Will the good times keep rolling for Pell funding?

For community colleges and their students, perhaps the biggest highlight of the fiscal year (FY) 2018 omnibus appropriations bill was the $175 increase to the Pell Grant maximum award, which will be $6,095 in award year 2018-19.

This increase exceeded everyone’s expectations and went well beyond the $100 increase Senate appropriators included in an earlier version of the Labor, HHS and Education (LHHS) appropriations bill. Moreover, the increase also topped inflation, which would have added about $125 to the maximum award.

The appropriators’ action was important not only because it maintains the grant’s purchasing power, but because FY 2018 was the first year since FY 2013 in which the grant did not increase automatically by an inflation-indexed percentage. Such increases occurred for five straight fiscal years because of a 2010 law that used some of the savings generated by eliminating bank-issued federal student loans for this purpose.

Because of these automatic increases, and the complex way in which the Pell Grant program is funded, the maximum grant increased every year between FY 2013 and 17, even though program appropriations declined over that time. In fact, because of declining Pell Grant program costs, due primarily to decreased student enrollment, the program accumulated a hefty surplus, currently projected to be $7.4 billion in FY 2019. It is that surplus that funded this year’s increase in the maximum award and the restoration of year-round Pell Grant in FY 2017.

Eye on the surplus

The Pell Grant surplus has been red meat in the last few years for appropriators looking for revenue for other priority programs in the LHHS appropriations bill. Appropriators used about $300 billion of that surplus in FY 2015 and another $1.3 billion in FY 2017.

So, two big questions heading into FY 2018 were whether Congress would once again divert a portion of the Pell surplus for purposes outside the program, and whether it would increase the maximum award absent an automatic increase. The massive infusion of cash into domestic discretionary programs resulting from the two-year budget deal reached by congressional leaders in February provided the answers. Congressional appropriators had enough money to fund other programs without dipping into the Pell Grant surplus, which was tapped only for the $175 maximum grant increase.

The question looking forward, then, is whether Congress will keep increasing the maximum Pell Grant award to at least keep up with inflation, and, if so, how? There are a few important factors to keep in mind.

First, because the budget deal also provided an infusion of cash for FY 2019, appropriators will have $18 billion more to spend on non-defense discretionary (NDD) programs next year than in FY 18. This should hopefully alleviate the pressure to divert the Pell Grant surplus to other programs for another year.

After FY 2019, however, NDD budget caps are currently scheduled to drop $54 billion unless Congress makes a deal to raise them. While such deals have occurred for six straight fiscal years, this outcome is not guaranteed.

Even assuming NDD budget caps remain sufficiently robust to allow appropriators to fund other LHHS priorities without raiding the Pell surplus, increases to the Pell maximum come at a substantial cost. In its latest projections, the Congressional Budget Office predicts that total Pell Grant program costs will jump about $1.25 billion in FY 18, largely as a result of the increased maximum award.

While the program still has a hefty surplus, it could be quickly whittled down through annual increases. And it would be imprudent to reduce it much more, as there will inevitably come a time when program costs increase because of an economic downturn or some other factor.

At some point, and probably relatively soon, Congress will need to actually appropriate additional funds for the Pell Grant program to support further increases to the maximum award. Alternatively, and preferably, Congress could pass legislation (most likely as part of the Higher Education Act reauthorization) to reinstate automatic, inflation-pegged increases to the grant. The American Association of Community Colleges strongly supports such legislation, but it faces many obstacles to becoming law.

About the Author

Jim Hermes
is associate vice president of government relations at the American Association of Community Colleges.