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Following Latest Projections, Report Indicates Pell Grant Program in Danger of Facing Funding Cliff

Following Latest Projections, Report Indicates Pell Grant Program in Danger of Facing Funding Cliff

NASFAA

Owen Daugherty, NASFAA Staff Reporter

February 22, 2021

The Pell Grant program is in danger of running out of money in the next five years, and could face a deficit of roughly $18 billion by 2031, according to a report from the Committee for a Responsible Federal Budget.

The Pell Grant reserve fund swells when appropriations by Congress to the federal aid program exceed the costs of the program. The reserve exists to ensure students receive funding should the program face a funding shortfall, as it did during the Great Recession.

While the program currently has $12 billion in reserves, and previous projections from the Congressional Budget Office (CBO) estimated the reserve fund could hit $18 billion by the end of the decade, the coronavirus pandemic has upended those figures and projections.

CBO previously projected appropriations to exceed program costs by nearly $1 billion per year, but in the most recent February baseline projections, the CBO noted funding could fall behind by more than $3 billion each year, creating a $31 billion deficit over 10 years that would empty the program’s current reserves by 2026.

However, due to the fact that the Pell Grant program must be funded the year after it falls into deficit, according to the report, the shortfall would never reach $18 billion. The figure is intended to show the cumulative deficit if no changes were made in the interim.

Concerns regarding the reserve fund arose early in the pandemic, with experts pointing to years of stagnant funding and the potential for increased enrollment spelling trouble and leaving the fund vulnerable to depletion. The Pell Grant reserve fund has also been a target for rescission in annual federal budget proposals. In fact, the $150 boost to the maximum Pell Grant for the 2020-21 award year came at the expense of a $500 rescission from the program’s reserve fund.

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