President signs it into law, it will be the second time in two months that Congress has dumped extra funds into the program.

Earlier this year the Congressional Budget Office (CBO) reported that the Pell Grant program was $6.1 billion in the hole. It turns out that the funding Congress provided in the American Recovery and Reinvestment Act (ARRA) wasn’t enough to cover rising costs in the program due to increasing numbers of eligible students and guarantee a maximum grant of $5,350 in fiscal year 2009 and $5,550 in 2010. The maximum grant was $4,731 in 2008.

In response to these funding challenges lawmakers used savings generated through student loan reforms in the Health Care and Education Reconciliation Act signed into law this past March to make a one-time $13.5 billion infusion into the Pell Grant program. That was more than enough to plug the $6.1 billion hole in the program and gave the program a $7.4 billion surplus, according to CBO.

If the program is running a surplus right now, why is Pell Grant funding still bugging Congress, and why is the House Appropriations Committee expected to include $5.7 billion in Pell Grant funding in the supplemental appropriations bill?

The problem is the fiscal year 2011 appropriations bill, which Congress will take up this summer. Fiscal year 2011 starts October 1, 2010. Congress is under a lot of pressure to restrain spending in this upcoming appropriations cycle. But if lawmakers provide the same amount of funding for the Pell Grant program in fiscal year 2011 as they did in last year’s regular appropriations bill ($17.5 billion), there won’t be enough funding to provide the maximum grant level of $5,550 to students. In fact, the funding would come up exactly $5.7 billion short, the same amount proposed by the House for the supplemental appropriations bill.

In other words, the expected supplemental funding is a way for Congress to fund the 2011 Pell Grant through a 2010 emergency bill. With the extra $5.7 billion in funding tacked onto 2010 spending, Congress will only need to fund the program at the same level as last year when it considers fiscal year 2011 appropriations later this year. Democratic leaders can then tell education supporters that they have increased Pell Grant funding while telling deficit hawk Blue Dog Democrats that funding will remain flat. Creative budgeting indeed.