Pell grants help low-income students get a postsecondary education. The federal funds are a mainstay for students attending tribal colleges and an important source of funding for American Indian students at other institutions of higher education, including four-year colleges, two-year community colleges, for-profit online schools and career training institutions.
In the academic year 2011-2012, Pell grants totaling $33.6 billion were awarded to 9.4 million students. Between the 2006-2007 and 2010-2011 academic years, federal spending on Pell grants increased 158 percent due to an increase in the number of students receiving the grants (which in turn was due to changes in eligibility requirements and a faltering economy) and an increase in the amount of the grants. (In 2011-2012, total spending decreased slightly.) In this time period, the maximum grant amount rose from $4,050 to $5,550. The maximum grant is expected to increase to $5,645 for 2013-2014.
In a separate report issued earlier this year, the Congressional Budget Office predicted that the Pell grant program would be running in the red by FY2015, with an estimated shortfall that year of $1.4 billion. In this report, CBO addresses policymakers' concerns about rising Pell grant program costs and looks at options for reducing those costs.
The agency focuses on reducing the number of grants and cutting the amount of the individual grants as the most effective cost-saving measures.
The agency’s analysis shows that decreasing the number of grant recipients by tightening eligibility requirements and imposing stricter academic requirements and reducing the maximum grant amount to $4,860 in 2014-2015 could cut program costs in half but would reduce the number of grant recipients by a whopping 40 percent.
Less drastic cuts to the number of grant recipients and grant amounts would have a lesser impact on costs and reduce the number of grant recipients by a smaller percentage. CBO details these alternatives in several tables, as well as giving its analysis of the pros and cons of the options it identifies.
CBO also looked at some alternative programs that could be initiated to help students from low-income families complete a postsecondary education, including forgivable loans, grant commitments to middle and high school students, federal grants to supplement states’ grant programs or grants for occupational training. Costs for these programs could be higher or lower than the cost of the Pell grant program, depending on the details.
Tribal college students have already been hit hard by changes to the Pell grant program. In 2012 a retroactive 12-semester cap on Pell aid went into effect and summer classes became ineligible for Pell grant funding, both factors that some tribal college officials say has contributed to falling enrollment at their institutions. Further cuts to this critical program would make it even harder for tribal colleges to fulfill their mission to educate tomorrow’s leaders.
Founded in 1974, the Congressional Budget Office is a nonpartisan federal agency that produces independent analyses of budget and economic issues for Congress.
This report was written at the request of the ranking member of the Senate Budget Committee. Read it at CBO.gov.