Discretionary Spending

Function 500 - Education, Training, Employment, and Social Services

Restrict Pell Grants to the Neediest Students

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

(Billions of dollars) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014-2018 2014-2023
  Restrict Pell Grants to Students With an EFC of $3,850 or Less
Change in Discretionary Spending                        
  Budget authority -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.6 -1.2
  Outlays * -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.5 -1.1
Change in Mandatory Outlays -0.1 -0.4 -0.4 -0.5 -0.5 -0.5 -0.5 -0.6 -0.6 -0.6 -1.9 -4.7
  Restrict Pell Grants to Students With an EFC of Zero
Change in Discretionary Spending                        
  Budget authority -7.4 -7.4 -7.3 -7.3 -7.3 -7.3 -7.3 -7.3 -7.3 -7.3 -36.6 -73.0
  Outlays -2.0 -7.3 -7.4 -7.3 -7.3 -7.3 -7.3 -7.3 -7.3 -7.3 -31.2 -67.6
Change in Mandatory Outlays -0.6 -2.2 -2.6 -3.0 -3.3 -3.3 -3.3 -3.3 -3.4 -3.6 -11.7 -28.7

Notes: This option would take effect in July 2014.

* = between -$50 million and zero; EFC = expected family contribution.

The Federal Pell Grant Program is the single largest source of federal grant aid to low-income students for postsecondary undergraduate education. Grant recipients enroll at a variety of educational institutions, including four-year colleges and universities, for-profit schools, two-year community colleges, and institutions that specialize in occupational training. (Pell grants are not available to students pursuing graduate or first professional degrees.) For the 2013–2014 academic year, the program is estimated to provide $33 billion in aid to 8.9 million students. A student’s Pell grant eligibility is chiefly determined on the basis of a federal calculation of what is called the expected family contribution (EFC), which determines his or her family’s ability to pay for postsecondary education. The EFC is based on factors such as the student’s income and assets and, for dependent students (in general, unmarried undergraduate students under the age of 24 without dependents of their own), the parents’ income and assets, as well as the number of other dependent children in the family attending postsecondary schools. Families with a high EFC generally have less financial need than those with a low EFC and thus are able to contribute more to their child’s education.

Since 2008, funding for the Pell grant program has had both a discretionary and a mandatory component. The mandatory funding supports “add-ons” to the maximum award set in each fiscal year’s appropriation act. The add-on for the 2013–2014 award year is $785, which, when added to the maximum award of $4,860 set in the appropriation act, results in a total maximum award of $5,645.

Savings in the program could be generated by reducing grant amounts or tightening eligibility criteria; this option would take the latter approach. Under current law, students with an EFC exceeding 90 percent of the total maximum Pell grant award (that is, an EFC of $5,081 for academic year 2013–2014) are ineligible for a grant. One version of this option would make students with an EFC exceeding $3,850—the eligibility ceiling in 2006–2007—ineligible for a Pell grant; that ceiling would be adjusted for inflation in subsequent years. About 6 percent of the least needy Pell grant recipients would lose eligibility under that approach. Assuming that, as under current law, the maximum discretionary award amount specified in appropriation acts would remain at $4,860 in future years, the Congressional Budget Office estimates that this option would yield discretionary savings of $1 billion and mandatory savings of $5 billion from 2014 through 2023.

A stricter version of this option would reduce the eligibility ceiling to an EFC of zero. Under that version, about 35 percent of Pell grant recipients would lose eligibility over the 10-year period. That approach would yield discretionary savings of $68 billion and mandatory savings of about $29 billion through 2023, CBO estimates.

A rationale in favor of both versions of this option is that they would focus federal aid on students who, on the basis of the federally calculated EFC, have the greatest need. Furthermore, students who lost eligibility under the first version of the option (in 2013–2014, for example, those with an EFC between $3,851 and $5,081) would probably still be able to afford a public two-year college, according to the program’s method of calculating what a family should contribute toward the cost of education. Tuition and fees at public two-year colleges for the 2011–2012 academic year averaged about $2,650, which is still below the EFC of students who would lose eligibility under that version of the option. In addition, most students with an EFC in the affected range under either approach would be eligible for $3,500 or more in federal loans that are interest-free while students are in school.

An argument against the option is that, among Pell grant recipients with an EFC above zero, significant educational expenses are not covered by the family’s expected contribution or by federal, state, institutional, or other sources of aid (grants, loans, and work-study programs). For example, in 2007–2008, 25 percent of students with an EFC above $3,850 and 83 percent of students with an EFC between zero and $3,850 had educational expenses that were not covered by those sources. Denying Pell grants to those students would further increase the financial burden of obtaining an undergraduate education and might cause some to choose less postsecondary education or to forgo it altogether. The amount of postsecondary education received is an important determinant of future wages. In 2012, for example, the median wage for workers between the ages of 16 and 64 who had a bachelor’s degree was about 70 percent more than the median wage for those who had only a high school diploma or GED certification.