Alarmism abounds over phantom Pell Grant cuts

These worries are baseless. The Pell Grant surplus is precisely that—a surplus. “Cutting” $3.3 billion from the roughly $8.6 billion surplus would not affect how many Pell Grants the federal government hands out, nor the amount of those grants. Students who rely on the Pell Grant program can rest assured that their money will still be there next year.

The origin of the Pell Grant program’s current surplus lies in the Great Recession, when the poor job market drove millions of students to take refuge in college. Many of those students used Pell Grants. More grant recipients meant more spending, so costs quickly blew past the appropriation Congress had set aside for the grants. In response, Congress increased the regular discretionary appropriation it provides to the Pell program. Additionally, several other laws passed during the recession era (such as the 2009 stimulus package) contained temporary funding boosts for Pell Grants.

Note: Bars represent the cumulative Pell Grant surplus or deficit for the current year and all prior years. Therefore, bars cannot be summed to yield the Pell program’s “net position.” Source: Congressional Budget Office.

However, the recession didn’t last forever. As the job market improved, colleges (particularly public community and for-profit colleges popular with low-income students) enrolled fewer students, and so spending on Pell Grants fell. However, the annual appropriation Congress provides to fund Pell remained high. Together with leftover money from the stimulus and other one-off laws, this meant that the total amount appropriated for the Pell Grant outstripped the program’s actual costs.

In fiscal year 2017, the Department of Education had $31.2 billion in discretionary “budget authority” to potentially spend on Pell Grants, even though estimated discretionary program costs were only $22.6 billion. Hence, the Pell Grant program has an $8.6 billion surplus going in to fiscal year 2018.

Some opponents of cutting the program’s surplus concede that the move will not immediately affect students, but argue that the slimmer surplus leaves too little “wiggle room” for the program to expand. What happens if Pell Grant spending rises faster than expected, and costs once again exceed the level Congress appropriates?House Republicans aim to rescind $3.3 billion of this, likely in order to claim that they cut spending. But the surplus is, by definition, not actually spent on grants. Democrats fretting about cutting aid to needy students and Republicans looking to burnish their deficit-hawk credentials both rely on an accounting fiction to make their case. No matter Congress does with the Pell surplus, federal spending and aid to students will remain the same.

Even then, there’s not much to worry about. If the Pell Grant program runs a deficit, the Department of Education still gives out Pell Grants to all students who are eligible. As Clare McCann explained at New America:

“A funding shortfall does not…force the Department of Education to reduce the grants for which students are eligible under law. Instead, the Department of Education has made it common practice to borrow funds from the subsequent year’s appropriation to cover a shortfall, and Congress has always appropriated the necessary funds to cover that shortfall. In years that a surplus accumulates, the Department of Education and Congress use the remaining funds to pay for grants in the upcoming school year.”

In other words, the federal government has leeway to make sure Pell Grant checks still go out even if one year’s appropriation does not cover all Pell obligations. It is true that Congress could simply refuse to appropriate funding to cover a future shortfall. But almost all funding for Pell Grants, not just funding to cover a previous year’s deficit, is discretionary (i.e., must be appropriated by Congress year after year). If one is concerned that a future Congress will not appropriate sufficient Pell funds, that concern would not go away even if the present Congress left the Pell surplus intact.

Students who depend on Pell Grants will still get their awards next year, and likely for many years to come. The fight over the Pell surplus is little more than a fight over a spreadsheet. Both sides should stop pretending otherwise.