Congress Just Prevented Pell Costs from Exploding

The cost of the Pell Grant program already exceeds its funding. A recently announced change from the Department of Education, made due to an error in the law, threatened to dramatically expand that funding shortfall. Fortunately, Congress acted quickly and on a bipartisan basis to fix this error and prevent tens of billions of dollars in new unfunded costs.

We recently estimated that Pell Grant reserves are on track to be depleted by 2026 and that the program faces a $35 billion to $95 billion ten-year shortfall. These estimates assumed modest spending growth as a result of the 2020 FAFSA Simplification Act being implemented.

Since that estimate was published, the Department of Education announced a far more costly implementation plan. In particular, the Department determined that the law inadvertently allowed dependent students to claim large negative income and offset it against their parents’ income for purposes of aid calculations.

This change would have expanded Pell Grant access to several hundred thousand higher-income families who were not intended to receive them, at a cost of billions of dollars per year.

Fortunately, Congress responded swiftly to fix this in the recently passed bipartisan continuing resolution (CR), Extension of Continuing Appropriations and Other Matters Act. The CR corrects the legislative language to limit declared negative income to $1,500 this year and disallow negative income in future years.

In addition to preventing tens of billions of dollars in new costs, the CR saved $3.4 billion on the mandatory side, which was diverted toward the Pell Grant reserves in order to reduce the near-term Pell shortfall.

It is not often that Washington acts so quickly to prevent a costly and unjustified spending windfall. We hope they can build on this success in other areas of the budget and tax code.