Protecting the Pell Surplus

The federal government has no greater tool than the Pell Grant to support college access for low- to moderate-income students. Unlike student loans, Pell Grants are means-tested and do not have to be repaid, making them even more valuable to the students who need them the most.¹ While the value of a high-quality two or four-year postsecondary credential has never been clearer, there’s also Congressional interest in opening the Pell Grant to very short-term job training programs, which risks ballooning Pell take-up and diluting the surplus needed to help correct for year-over-year funding discrepancies. Taken with the increasing costs of college and already diminished purchasing power of Pell, it’s important for lawmakers to protect the Pell Grant’s 50-year history of supporting access to opportunity and safeguard its future.

There are a lot of nuts and bolts that work together to support the Pell Grant program, which currently provides a maximum amount of $7,395 for the 2023-24 award year. ² Pell Grant funding comes from taxpayer dollars that are then appropriated by Congress through the annual budget process. The Pell Grant program functions like an entitlement, where every qualified student receives a grant, but it largely relies on discretionary funding. Simple enough, right? Not so fast—the government's appropriations cycle and the academic calendar operate several months apart from each other, so actual program costs and annual funding allocations can never be perfectly aligned. Congress' appropriations for the next year's Pell funding are an educated guess, and that means some years, Congress appropriates more than the total amount ultimately needed for the program. This surplus is helpful, especially in years that Congress unintentionally under-appropriates funds to Pell; surplus funds can then be used to fill in gaps when needed.³ However, the misaligned timelines create temporary funding gaps and surpluses that put the program in jeopardy and generate unnecessary uncertainty for appropriators, students, and schools.

But what happens when there’s a deficit? We can look to the Great Recession of 2008 as an example: with many families facing lower incomes and fewer jobs available, more students became Pell-eligible, and more students overall chose to enroll in postsecondary education. This equation led to lawmakers being caught in the lurch of increased eligibility and increased take-up, causing a dip into the Pell surplus to meet the demand. As a result, the Pell Grant program faced a $20 billion shortfall by 2011.⁴

When the worst happens, Congress must cut spending for Pell Grants, change eligibility requirements, or both. In the 2011 and 2012 budgets, cuts to the effect of more than $50 million were made, all on the backs of Pell-eligible students. To this day, many of these cuts haven’t been restored—with students still paying a price for the depletion of the Pell Grant surplus over ten years ago.

As Congress considers proposals for opening the door for Pell access to unproven training programs as short as eight weeks, the potential consequences of depleting the Pell surplus loom large. Funding for the Pell Grant is finite, and Pell awards are at a historically low purchasing power—covering less than one third of the average cost of attending a four-year public college. Any expansion of short-term Pell would direct funds away from the current surplus with no additional Pell funding in sight, potentially impacting the ability for all eligible students to receive the full awards to which they are entitled in future years.

The costs of short-term Pell, estimated by various federal sources at less than $2 billion over 10  years, may seem small in comparison to other federal budget line items. ⁵ Yet this estimate is likely a far cry from the true cost, as short-term Pell could make non-credit programs that have never before qualified for student aid newly eligible for federal dollars. If history is any indicator, we can anticipate an influx of low-quality, for-profit programs to flood the market, given the for-profit sector’s overwhelming reliance on federal student aid and past record of predatory behavior—including targeted recruitment of low-income students, students of color, and other historically excluded student populations.⁶

Over the past 50 years, the Pell Grant has provided opportunity and access to higher education for millions of low- to moderate-income students. With major new discretionary spending in Congress unlikely, adding short-term programs with little to show for return on investment only risks diminishing the Pell surplus and decreasing the grant’s purchasing power for everyone. Without prudent action and fiscal responsibility, the current surplus in the Pell Grant program could quickly disappear at the gain of programs with poor outcomes for students, taxpayers, and society.