After years of running a healthy surplus, the Pell Grant program has slid into a serious deficit mode. Given the program’s essential role in promoting student success, this shortfall is of the greatest concern for community colleges. Any threat to its funding is a threat to the sector as a whole.
The alarm bell was rung by a recent Congressional Budget Office estimate of the program’s exploding cost. In fiscal year (FY) 2026, which funds the upcoming 2026-27 award year, the program is anticipated to cost $34.6 billion. This is a $13.7 billion increase over the $20.9 billion spent on the program in FY 2012 – 65% increase in just five years.
To put this $13.7 billion program expansion in context, this amount represents about eight times the annual Carl Perkins Act expenditures, and more than twice what is spent each year on Workforce Innovation and Opportunity Act (WIOA) programs.
In any case, a shortfall of some $5.5 billion is anticipated for the upcoming award year, and an even bigger shortfall of $11.5 billion is expected the following year at current funding levels. Absent any funding changes, the program faces a cumulative shortfall of $132 billion between now and FY 2036 (though projections can, and often do, change from year to year).
How it got here
The shortfall is largely a result of the FAFSA Simplification Act passed by Congress and signed into law by President Donald Trump in December 2020. The Simplification Act not only facilitated more applications — an unequivocal good — it also expanded student eligibility, which is another unequivocal good that has received less attention. According to data from the National College Attainment Network, approximately 400,000 students qualified for Pell Grants because of the Simplification Act, and approximately 1.7 million newly qualified for the maximum grant. The program now reaches more than 7 million students each year, about a third of whom enroll at community colleges.
Now that these dramatic program changes have been absorbed into the Pell program’s “base,” program expenditures for the next decade are expected to grow only marginally. But that is immaterial to the tremendous growth in program costs spurred by the simplification legislation, and which Congress must now reckon with.
There has been comment that the forthcoming Workforce Pell Grant program may be a key factor behind the looming shortfall, but all formal estimates show that this new student support will comprise only a tiny fraction of the overall cost of the program – less than 1%. Again, the primary driver of the Pell funding dilemma is not Workforce Pell, but program changes to the Simplification Act.
In addition, Congress’s freezing of discretionary Pell Grant funding for well over a decade is a major contributing factor. In fact, the freeze is in addition to rescissions of funding of program surpluses, with the surpluses direced to other programs.
Watching closely
The position of the American Association of Community Colleges (AACC) is that Congress needs to fund the program that it expanded in 2020. If proposals are adopted that limit student eligibility or make other program reductions, tremendous harm may result. Community college advocates got a taste of what might be coming when, last summer, House-passed legislation would have eliminated Pell grants for students taking fewer than 7.5 credits per term. It took a furious lobbying campaign to ensure that the Senate Health, Education, Labor and Pensions Committee rejected these cuts.
Budgets are always statements of priority. For decades, both parties, in both the legislative and executive branches of government, have been strongly committed to robust Pell Grant funding. AACC is hopeful that vigorous advocacy by its members will result in Congress making whole the program that it expanded during the first Trump administration.
