A healthy Pell Grant surprises many

The future of America’s largest federal student loan programme is far more stable than expected, according to a Congressional Budget Office report released last month.

The Pell Grant programme was expected to face a nearly $6 billion shortfall in the upcoming fiscal year, but it turns out that amount was vastly exaggerated.

Not only does the student aid programme have an additional year of funding, but the projected shortfall for 2015 is a fraction of the figure previously estimated.

The report offered an unexpected reprieve to a programme that was precariously close to insolvency. In 2011, it was saved in a last ditch effort by President Barack Obama as part of the debt reduction deal.

But this came at a cost: hundreds of millions of dollars in graduate federal loans were done away with, and even that was only enough to save the programme through to the 2013-14 fiscal year.

But the recent report, which offers cost estimates for federal plans, suggests the Pell Grant faces a far rosier short-term future.

Aimed at low-income undergraduate students, the programme was expected to face a $5.7 billion shortfall in 2014. In actual fact, there is no shortfall for the upcoming year, thanks to $9.2 billion left over at the end of the 2013 fiscal year. Not only that, but the $8.7 billion shortfall predicted for 2015 is far lower – only $1.4 billion.

“This is phenomenally good news,” said Jon Fansmith, a budget and appropriation expert at the American Council of Education. “The programme is in much healthier shape than anyone expected.”

Not sure why

Why this happened is not totally clear.

The money allocated to the programme from changes to graduate student loans could explain some of it.

Another reason could be changes in eligibility requirements for students, including the elimination of the summer Pell Grant programme, which allowed students to receive two grants per year, and reducing the base income level that makes a student automatically eligible for the grant.

Part of the reason could also be due to quirks in how the programme works, said Fansmith. If a student qualifies for Pell funding, s/he receives the aid regardless of how much money has been put aside for the programme that year.

Congress therefore tries to project the cost a year and a half in advance, said Fansmith. “Congress guesses every time,” he said. “Usually, their guesses aren’t very accurate.”

In 2011, when Congress was budgeting for the current fiscal year, the economic outlook was not good. Students, especially those in higher need, were pouring into colleges and universities. But the economy has very slowly started to recover, something that legislators had not anticipated, said Fansmith.

Now, the sense of urgency that has dogged the programme can abate, at least in the short term. Rather than making decisions based purely on funding needs, legislators have the freedom to focus on policy issues, and assess how best to help students.

“It gives the programme some breathing space before they start entering shortfalls further down the road,” said Fansmith. “Up until now, there’s been an annual panic.”

There is a small possibility that Congress could take the surplus money and funnel it into other programmes it deems needier. But Fansmith said the chances of this happening are “unlikely”.

“There’s been an incredible amount of attention and focus on the programme by the Obama administration,” he said, and removing the funding would elicit a “large public response”.

But some say the anticipated shortfalls for the Pell Grant in 2015 and beyond mean that the programme is not as stable as it appears.

“While Pell grant advocates are excited that the anticipated shortfall for 2014 has been staved off, we all agree that the Pell Grant programme needs a more predictable funding plan,” said Michelle Asha Cooper, president of the Institute for Higher Education Policy.

“The year-to-year questions surrounding the nation’s bedrock financial-aid programme are unacceptable.”