Worse Than It Sounds

Megan McClean Coval warns of the dangers of Congress’s proposed cuts to the Pell Grant reserve fund.

September 15, 2017
 
 
iStock/Drogatnev

For decades, the federal Pell Grant program has provided much-needed financial assistance to students around the country who struggle to pay for a college education. Each year nearly eight million students -- the majority of whom come from extremely low-income backgrounds -- benefit from those funds.

Yet the program is again under attack in federal spending proposals. While it boosted the value of the maximum Pell Grant award, the Senate Labor, Health and Human Services, Education, and Related Agencies Appropriations Committee's funding bill for fiscal year 2018 proposes rescinding $2.6 billion from Pell Grant reserve funds, while the House FY 2018 bill proposes a cut of nearly $3.3 billion. The president proposed axing $3.9 billion in his FY 2018 budget proposal. Because of the way the program operates, cutting from the reserves could put the future of the program at risk and harm deserving college students down the road.

Pell Grants serve as a cornerstone of federal investment in the nation’s higher education system, helping low- and moderate-income students pursue an education after high school. The vast majority of recipients come from families making $40,000 or less each year.

Despite the important role Pell Grants play in helping make college more affordable, funding for the program hasn’t kept pace with the cost of college. In inflation-adjusted dollars, both the average award and the maximum award are at about the same levels today as in 1975, causing the purchasing power of the Pell Grant to plummet. While the maximum award covered more than 50 percent of the average cost of attendance at a public, four-year institution in the 1980s, today it covers less than 30 percent.

It is understandable why lawmakers would look to the Pell reserve funds -- currently at $8.5 billion -- in their attempts to balance the budget. On the surface, some may see it simply as an untapped resource that could be redirected toward other priorities within the pot of funds that higher ed shares with other education, labor and health programs. But while the surplus may look like “extra funds,” cutting it will almost certainly hurt the program in the long term. While it’s true that students might not immediately feel the impact of a cut to the reserve funds and the program would remain intact for the time being, it’s simply not true that rescinding those funds would come with no negative consequences.

The Pell reserve serves an important purpose -- to protect students and taxpayers should the program face a funding shortfall, as it has in the recent past. In times of economic hardship, such as during the Great Recession, enrollment in higher education also tends to increase. As enrollments grow, demand for Pell Grants also rises. And because the Pell Grant program essentially operates as an entitlement, all students who apply for federal financial aid are guaranteed the full amount of the Pell Grant for which they qualify.

When the program’s actual need at the end of any given year is higher than the Congressional Budget Office estimates, the program runs a shortage, and Congress must then address the shortfall or risk students losing Pell dollars. In such cases, the surplus can be tapped to ensure that maximum grants don’t suffer.

The last time the program had a shortfall, there was no surplus to turn to, and Congress had to limit eligibility and cut other student-aid programs -- such as reducing lifetime eligibility for Pell Grants -- to maintain the maximum grant. If the economy comes upon hard times again and individuals flock to higher education for retraining or safe harbor from the poor work-force conditions, a scrawny reserve fund won’t help address the shortfall that is sure to arise.

Moving forward, there is a clear path to support the Pell Grant program and improve it for future generations of students­ -- and it starts with leaving the reserve fund untouched. The passage of year-round Pell in the May omnibus bill is also a step in the right direction, but uncertain funding in the future means that the program expansion might not end up helping needy students in the way it was intended.

Rather than looking to the Pell Grant program to reduce the nation’s deficit -- which would be a drop in the bucket -- Congress should focus on supporting and improving the program. Lawmakers should take action to continue inflation indexing to avoid further erosion of the Pell Grant’s purchasing power and look for ways to increase the maximum award, even by a modest amount. Finally, they should consider moving all Pell funding to the mandatory side of the ledger. Pell already operates like an entitlement program in that anyone who is eligible is guaranteed a grant, but making it fully mandatory would ensure it would not be subject to the annual appropriations process each year. While it could be a heavy lift politically, the change would ultimately benefit students who need the most help.

Bio

Megan McClean Coval is vice president of policy and federal relations for the National Association of Student Financial Aid Administrators.

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