Federal budget scorekeepers have just provided both good news and bad news for the Pell Grant program. The good news is that more students are qualifying for grants, and many are receiving larger ones. These expansions largely stem from eligibility changes made in the FAFSA Simplification Act of 2020.
The bad news is that this increased student eligibility has created substantial financial pressures on the program. Pell Grants are now slated to run a deficit for the current fiscal year (FY) 2025, which funds grants starting July 1.
Under Congressional budget rules, the shortfall must be “paid for” by the relevant appropriations subcommittee the following year, in this case, the Labor-HHS-ED subcommittee. That subcommittee generally operates under tight funding constraints that are likely to get even tighter in the coming years.
Consequently, the program will need strong additional fiscal (and so political) commitments to maintain the current maximum grant of $7,395, much less increase it. The American Association of Community Colleges (AACC) is currently supporting an increase of $200 in the maximum grant for FY 2026.
Official re-estimates
Late last month, the Congressional Budget Office issued revised estimates on projected Pell spending over the next decade. The estimates assumed level annual funding by appropriators (this had largely been the case for the last decade) and no increase in the current maximum grant. On these assumptions, CBO now projects a Pell shortfall of $98 billion by the end of FY 2035 – about three times the annual cost of the program.
To give some picture of Pell’s funding bounces, the program had amassed a $14.6 billion surplus in FY 2023. However, increased student enrollments coming out of the pandemic, coupled with the eligibility changes mentioned above, quickly eroded that stockpile. The Pell Grant program cost $20.9 billion in FY 2021; just five years later, in FY 26, it is projected to cost $31.9 billion, which is an $11 billion or 53% increase. Even in Washington, D.C., that’s real money.
Fortunately, the Pell Grant program continues to enjoy strong support from both parties in both Congress and the executive branch. This commitment to the bedrock federal student aid program has helped Pell traverse daunting fiscal challenges in previous years. The program is again facing one. AACC will continue to aggressively advocate for the single most important federal program for students and institutions.
