Order Code RL31668
Report for Congress
Received through the CRS Web
Federal Pell Grant Program
of the Higher Education Act:
Background and Reauthorization
December 16, 2002
James B. Stedman
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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Federal Pell Grant Program of the Higher
Education Act: Background and Reauthorization
Summary
The federal Pell Grant program, authorized by the Higher Education Act (HEA),
is the single largest source of grant aid for undergraduate postsecondary education
attendance funded by the federal government, providing an estimated more than
$11.2 billion in FY2002 to over 4.6 million students. For FY2002, the maximum
Pell Grant being funded is $4,000. The program reaches over a fifth of all
undergraduates each year. With the expiration of the HEA, the 108th Congress is
likely to debate what changes may be needed in the Pell Grant program as part of its
consideration of HEA reauthorization.
Pell Grants are need-based aid intended to be the foundation for all federal
student aid awarded to undergraduates. There is no absolute income threshold that
determines who is eligible and who is ineligible for Pell Grants. Nevertheless, Pell
Grant recipients are primarily low-income. In FY1999, an estimated over 90% of
Pell Grant recipients considered to be dependent upon their parents had total parental
income below $40,000. Of Pell Grant recipients considered to be independent of
their parents, over 90% had total income below $30,000.
Among the issues that may be debated by the Congress during the HEA
reauthorization process is the extent to which the Pell Grant program continues to act
as the foundation for all federal need-based aid for undergraduates. Concern has
been raised about the diminished role that the Pell Grant may be playing. For
example, need-based aid recipients are as likely to borrow subsidized loans under the
Federal Stafford Loan program as they are to receive Pell Grants. This overarching
issue may trigger consideration of various steps to increase the amount of Pell Grant
aid flowing to the neediest students. This might include deliberation over raising the
Pell Grant minimum award (those with the smallest grants are the least needy of Pell
recipients), converting the program into an entitlement possibly with higher annual
maximum grants, and concentrating Pell Grant assistance on needy undergraduates
in their initial years of enrollment (so-called “front loading”) which may result in
substantially higher grants in those years. Converting the program to an entitlement
is also seen by some as a response to the periodic uncertainty about the adequacy of
the annual appropriation to meet program costs and resulting funding shortfalls.
Other issues that may engage the Congress include deciding the degree to which,
if any, the size of students’ Pell Grants should be sensitive to institutions’ tuition
charges, and whether some element of academic merit should be introduced into the
process of determining Pell eligibility and level of Pell assistance.
This report will be updated to reflect major legislative action to reauthorize the
Pell Grant program.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
How the Program Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Student Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Award Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Key Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Award Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Institutional Role . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Program Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Annual Appropriation and Program Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Authorized Maximums and Appropriated Maximums . . . . . . . . . . . . . . . . . 8
Surpluses and Shortfalls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
FY2001 and FY2002 Shortfall Experience . . . . . . . . . . . . . . . . . . . . . 11
Characteristics of Recipients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Enrollment Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Type and Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Role of the Pell Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Purchasing Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Pell Grant Recipients and Other Federal Aid . . . . . . . . . . . . . . . . . . . . . . . . 21
Possible Reauthorization Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Entitlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Front Loading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Minimum Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Tuition Sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Academic Merit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
List of Figures
Figure 1. Change in Authorized Maximum Grants, Appropriated Maximum
Grants, and Average Awards, FY1973-FY2002 . . . . . . . . . . . . . . . . . . . . . 10
Figure 2. Estimated Annual Number of Pell Grant Recipients,
FY1973–FY2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Figure 3. Percentage of Tuition, Fees, Room, and Board Covered
by the Appropriated Maximum Pell Grant, FY1973 - FY2000 . . . . . . . . . . 20
List of Tables
Table 1. Application of Pell Grant Award Rules to Hypothetical Full-time,
Full-Year Undergraduate Students — Award Year 2002-2003 . . . . . . . . . . . 5
Table 2. History of Pell Grant Appropriations and Program Costs,
FY1973-FY2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

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Table 3. History of Authorized Maximum Grants, Appropriated
Maximum Grants, and Average Awards, FY1973–FY2003 . . . . . . . . . . . . . 9
Table 4. FY2001 and FY2002 Pell Grant Shortfalls . . . . . . . . . . . . . . . . . . . . . . 12
Table 5. Estimated Annual Number of Pell Grant Recipients,
FY1973–FY2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table 6. Estimated Pell Grant Participation by Income, 1999-2000 . . . . . . . . . . 16
Table 7. Estimated Distribution of Undergraduates and Pell Grant
Recipients by Enrollment Status, 1999-2000 . . . . . . . . . . . . . . . . . . . . . . . . 18
Table 8. Estimated Distribution of Undergraduates and Pell Grant
Recipients by Type and Control of Enrolling Institution, 1999-2000 . . . . . 19
Table 9. Pell Grant Recipients’ Participation Rates and Average Awards
in Other Aid Programs, FY1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Table 10. Estimated Impact of Increasing the Minimum Pell Grant for
Award Year 2002-2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

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Federal Pell Grant Program
of the Higher Education Act:
Background and Reauthorization
Introduction
The Federal Pell Grant program is the single largest source of grant aid for
undergraduate postsecondary education attendance funded by the federal government,
providing grants estimated to total more than $11.2 billion in FY2002. Authorized
by Title IV of the Higher Education Act (HEA), Pell Grants are need-based aid
intended to be the foundation for all federal student aid awarded to undergraduates.
The U.S. Department of Education (ED) estimates that Pell Grants constitute 15.5%
of all federally supported aid, including grants, loans, and work opportunities, that
benefit postsecondary education students at all levels. Along with the rest of the
HEA, the statutory authority for the Pell Grant program will expire during the 108th
Congress.1 As it deliberates on the reauthorization of the HEA, the Congress is likely
to debate what changes, if any, may need to be made to the Pell Grant program.
This report reviews how the program works and provides analysis of program
funding, recipients (numbers and characteristics), and the role being played by the
program in the distribution of federal student aid. It concludes with an examination
of several Pell-related issues that may be considered by the 108th Congress in the
HEA reauthorization process. This report will be updated to reflect major legislative
action to reauthorize the Pell Grant program.
How the Program Works
This section provides an overview of the structure of the Pell Grant program and
the process through which grants are made to students. It describes student
eligibility, the award rules for determining students’ grants, program funding, and the
role played by postsecondary institutions in the program.
Briefly, the Pell Grant program provides grants (i.e., aid that does not have to
be repaid) to needy undergraduates. Need is determined based on information
submitted by students on the Free Application for Federal Student Aid (FAFSA) to
a “central processor” under contract to ED. The central processor provides each
applicant with a Student Aid Record (SAR) and each higher education institution
designated by the applicant with an Institutional Student Information Record (ISIR);
1 CRS Issue Brief IB10097, The Higher Education Act: Reauthorization Status and Issues,
by James Stedman.

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these documents contain the information submitted on the FAFSA and the calculated
expected family contribution (EFC). The EFC is what is expected to be contributed
by the student and his or her family toward postsecondary education expenses (the
EFC is described in detail below). Pell Grants are portable, that is, the grant aid
follows students to the eligible postsecondary education institutions in which they
enroll. Institutions that receive a valid SAR or valid ISIR for a student meeting other
program eligibility requirements must disburse a Pell Grant to such student. The size
of the grants is based, principally, on the financial resources that students and their
families are expected to contribute toward postsecondary education expenses, and the
maximum grant that the annual appropriations process sets for the program.
Student Eligibility
To be eligible for a Pell Grant, a student must meet requirements that apply to
federal student aid in general and requirements specific to the Pell Grant program.
Among the requirements generally applicable to federal student aid are the
following:
! Students must be enrolled for the purpose of earning a degree or
certificate at an eligible institution.
! Students must have a high school diploma or the recognized
equivalent.2 Absent such diploma or its equivalent, students must
demonstrate an ability to benefit from postsecondary education by
passing an examination approved by ED.
! Students have to maintain satisfactory academic progress while
enrolled in postsecondary education in order to be eligible for federal
student aid. Satisfactory progress is delineated by policies
developed by each participating higher education institution.
! Conviction for possession or sale of drugs can disqualify students for
federal student aid.
! Students are ineligible if they are in default on a Title IV student
loan or have failed to repay an overpayment on a Title IV grant.
! Students must meet citizenship requirements.3
! Males between 18 and 25 years of age must register with the
selective service system in order to eligible for federal student aid.
2 Students completing home schooling as recognized under state law are considered to be
eligible.
3 Generally, students must be U.S. citizens or U.S. permanent residents. Individuals with
several other entrance statuses can qualify for aid. Individuals in the U.S. on a temporary
basis, such as those with a student visa or an exchange visitor visa are not eligible for federal
student aid.

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Pell-specific requirements include the following:
! Full-time and part-time4 undergraduates5 are eligible to receive Pell
Grants.
! There is no statutory limit on the number of years for which students
can receive grants.
! Students who are incarcerated in a federal or state penal institution
are ineligible for Pell Grants.
! The program provides assistance only to financially needy students
as determined under the program’s award rules (see below).
Award Rules
Key Concepts. An eligible student’s annual Pell Grant is determined on the
basis of a set of award rules. Certain concepts are key to an understanding of the
application of these award rules.
Appropriated Maximum Pell Grant. The appropriated maximum Pell
Grant is specified in the annual appropriations legislation for the U.S. Department of
Education. That legislation appropriates funding for the Pell Grant program and sets
the maximum award that can be made during the fiscal year. This maximum award
is different from the authorized maximum Pell Grant which is the annual maximum
Pell Grant specified in the HEA. This topic is explored further in the section below
on program funding.
Expected Family Contribution. The EFC is the amount that the federal
need analysis system determines can be expected to be contributed by a student and
his or her family toward the student’s cost of education. This calculation is based on
consideration of available income and, for some families, available assets. Basic
living expenses, federal income tax liability, retirement needs, and other expenses are
taken into account in this process. Different EFC formulas are applied to three
different groups of students — those who are considered dependent on their parents
(the EFC formula assesses the financial resources of both the parents and the
dependent student); independent students with no dependents, other than a spouse,
if any; and independent students with dependents other than a spouse.6 The EFC
determination utilizes financial information submitted on the FAFSA.
4 Less than half-time students are eligible.
5 Students enrolled on at least a half-time basis in a postbaccalaureate program required
by a state for K-12 teacher certification or licensure are also eligible. Such a program
cannot not lead to a graduate degree and the enrolling higher education institutions must not
offer baccalaureate degrees in education.
6 For federal student aid purposes and the calculation of the EFC, an individual is considered
independent of his or her parents (i.e., parental income and assets are not considered in
determining the EFC), if the individual is at least 24 years old by December 31 of the award
year, is an orphan or ward of the state (or was until age 18), is a veteran of the armed forces,
is a graduate or professional student, is married, has dependents other than a spouse, or is
deemed independent by a financial aid officer for “other unusual circumstances.”

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Cost of Attendance. The cost of attendance (COA) is a measure of a
student’s educational expenses. In general, it is the sum of tuition and fees; an
allowance for books, supplies, transportation, and miscellaneous personal expenses;
and a room and board allowance.7
Tuition Sensitivity Amount. The tuition sensitivity amount is intended to
reduce the Pell Grant for students attending higher education institutions with very
low tuition charges. By statute, it can apply only when the appropriated maximum
Pell Grant exceeds $2,700. It is calculated as follows:
! $2,700 plus
! one-half of the difference between the appropriated maximum and
$2,700 plus
! the lesser of (a) the remaining one-half difference or (b) tuition.8
For example, at a $4,000 Pell Grant maximum and a tuition level of $500, the tuition
sensitivity amount is $3,850, determined as follows:
$2,700
+
$650 (one-half of the difference between $4,000 and $2,700)
+
$500 (the lesser of $650 and tuition of $500)
$3,850
As a result, the tuition sensitivity amount will be less than the appropriated
maximum Pell Grant only if tuition (plus, if relevant, allowances for dependent care
expenses or disability expenses) is less than one-half of the difference between the
appropriated maximum and $2,700. For FY2002 (award year 2002-2003) when the
appropriated maximum Pell Grant is $4,000, this tuition (and cited allowances)
threshold is $650 (see equation above). Tuition sensitivity is considered in more
detail among the reauthorization issues later in this report.
Award Rules. The primary Pell Grant award rule is that a student’s annual
grant is the least of three different amounts:
! maximum appropriated Pell Grant minus EFC;
! COA minus EFC;9 or
! the tuition sensitivity amount.
7 It can also include an allowance for dependent care expenses (for students with
dependents); costs associated with study abroad programs for students engaged in such
programs; expenses associated with a disability for students with disabilities; and the costs
associated with employment under a cooperative education program.
8 Specific allowances are added to tuition for students with dependent care expenses or
expenses related to a disability.
9 The HEA prohibits the Pell Grant from exceeding the difference between the COA and the
EFC. This precludes the awarding of a Pell Grant in excess of what a student might need
to cover COA after taking EFC into account.

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An additional rule sets a minimum size to the Pell Grant. By law, a Pell Grant
award cannot be less than $400. For those students whose Pell Grant would be
between $200 and $400, the law provides a $400 grant. Those whose calculated Pell
Grant is less than $200 receive no grant.
The following table depicts the application of these award rules to several
hypothetical students with different tuition levels, COAs, and EFCs for FY2002
when the appropriated maximum is $4,000. The amounts provided in the table were
determined using ED Pell payment schedules.10
Table 1. Application of Pell Grant Award Rules to Hypothetical
Full-time, Full-Year Undergraduate Students —
Award Year 2002-2003
Student 1
Student 2
Student 3
EFC
$250
$250
$250
COA
$8,700
$3,350
$8,700
Appropriated
$4,000
$4,000
$4,000
maximum Pell
Tuition
$1,700
$1,700
$324
Award rule calculations —
value in bolded italics is the student’s Pell award
Appropriated
maximum Pell -
$3,750
$3,750
$3,750
EFC
COA - EFC
$8,450
$3,100
$8,450
Tuition sensitivity
$4,000
$4,000
$3,674
amount
In practice, most Pell Grant awards are determined by subtracting the
student’s EFC from the appropriated maximum Pell Grant. The other two
elements in this award rule are likely to apply only in relatively infrequent situations
10 The payment schedules are published annually by ED and used by financial aid officers
on college campuses to calculate students’ Pell Grants. The schedules for the 2002-2003
award year can be found at: [http://ifap.ed.gov/dpcletters/p0201.html]. Please note that Pell
awards listed in the schedules are calculated based on $100 bands of COA and EFC (e.g.,
if a student’s EFC is $725, a financial aid officer will use the column for EFCs of $701-$800
which gives a single result regardless of where the EFC falls in that EFC band). As a result,
applying the formulas delineated in the text above without consideration of the use of these
bands may yield results that differ from those in the payment schedules. The examples in
the table in the text of this report were chosen so that the use of these bands did not affect
the calculations.

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— when COA falls below the appropriated maximum Pell Grant or when tuition is
less than $650.11
Finally, it should be noted that an important feature of the Pell Grant award rules
is that the grant is determined without consideration of any other financial assistance
a student may be eligible to receive or may be receiving. This reflects the intention
to make the Pell Grant the foundation to which other assistance is added.
Institutional Role
An eligible institution’s role in the Pell Grant program primarily involves
determining student eligibility, disbursing awards, adjusting awards to ensure that
students do not receive more assistance than they are eligible for, record keeping, and
reporting to ED.12
To be eligible for HEA Title IV programs, including the Pell Grant program, an
institution must be a public or private nonprofit higher education institution, a
proprietary postsecondary institution, or a postsecondary vocational institution.
Among other requirements, it must be legally authorized by its state to provide a
postsecondary education, must be accredited by a nationally recognized accrediting
agency or meet alternative requirements, and admit as regular students only
individuals with a high school diploma or the equivalent, or individuals beyond the
age of compulsory school attendance. The institution must enter into a program
participation agreement with ED which delineates the requirements and
responsibilities for participating institutions. ED certifies an institution for
participation based on consideration of its institutional eligibility, administrative
capacity, and financial responsibility.
In addition to other Title IV eligibility requirements, a high student loan default
rate can render an institution ineligible for the Pell Grant program. This applies if an
institution is ineligible for the Federal Family Education Loan program or Direct
Loan program under HEA Title IV as a result of its loan default rate determined by
the Secretary of Education for FY1996 or subsequent fiscal years.
An eligible institution calculates a student’s Pell Grant award using the COA
and enrollment status it has determined for the student, and applying these values
with the student’s EFC to the Pell Grant payment schedules published annually by
ED. Pell Grants must be paid out in installments over the academic year. A student
receives a Pell Grant only for the payment period for which he or she is enrolled.
Generally, institutions credit a student’s account with the Pell payment to meet
unpaid tuition, fees, room, and board; any remaining Pell funds are paid directly to
the student to cover other living expenses.
11 The precise circumstances under which the tuition sensitivity amount may affect the Pell
Grant award are delineated in the subsequent discussion of potential reauthorization issues.
12 Much of the information in this section is based on the U.S. Department of Education’s
Student Financial Aid Handbook for 2002-2003, available on the web at:
[http://ifap.ed.gov/IFAPWebApp/currentSFAHandbooksPag.jsp].

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Based on estimates of the funds an institution needs to cover initial Pell
payments, ED establishes an initial authorization of Pell Grant funding against which
an institution may request funds. This initial authorization level is adjusted as the
award year advances to reflect actual disbursements. Institutions can receive federal
payments for Pell awards in several different ways. For most schools, the advance
payment method is used under which an institution receives federal funds prior to
making payments to students. Schools for which ED has concerns about their ability
to meet Title IV participation requirements may be required to use the reimbursement
payment method under which the institution is paid back for funds it has disbursed
to students. In addition, the Pell Grant program pays participating institutions an
administrative cost allowance of $5 per enrolled Pell recipient.
Program Funding
The Pell Grant program is the federal government’s single largest source of
grant aid for postsecondary education students. This section reviews recent program
funding trends, exploring the difference between the annual appropriation for the
program and program costs, and the issue of annual shortfalls or surpluses in funding.
It also provides data on the appropriated maximum and authorized maximum Pell
Grants, as well as annual average awards. Pell funding appropriated for a particular
fiscal year is generally intended to support awards during an award year that begins
on the July 1 that falls in that fiscal year and ends the following June 30. For
example, FY2002 Pell appropriated funds would be intended principally to support
awards made between July 1, 2002 and June 30, 2003. As is discussed below, in
some fiscal years, the Pell appropriation has also been used to meet prior year costs
or carried over to meet future costs.
Annual Appropriation and Program Costs
The table below provides the annual appropriation by fiscal year for the Pell
Grant program and the annual costs of the program. Given the possible use of a
fiscal year’s appropriation for Pell Grants for multiple award years, or the
appropriation of funds specifically to meet shortfalls from prior years, it is not
surprising that the annual appropriated amount does not precisely equal the programs
costs for any year. The question of annual surpluses or shortfalls has vexed the
program on many occasions. It is considered separately below.

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Table 2. History of Pell Grant Appropriations and Program
Costs, FY1973-FY2002
(dollars in millions, rounded to nearest million)
Fiscal year
Appropriations
Costs
1973
$122
$48
1974
$475
$358
1975
$840
$926
1976
$1,326
$1,475
1977
$1,904
$1,524
1978
$2,160
$1,541
1979
$2,431
$2,357
1980
$2,157
$2,387
1981
$2,604
$2,300
1982
$2,419
$2,421
1983
$2,419
$2,797
1984
$2,800
$3,053
1985
$3,862
$3,597
1986
$3,580
$3,460
1987
$4,187
$3,754
1988
$4,260
$4,476
1989
$4,484
$4,778
1990
$4,804
$4,935
1991
$5,376
$5,793
1992
$5,503
$6,176
1993
$6,462
$5,654
1994
$6,637
$5,519
1995
$6,147
$5,472
1996
$4,914
$5,780
1997
$5,919
$6,331
1998
$7,345
$7,233
1999
$7,704
$7,208
2000
$7,640
$7,956
2001
$8,756
$9,972
2002
$11,314
$11,206
Sources: U.S. Department of Education. End of Year Report: 2000-2001 Title IV/Federal Pell
Grant Program (for FY1973 through FY2000); U.S. Department of Education. Budget Service,
budget table entitled Department of Education Fiscal Year 2003 Congressional Action, dated
November 12, 2002 (for FY2001 and FY2002).
Authorized Maximums and Appropriated Maximums
Although the authorizing statute sets the authorized maximum Pell award for
each year, this authorized maximum is overridden by the appropriations process
which sets the appropriated maximum award. This latter amount is the one applied
in awarding funds. In only 3 years of the existence of the program has the authorized
maximum equaled the appropriated maximum. In all other years, the appropriated
maximum has been less than the authorized maximum.

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Table 3. History of Authorized Maximum Grants, Appropriated
Maximum Grants, and Average Awards, FY1973–FY2003
Authorized
Appropriated
Fiscal year
maximum grant
maximum grant
Average award
1973
$1,400
$452
$270
1974
$1,400
$1,050
$628
1975
$1,400
$1,400
$761
1976
$1,400
$1,400
$759
1977
$1,800
$1,400
$758
1978
$1,800
$1,600
$814
1979
$1,800
$1,800
$929
1980
$1,800
$1,750
$882
1981
$1,900
$1,670
$849
1982
$2,100
$1,800
$959
1983
$2,300
$1,800
$1,014
1984
$2,500
$1,900
$1,111
1985
$2,600
$2,100
$1,279
1986
$2,600
$2,100
$1,301
1987
$2,300
$2,100
$1,303
1988
$2,500
$2,200
$1,399
1989
$2,700
$2,300
$1,438
1990
$2,900
$2,300
$1,449
1991
$3,100
$2,400
$1,530
1992
$3,100
$2,400
$1,543
1993
$3,700
$2,300
$1,506
1994
$3,900
$2,300
$1,502
1995
$4,100
$2,340
$1,515
1996
$4,300
$2,470
$1,577
1997
$4,500
$2,700
$1,696
1998
$4,500
$3,000
$1,876
1999
$4,500
$3,125
$1,915
2000
$4,800
$3,300
$2,040
2001
$5,100
$3,750
$2,303
2002
$5,400
$4,000
$2,411
2003
$5,800
to be determined
to be determined
Sources: U.S. Department of Education. End of Year Report: 2000-2001 Title IV/Federal Pell
Grant Program; U.S. Department of Education. Budget Service, budget table entitled Department
of Education Fiscal Year 2003 Congressional Action, dated November 12, 2002; The College Board.
Trends in Student Aid 2002, Table 7.
The appropriated maximum award is often used as a gauge of the program’s
support for needy students because this is the amount that the neediest students (those
with zero EFCs) are likely to receive. During the annual appropriations process,
there is often a debate about setting the maximum award. The figure below depicts
the change over time in the size of the authorized maximum grant, appropriated
maximum grant, and the average award. During the mid to late 1990s, the gap
between the authorized and appropriated maximums was largest. Not unexpectedly,
the average annual award generally tracks changes in the appropriated maximum.

---

CRS-10
Figure 1. Change in Authorized Maximum Grants, Appropriated
Maximum Grants, and Average Awards, FY1973-FY2002
$6,000
$5,000
Authorized
Maximum Grant
$4,000
Appropriated
Maximum Grant
$3,000
Average
$2,000
Award
$1,000
$0
75 76
80 81 82
84 85 86 87
89 90 91 92
95 96 97
00 01
1973197419 19 19771978197919 19 19 198319 19 19 19 198819 19 19 19 1993199419 19 19 1998199920 20 2002
Surpluses and Shortfalls
The annual appropriations legislation for ED provides funding for the Pell Grant
program and sets the maximum Pell Grant to be awarded (the appropriated maximum
grant). These appropriated funds are available for 2 fiscal years. In general that
means that an annual appropriation is typically available for obligation on October
1 of the fiscal year in which the appropriation is made and remains available for
obligation through September 30 of following fiscal year. For example, the FY2002
appropriation became available for obligation with enactment of the FY2002
appropriations legislation (January 10, 2002) and can be obligated through September
30, 2003. The Pell Grant award year runs from July 1 of one year to June 30 of the
following calendar year (e.g., 2002-2003 award year begins July 1, 2002, and ends
June 30, 2003). As a result, the period of availability of the appropriated funds
overlaps multiple award years.
The annual appropriation level and maximum grant are determined well in
advance of the award year they are intended to support. The annual appropriation is
determined on the basis of estimates of the program costs that are likely to be
incurred at the chosen maximum grant. To the extent those estimates of future
program costs are inaccurate, the annual appropriation may be too much or too little.
In the event of a surplus, the authorizing statute provides ED with a limited carryover
authority.
What has been of most concern to federal policymakers recently are the
measures that can be taken to address a funding shortfall. The HEA requires the
Secretary of Education, when he or she has determined that the appropriated funds

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CRS-11
are insufficient to satisfy all Pell entitlements,13 to notify each House of Congress of
the shortfall, identifying how much more is needed to meet those entitlements.
Prior to the Higher Education Amendments of 1992 (P.L. 102-325), the
Secretary of Education had statutory authority under the HEA to reduce awards to
respond to a shortfall in appropriated funds.14 Reductions were made in awards in
8 years using this authority (the last in 1990-1991). After this HEA authority was
repealed, appropriations legislation for FY1994 through FY2001 continued to
provide the Secretary with reduction authority, but that authority was not used.15 The
FY2002 appropriation legislation did not include such language.
Historically, the Secretary’s primary response to a shortfall in Pell Grant funding
has been to “borrow” from the next year’s appropriation. As noted earlier, the Pell
Grant appropriation is available for obligation for 2 fiscal years. This permits ED to
use funds from 2 fiscal years’ appropriations to meet 1 award year’s costs.
FY2001 and FY2002 Shortfall Experience. The experience to date of the
Pell Grant program with the FY2001 and FY2002 appropriations offers the most
recent examples of responses to a Pell Grant shortfall (Table 4). Appropriations
legislation for FY2001 set the maximum Pell Grant at $3,750 and appropriated
$8.756 billion. In January 2001, ED was estimating that program costs at that
maximum grant level would be $9.115 billion, and that the difference between the
appropriation and program costs would be made up by $359 million in surplus funds
from the prior year.16 As Table 4 shows, the most recent estimates from ED include
FY2001 program costs of $9.972 billion, an $857 million increase in program costs
(over 9%) compared to the prior estimate. During the course of the award year 2001-
2002 (supported by FY2001 funding), the program experienced what the Department
characterized as a “surge” in eligible applicants,17 which drove up the costs of the
13 The authorizing statute speaks of entitlements when it describes the award determined for
a student based on the published award schedule.
14 Some form of authority to reduce awards was provided to the Secretary between the
inception of the program in 1972 and the 1992 amendments. Immediately prior to its repeal
in 1992, this provision permitted reduction in awards only within certain limits. No award
could be reduced for students whose EFC was $200 or less (i.e., the awards for the neediest
students would be protected). A schedule of reductions for other awards had to use a “single
linear reduction formula” that applied uniformly increasing percentage reductions as initial
entitlements decreased. No award could be made to a student whose initial award was
reduced to less than $100 under the reduction formula.
15 The appropriations legislation required the Secretary to reduce awards using fixed or
variable percentages, or using a fixed dollar reduction, if, prior to issuing the payment
schedules, he or she determined that appropriated funds could not fully fund the
appropriated maximum grant. A schedule of reduced grants would then be published.
16 U.S. Department of Education. Budget table identified as Department of Education Fiscal
Year 2001 Congressional Action, dated January 23, 2001. This table states that this program
cost estimate was prepared December 2000.
17 U.S. Department of Education. Justifications of Appropriation Estimates to the Congress,
Fiscal Year 2003. p. L-18. The average annual increase in eligible applicants over the
(continued...)

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CRS-12
program from the level estimated when the FY2001 appropriation was enacted. In
addition, it appears that only $287 million was available in surplus funds, $72 million
less than had been estimated earlier. This has left an estimated $929 million current
year shortfall in the Pell Grant program; ED is covering the FY2001 shortfall by
borrowing from the FY2002 appropriation which became available for obligation
during the 2001-2002 award year.
The initial FY2002 appropriation for the program was $10.314 billion to fund
a $4,000 maximum grant. In its FY2003 budget request, ED estimated that FY2002
program costs would be $10.730 billion,18 well in excess of the appropriated level
and more than ED had estimated during the FY2002 appropriations process. Given
that ED was using FY2002 appropriated funds to cover the FY2001 shortfall, the
Department requested an FY2002 supplemental appropriation of $1.276 billion. The
more recent estimates from ED shown in Table 4 demonstrate how volatile program
cost estimates have been during this period. Currently, ED estimates the FY2002
program costs at $11.206 billion. Coupled with a $1 billion supplemental
appropriation enacted into law, the total FY2002 appropriated funds are $11.314
billion. Of this amount, an estimated $929 million will be used to cover the FY2001
shortfall, leaving the available funding $821 million below what is needed to cover
the FY2002 estimated program costs. Almost definitely, the estimate of program
costs for FY2002 will change as more of the award year passes. Possibly, the
estimate of program costs for FY2001 will also change. As a consequence, shortfall
estimates are likely to change.
Table 4. FY2001 and FY2002 Pell Grant Shortfalls
(in millions of dollars, except for appropriated maximum grant)
Estimated
Appro-
Surplus
Estimated
Estimated
annual
priated
Appro-
from prior prior year current year
program
maximum
FY
priation
year used
shortfall
shortfall
costs
grant
2001 $8,756 $287
— $929
$9,972
$3,750
2002 $11,314*
— -$929
$821 $11,206 $4,000
Source: U.S. Department of Education. Budget table identified as Department of Education Fiscal
Year 2003 Congressional Action, dated November 12, 2002. Table notes that Pell Grant estimates
for all years based on Mid-Session Review of the Budget assumptions (July 2002).
* Includes $1 billion in FY2002 supplemental funding.
17 (...continued)
previous 5-year period reportedly was 1.1%; the increase for 2001-2002 was 9.8% over the
previous year.
18 U.S. Department of Education. FY2003 Education Budget Summary, Appendix 2,
detailed budget table, dated February 4, 2002.

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CRS-13
Characteristics of Recipients
The Pell Grant program reaches a sizeable portion of undergraduates each year.
In FY1999 (award year 1999-2000), 22.6% of all undergraduates were estimated to
have received Pell Grants.19 According to ED estimates, the annual number of Pell
Grant recipients rose markedly from the program’s inception with FY1973 funding.
As shown in Table 5 and Figure 2, the number of recipients grew steadily until
1992. There was a drop in recipients over the following 3-year period, followed by
fluctuation in the number of recipients until growth resumed in FY2000. The
estimated number of recipients of Pell Grants in FY2001 (2001-2002 award year) is
4,321,000. Preliminary estimates for FY2002 (2002-2003 award year) are that
4,639,000 students will receive a Pell Grant.
Table 5. Estimated Annual Number of Pell Grant Recipients,
FY1973–FY2002
Fiscal year
Estimated number of Pell Grant recipients
1973
176,000
1974
567,000
1975
1,217,000
1976
1,944,000
1977
2,011,000
1978
1,893,000
1979
2,538,000
1980
2,708,000
1981
2,709,000
1982
2,523,000
1983
2,759,000
1984
2,747,000
1985
2,813,000
1986
2,660,000
1987
2,882,000
1988
3,198,000
1989
3,322,000
1990
3,405,000
1991
3,786,000
1992
4,002,000
1993
3,756,000
1994
3,675,000
1995
3,612,000
1996
3,666,000
19 Unless noted, the data in this section describing the characteristics of Pell Grant recipients
are CRS estimates from the 1999-2000 National Postsecondary Student Aid Study (NPSAS)
administered by the U.S. Department of Education. This is a survey of a statistically
representative sample of undergraduate, graduate, and first professional students. For this
analysis, just the undergraduate data were analyzed. Unless noted, any direct comparisons
in the text based on NPSAS data have been found to be statistically significant at the 95%
confidence level at least. That is, there is only a 5% or less probability that these differences
are due to chance.

---

CRS-14
Fiscal year
Estimated number of Pell Grant recipients
1997
3,733,000
1998
3,855,000
1999
3,764,000
2000
3,899,000
2001
4,321,000
2002
4,639,000
Sources: U.S. Department of Education. End of Year Report: 2000-2001 Title IV/Federal Pell
Grant Program (for FY1973 through FY2000); U.S. Department of Education. Budget Service,
budget table entitled Department of Education Fiscal Year 2003 Congressional Action, dated
November 12, 2002 (for FY2001 and FY2002).
Figure 2. Estimated Annual Number of Pell Grant Recipients,
FY1973–FY2002
5,000,000
4,500,000
4,000,000
3,500,000
ts
3,000,000
ien
p
2,500,000
Reci
er of
b 2,000,000
m
Nu 1,500,000
1,000,000
500,000
0
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
Fiscal Year
What are the characteristics of the students receiving Pell Grants? Three
characteristics are explored below — income, enrollment status, and type and control
of enrolling institution.

---

CRS-15
Income
There is no absolute income threshold that determines who is eligible or
who is ineligible for Pell Grants.20 Nevertheless, Pell Grant recipients are primarily
low-income. In FY1999 (award year 1999-2000), an estimated nearly 45% of
dependent Pell Grant recipients had total parental income below $20,000 and over
90% had total income of less than $40,000.21 Independent Pell Grant recipients’
income is generally lower than their dependent counterparts. Nearly half (47%) of
independent Pell Grant recipients had total income of less than $10,000; over 90%
had total income below $30,000.22 The distribution of Pell dollars follows the
distribution of recipients closely. That is, over 90% of Pell Grant aid to dependent
students is received by those with incomes of less than $40,000, and over 90% of Pell
dollars awarded to independent students goes to those with incomes of less than
$30,000.
Given the focus of the program on needy students, it is not surprising that much
higher percentages of low income undergraduates receive Pell Grants. This might be
considered a Pell participation rate. Table 6 shows the percentage of dependent and
independent undergraduates from different income levels who were Pell recipients
in FY1999. Two participation rates are provided for each income level; one
measuring the percentage of all undergraduate students (of the relevant dependency
status) who were Pell recipients and the other providing the percentage of
undergraduate aid applicants (of the relevant dependency status) who received Pells.
Focusing on the lowest income categories,23 it is estimated that approximately
68.9% of all dependent undergraduates from families with total income of less than
$10,000 were Pell recipients, and 87.0% of the aid applicants from that income
category were Pell recipients. About 60.6% of all independent undergraduates with
total income of less than $5,000 were Pell recipients, and about 81.8% of the aid
applicants in that category received Pells. Table 6 shows that, in general, as income
rose, participation rates in the Pell program dropped for dependent and independent
students.
20 As has been described, eligibility for a Pell Grant depends to a great extent on the EFC
calculated for a student and his or her family. The EFC can be affected by a host of factors
other than a family’s income. This includes, among other factors, family size, number in
college, the student’s dependency status, and assets.
21 Total income for dependent students is the total income of their parents. This includes
most taxable and untaxed income. For independent students, total income is the taxable and
untaxed income for the students and their spouses, if any.
22 Data from the federal Pell Grant program office for a more recent year (FY2000 — award
year 2000-2001) paint a similar picture. See, U.S. Department of Education. End of Year
Report: 2000-2001 Title IV/Federal Pell Grant Program. To be consistent and unless
noted, NPSAS data are used in the body of the report at this juncture to describe the income
distribution because the subsequent analysis of the characteristics of Pell recipients can only
be based on the NPSAS data.
23 In the rest of this analysis, references to individuals from the lowest income categories are
to dependent students with total income of less than $10,000 (about 5% of dependent
undergraduates) and independent students with total income of less than $5,000 (about 10%
of independent undergraduates).

---

CRS-16
Table 6. Estimated Pell Grant Participation by Income,
1999-2000
Dependent undergraduates
estimated percentage receiving Pell grants
Total income
All students
Federal aid applicants
Less than $10,000
68.9%
87.0%
$10,000-$19,999
63.0%
81.5%
$20,000-$29,999
54.2%
75.6%
$30,000-$39,999
31.4%
50.7%
$40,000-$49,999
12.4%
22.5%
$50,000-$59,999
3.2%
5.8%
$60,000-$69,999
1.4%
2.6%
$70,000 or more
0%
0%
Independent undergraduates
estimated percentage receiving Pell grants
Total income
All students
Federal aid applicants
Less than $5,000
60.6%
81.8%
$5,000-$9,999
61.6%
83.1%
$10,000-$19,999
38.2%
61.1%
$20,000-$29,999
24.6%
55.2%
$30,000-$49,999
11.4%
43.4%
$50,000 or more
0%
0%
Source: CRS estimates from 1999-2000 NPSAS.
Given the intended purpose of the Pell Grant program to provide low-income
students with the foundation of their aid, it is noteworthy that a substantial portion
of very low income undergraduates did not receive a Pell Grant. Apparently, a large
percentage of these very low income students did not apply for federal financial aid.24
The percentage of dependent undergraduates from the lowest income category who
24 It should be noted that the ability to speak with confidence about the income levels of
students who did not file the FAFSA is adversely affected by certain data quality issues. For
non-aid filers, income information comes from surveys of students and from imputation.
According to the NPSAS code book in the Data Analysis System, these income data are
“much less reliable” than those from aid filers.

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CRS-17
received a Pell Grant increased markedly if aid application is taken into account,
rising from 68.9% to 87.0%. A similar increase in participation characterized the
lowest income independent undergraduates when aid application is considered —
from 60.6% to 81.8%. Nevertheless, even among aid application filers, a relatively
significant portion of the lowest income students did not receive Pell Grants.
It is possible that many of these lowest income students who did not apply for
aid may have believed they were not financially eligible for aid, or they may have had
sufficient resources to meet their costs.25 At least some of those who believed they
were ineligible for aid may have actually been eligible.26 Among other possible
explanations is that very low-income students in particular find the federal financial
aid application process too complex to pursue or that such students are more likely
not to know that aid is available.
For those lowest income students who took the step of applying for aid but did
not receive a Pell, a variety of factors may be at work. In particular, a sizeable
percentage of the non-Pell receivers among the lowest income students had EFCs that
disqualified them for Pell Grants.27 This was true for 23.5% of the dependent lowest
income aid filers without a Pell and 12.9% of the independent lowest income aid
filers who were non-Pell recipients.28
Enrollment Status
Pell recipients, regardless of dependency status, are more likely to be full-time
students than are undergraduates as a whole and less likely to be enrolled on less-
than-half-time basis. Table 7 shows the distribution of dependent and independent
undergraduates in general and Pell recipients in particular by enrollment status.
25 An analysis of 1995-1996 NPSAS data found these to be the two primary reasons offered
by low-income students who did not file for federal financial aid. (U.S. Department of
Education. Low-Income Students: Who They Are and How They Pay for Their Education,
NCES 2000-169, March 2000.)
26 Ibid., p. 22. It is stated, “In some cases, the belief that their family income was too high
for them to qualify for aid may simply have been erroneous.”
27 For the 1999-2000, the maximum Pell Grant was $3,125. Under the applicable award
rules, students with EFCs greater than $2,925 were ineligible for a Pell Grant.
28 The earlier description of the eligibility requirements for Pell Grants identified numerous
other factors that might account for some of these students failing to receive Pell Grants.
Among those that preclude eligibility are being enrolled in a program not leading to a
degree or certificate, failing to meet satisfactory progress while enrolled in postsecondary
education, and being in default on a federal student loan.

---

CRS-18
Table 7. Estimated Distribution of Undergraduates and
Pell Grant Recipients by Enrollment Status, 1999-2000
Dependent undergraduates
Enrollment status
All students
Pell recipients
Full-time
66.9%
78.0%
Half-time
10.1%
6.5%
Less-than-half-time
6.3%
1.7%
Mixed (status changed
16.7%
13.9%
during enrollment period)
Total
100.0%
100.0%
Independent undergraduates
Enrollment status
All students
Pell recipients
Full-time
32.2%
59.8%
Half-time
22.4%
17.6%
Less-than-half-time
29.6%
4.3%
Mixed (status changed
15.8%
18.4%
during enrollment period)
Total
100.0%
100.0%
Source: CRS estimates from 1999-2000 NPSAS. Due to rounding, sum of column entries may not
equal column totals.
Type and Control
Compared to all undergraduates, Pell Grant recipients are less likely to be
enrolled in public 2-year institutions and more likely to be enrolled in proprietary
institutions. Table 8 below shows the distribution of dependent and independent
undergraduates and Pell Grant recipients by the type and control of the institutions
they attended.

---

CRS-19
Table 8. Estimated Distribution of Undergraduates and Pell
Grant Recipients by Type and Control of Enrolling Institution,
1999-2000
Dependent
Dependent Pell
Type and control
undergraduates
recipients
Public 4-year
39.8%
39.9%
Private 4-year
18.1%
19.9%
Public 2-year
31.1%
24.7%
Proprietary
2.7%
5.9%
More than one institution
8.3%
9.6%
during enrollment period
Total
100.0%
100.0%
Independent
Independent Pell
Type and control
undergraduates
recipients
Public 4-year
23.1%
28.0%
Private 4-year
10.1%
11.0%
Public 2-year
52.8%
36.5%
Proprietary
7.0%
15.1%
More than one institution
7.0%
9.4%
during enrollment period
Total
100.0%
100.0%
Source: CRS estimates from 1999-2000 NPSAS. Due to rounding, sum of column entries may not
equal column totals.
Role of the Pell Grant
The Pell Grant is intended to function as the foundation aid for needy
undergraduates; all other federal need-based aid is to build on the Pell Grant. As
described earlier, other financial aid received by a student is not taken into account
in determining a student’s Pell Grant. How well does the Pell Grant currently
function as the foundation aid? This section explores this question by analyzing the
purchasing power of the Pell Grant and the distribution of other federal aid to Pell
recipients.

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CRS-20
Purchasing Power
The value of the Pell Grant in meeting postsecondary expenses eroded during
the 1980s and first half of the 1990s. When the appropriated maximum Pell Grant
is compared to the average tuition, fees, room, and board charges that undergraduates
face, it is evident that the purchasing power of the appropriated maximum grant was
at its peak relative to charges at public 2-year, public 4-year, and private 4-year
institutions during the 1970s.29 The trend lines at all three groups of institutions was
steadily downward for the 1980s and early 1990s. Beginning with FY1996 (award
year 1996-1997), the purchasing power of the Pell Grant began to rise. Coverage has
risen most notably relative to public 2-year prices. For FY2000, the appropriated
maximum grant covered 67.9% of the tuition, fees, room, and board at public 2-year
institutions, 38.1% at public 4-year institutions, and 15.1% at private 4-year
institutions. Figure 3 displays the percentage of these prices covered by the
appropriated maximum grant from the inception of the program through FY2000.30
Figure 3. Percentage of Tuition, Fees, Room, and Board Covered by
the Appropriated Maximum Pell Grant, FY1973 - FY2000
110.0%
100.0%
90.0%
80.0%
70.0%
60.0%
Public 2-Year
Public 4-year
50.0%
Private 4-year
40.0%
30.0%
20.0%
10.0%
0.0%
3
4
5
6
7
8 79
0
1 82
3
4 85 86
7
8 89
0
1 92 93
4
5
96
97
8
9
00
197 197 197 197 197 197 19
198 198 19
198 198 19
19
198 198 19
199 199 19
19
199 199 19
19 199 199 20
29 Private 2-year institutions are not considered because they account for very few students.
30 The data used for Figure 3 are average undergraduate tuition, fees, room, and board paid
by full-time equivalent students. The source of these data is the U.S. Department of
Education’s Digest of Education Statistics 2001, Table 316. Prices for public and private
4-year institutions for academic years 1973-1974, 1974-1975, and 1975-1976 are not
available from ED. For this figure, they were estimated based on the annual rates of change
in prices for “other” public or private 4-year institutions (these institutions do not include
public or private universities) for which ED did have data.

---

CRS-21
Pell Grant Recipients and Other Federal Aid
One measure of the role that the Pell Grant plays as the foundation award is the
extent to which undergraduates who received federal need-based student aid from the
HEA31 were Pell recipients. Data from FY1999 suggest that Pell Grants alone may
not have constituted the primary foundation for these students. In FY1999, although
nearly two-thirds of federal need-based aid recipients received Pell Grants, a
comparable portion of need-based aid recipients borrowed Stafford Subsidized
Loans.32
These data certainly raise questions about the foundation role intended for the
Pell Grant program. The extent to which need-based aid recipients borrowed
Stafford Loans, whether subsidized or unsubsidized, is troubling to policymakers and
analysts who believe that borrowing imposes a burden on low-income families that
may adversely affect students’ enrollment patterns.33
Does the experience of the lowest income federal need-based aid recipients
differ from the pattern for the total cohort of need-based aid recipients? To some
degree, it does. For dependent undergraduates who received federal need-based aid
and who had total income of less than $10,000, the Pell Grant was clearly their
foundation. Over 95.8% of them received Pell Grants. Stafford Subsidized Loans
played a somewhat less prominent role for this subgroup of need-based aid
recipients; 44.3% of them borrowed from this program. The pattern was similar for
the independent need-based aid recipients from the lowest income level (less than
$5,000 in total income) — 94.6% received Pell Grants, 56.2% borrowed Stafford
Subsidized Loans. Still, the extent to which even these very low income
undergraduates borrowed may offer little reassurance to those already concerned
about reliance on borrowing.
Another approach to delineating the role of Pell Grants is to explore the extent
to which Pell recipients, as a group, relied solely in FY1999 on the grant to meet
college charges without having to secure other federal aid, particularly loans with
their repayment obligation. In FY1999, for just 15.8% of Pell recipients was that
grant their only source of aid. As shown in Table 9, Pell Grant recipients
participated in other federal student aid programs, sometimes at a high rate. Among
the federal need-based student aid, Pell recipients were most likely to also be
borrowing Stafford Subsidized Loans (over 52% of Pell recipients received these
loans — average amount of $3,260).
31 Pell Grants, Federal Supplemental Educational Opportunity Grants, Federal Perkins
Loans, Federal Work-Study earnings, and Stafford Subsidized Loans.
32 Further, about one-third of federal need-based aid recipients secured Stafford
Unsubsidized Loans.
33 See, for example, Advisory Committee on Student Financial Assistance. Empty Promises:
The Myth of College Access in America, June 2002. p. 11-13.

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CRS-22
Table 9. Pell Grant Recipients’ Participation Rates and
Average Awards in Other Aid Programs, FY1999
Percentage of Pell
Average amount of aid
recipients who also
awarded under this
received aid under this
program to participating
Program
program
Pell recipient
Federal Supplemental
Educational Opportunity
24.8%
$670
Grants
Federal Work-Study
10.3%
$1,550
Stafford Subsidized Loans
52.1%
$3,260
Stafford Unsubsidized
23.2%
$2,970
Loans
Federal Perkins Loans
8.7%
$1,720
All Non-Federal Grants
54.6%
$2,810
All Non-Federal Loans
4.9%
$3,990
Source: CRS estimates from 1999-2000 NPSAS.
The overall price of education has an impact on the extent to which Pell
recipients secure Stafford Loans. For Pell recipients attending public 2-year
institutions, where the average cost of attendance is lower than at public 4-year
institutions and, particularly, at private 4-year institutions, the propensity for
borrowing was much less than for Pell recipients as a whole. For FY1999, 21.2% of
Pell recipients at public 2-year institutions borrowed Stafford Subsidized Loans, and
8.0% borrowed Stafford Unsubsidized Loans.
Possible Reauthorization Issues
This section provides brief overviews of several issues that may be considered
by the Congress as it deliberates on the Pell Grant program. There is an overarching
question which, to some extent, links the first three specific issues described below.
As was delineated earlier, there may be some question about whether the Pell Grant
is playing the foundation role intended for it, particularly for the neediest students.
Steps to increase the targeting of Pell Grant assistance to such students may be
debated by the Congress during this reauthorization process and are part of the initial
issues discussed below.

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CRS-23
Entitlement
The Pell Grant program is subject to annual appropriations. As delineated
earlier, the authorized maximum award has usually been higher than the maximum
set in the appropriations process; the last time they both were the same was for
FY1979. Further, given the difficulty in estimating program costs, the annual
appropriation has in several years been significantly less than what was needed to
meet those costs, causing shortfalls and leading to reductions in grants, borrowing
from subsequent years’ appropriations, or supplemental appropriations. As a result,
in many years, there may be uncertainty among students, their families, and higher
education institutions about the level of support the program will provide. One
response to these circumstances has been the proposal that the Pell Grant program
be made into an entitlement. As a consequence, its funding would be mandatory.
This would preclude shortfalls, support a maximum Pell Grant at the level set in the
authorizing legislation, and reduce annual uncertainty about the program. Advocates
of this step may also stress that funding higher maximum Pell Grants would direct
greater funding to the neediest students.
Congress has wrestled with this issue in the past. Indeed, during legislative
action on the Higher Education Amendments of 1992, the House and Senate
education committees approved versions of a reauthorized HEA that would have
made the program an entitlement. These provisions were not enacted.
Concerns about the consequences of making the Pell Grant an entitlement have
centered on several issues. Questions are raised about the cost of doing so. For
example, if the authorized maximum Pell Grant for FY2002 of $5,400 were to be
funded, total program costs would be an estimated $16.4 billion, nearly a 50%
increase in the cost of the program over the current estimate for FY2002 of $11.2
billion.34 Also, the experience with the Stafford Loan program whose costs are
mandatory suggests that uncertainty may remain in a Pell entitlement given the
changes that are often made to the Stafford Loan program through the budget
reconciliation process to generate cost savings.
Front Loading
Increasing the amount of Pell Grant assistance targeted to students in their initial
year or years of enrollment is known as “front loading.” This strategy has been
proposed for many reasons, including the following: to increase the purchasing
34 The cost estimate for funding the FY2002 authorized maximum Pell Grant was prepared
by CRS using the Pell Grant estimation model of the U.S. Department of Education’s
Budget Service. ED bases its budget requests on the results from this model. The model’s
version U2003A was utilized for the present analysis, using the Office of Management and
Budget’s Mid-Session Review economic assumptions (2002). CRS does not make official
congressional cost estimates of federal programs or legislative proposals; that is the
responsibility of the Congressional Budget Office. Estimates from this model of costs and
the number and characteristics of recipients included in this report are intended to suggest
the relative magnitude and nature of the impact of changes in the Pell Grant program.
Unless noted, all further references in this report to the ED Budget Service model are to
model version U2003A using the Mid-Session Review economic assumptions.

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power of the Pell Grant for low-income students; to increase low-income access to
postsecondary education and, potentially, to increase their persistence; and to reduce
borrowing by low-income students in their initial years and, thereby, possibly limit
loan defaults by such students if they leave postsecondary education without
completing their programs of study.
Various front loading variations are possible. Among those that have been
proposed are limiting Pell Grants to students in their first 2 years;35 or directing new
Pell Grant funding to the initial year of enrollment, thereby boosting the size of the
grant in that year while maintaining somewhat smaller grants for later years.36
If, for example, only first and second year students were permitted to receive
Pell Grants, the estimated program costs for FY2002 (award year 2002-3) with all
other provisions unchanged (e.g., $4,000 maximum grant) would be $7.8 billion,
some $3.4 billion less than the current estimates for FY2002 costs under current
law.37 If that $3.4 billion were applied to raising the maximum grant for students in
their first 2 years of undergraduate education, the maximum Pell Grant could be
raised to somewhat more than $5,250, an increase of $1,250 over the current
maximum.
Proposals to front load Pell Grants generate significant controversy. Depending
upon the variant proposed, among the issues raised are whether the program would
function as a form of “bait and switch” with students enrolling with grant assistance
but being required to shift to significant borrowing in later years and, perhaps,
dropping out at that stage; whether front loading would unduly influence students to
enroll in community colleges where significant portions of expenses would be
covered with grants; and whether front loading would be administratively difficult,
involving such questions as determining precisely which students should be
considered to be first year or second year students.
Minimum Grant
There has been long standing interest in ensuring that the Pell Grant program
serves needy students and in maximizing the grant that can be awarded to those
students. This interest is often heightened by efforts to expand eligibility for the
program because as additional, presumably higher income, students are drawn into
the program, raising the appropriated maximum grant (which would focus greater
amounts of funding on the neediest students) becomes more costly (a higher
maximum generally means somewhat more aid for all students eligible for
assistance). Further, with the recent growth in federal support for middle-income
35 See, for example, Kane, Thomas J. Reforming Public Subsidies for Higher Education.
Financing College Tuition: Government Policies & Educational Priorities, 1999.
36 Reportedly, this variation of front loading was being considered by the Bush
Administration in 2001. (Burd, Stephen. Bush’s Plan for Pell Grants Divides 2-Year and
4-Year Colleges. The Chronicle of Higher Education, February 16, 2001.)
37 Cost estimates based on U.S. Department of Education’s Budget Service model.

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students through the federal income tax system,38 concern has been raised about the
continued federal commitment to aid for low-income students.39
Among the changes to the Pell Grant program that might be considered in any
effort to target the grants more fully on low-income students and, if possible, increase
the size of their grants,40 is raising the minimum grant.
As has been described, under current law, the minimum Pell Grant annual award
for any recipient is $400. Any applicant eligible for a Pell Grant of at least $200 but
less than $400 is awarded the $400 minimum (this retention of grantees eligible for
between $200 and $399 and the boost in their grants to $400 is identified in this
discussion as the minimum grant “bump”).
Overall, any increase in the minimum Pell Grant will reduce the number of
recipients and program costs. The impact may actually be more significant with
regard to recipients than to program costs. Based on the estimated consequences for
program costs and recipients shown in Table 10, it appears that what is gained
financially by a greater targeting on low-income Pell recipients may not be enough
to support a substantial increase in the appropriated maximum Pell Grant for
remaining eligible students.
Table 10 shows estimates for the impact of three different increases in the
minimum Pell Grant for award year 2002-2003 — $400 (a “true” $400 minimum
without the $200 bump), $600, and $800. For all of these estimates, the maximum
appropriated Pell Grant was fixed at $4,000, the level that applies to award year
2002-2003.
38 CRS Report RL31484, Higher Education Tax Credits: Targeting, Value, and Interaction
with Other Federal Student Aid; CRS Report RL31129, Higher Education Tax Credits and
Deduction: An Overview of the Benefits and Their Relationship to Traditional Student Aid,
both by James Stedman and Adam Stoll.
39 See, for example, Wolanin, Thomas R. Rhetoric and Reality: Effects and Consequences
of the HOPE Scholarship. The Institute for Higher Education Policy, April 2001.
40 Various options for achieving such changes were proposed prior to the last reauthorization
of the HEA. See, for example, Rethinking the Allocation of Pell Grants by David W.
Breneman and Fred J. Galloway, in Financing Postsecondary Education: The Federal Role,
October 1995. Available on the web at:
[http://www.ed.gov/offices/OPE/PPI/FinPostSecEd/breneman.html].

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Table 10. Estimated Impact of Increasing the Minimum Pell
Grant for Award Year 2002-2003
Estimated decrease in
Estimated decrease in program
Minimum
recipients from current law
costs from current law
$400 (no bump)
77,700 (1.7% decrease)
$26.9 million (0.2% decrease)
$600
155,000 (3.3% decrease)
$60.4 million (0.5% decrease)
$800
244,000 (5.3% decrease)
$112.9 million (1.0% decrease)
Source: CRS estimates based on U.S. Department of Education’s Budget Service model.
These selected increases in the minimum annual Pell Grant have a greater
impact in percentage terms on the number of recipients than on the total costs of the
program. This general pattern is not surprising. An increase in the Pell Grant
minimum affects those recipients with the smallest grants — only those recipients
whose current Pell Grant falls below the new minimum lose eligibility, while those
with larger grants are unaffected. Thus, for example, establishing a true $400
minimum (no bump) decreases program costs by at most $400 per recipient losing
eligibility.41 Raising the minimum grant by more substantial amounts will lead to
proportionately greater reductions in program costs, although more recipients will be
affected and will lose larger grants.
Tuition Sensitivity
From its inception, the Pell Grant program has included provisions that could,
under some circumstances, affect the size of a student’s Pell Grant because of the
tuition charges or COA at his or her institution. In practice, these provisions have
worked to reduce the Pell Grant for students attending lower priced institutions.
From 1972 until enactment of the Higher Education Amendments of 1992, the
program capped the Pell Grant by providing that it could not exceed a specified
percentage of a student’s COA. Such provisions were initially adopted because the
Members of Congress instrumental in designing the program had agreed that there
should not be a “free ride” for students, and that the program should not favor lower
priced public institutions over higher priced private ones as an uncapped grant was
believed to do.42 The program’s current tuition sensitivity rule (described earlier)
41 Under a no-bump $400 minimum, the actual decrease from current law may be less than
$400 for some current recipients losing eligibility. This may arise, in part, because Pell
Grants must be paid out to recipients in installments over the academic year. As a
consequence, a change in enrollment status may lead to receipt of total Pell Grant funding
of less than $400. For example, a student enrolled full-time for the fall semester and eligible
for the minimum award of $400, could receive an initial payment of $200 for the first
semester. If he or she did not enroll for the second semester, the second payment is not
made and the total Pell aid received would be $200.
42 Gladieux, Lawrence E., and Thomas R. Wolanin. Congress and the Colleges: The
National Politics of Higher Education, 1976. p. 102.

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CRS-27
was adopted by the Higher Education Amendments of 1992, replacing a cap of 60%
of COA.
The decision in 1992 to eliminate the cap and institute the tuition sensitivity
provision appears to have been prompted by testimony that the cap served to reduce
grants to students attending low-priced institutions, particularly community colleges,
and resulted in the “neediest” students having to borrow to meet expenses at even the
lowest priced institutions.43 The tuition sensitivity rule was intended to protect a base
amount of the Pell Grant maximum award and make a portion of increases above that
base sensitive to tuition.
The 108th Congress may well debate the fate of the tuition sensitivity rule. At
issue would be the impact of the current rule, and the consequences of eliminating
it or modifying it. Ultimately, the overarching issue is whether and how the size of
the Pell Grant should be linked in some fashion to the charges faced by students.
As implemented by ED, tuition sensitivity reduces the Pell Grant received by
a small number of the poorest students attending institutions with very low tuition
charges. For the 2002-2003 award year, the only students whose Pell Grant may be
reduced under tuition sensitivity are those students whose tuition charges (and any
allowances for dependent care or disability related expenses) are less than $650;
whose EFCs are 600 or less; and whose total COA is $3,400 or higher.44
The impact of the tuition sensitivity rule in FY2002 may be felt by an estimated
84,800 students whose Pell Grants are estimated to be reduced by an aggregate
amount of slightly more than $19.4 million.45 The estimated average loss in Pell
assistance for affected students may be slightly less than $230.
Clearly, there are myriad possible permutations on tuition sensitivity that the
Congress may consider, not just whether to continue or eliminate the current rule.
For example, the impact of the current rule could be lessened or eliminated by raising
the award level which may trigger the rule (currently $2,700) to be closer to present
maximum award levels or in excess of those levels. The portion of the maximum
award above the trigger level that is compared to tuition might be adjusted by tying
a larger portion to tuition (making the grant more tuition sensitive) or a smaller
portion to tuition (making the grant less tuition sensitive). Concern about the
provision affecting the lowest income Pell recipients could be allayed by protecting
certain students from the impact of the provision, such as those with a zero EFC.
43 U.S. Senate. Committee on Labor and Human Resources. Reauthorizing the Higher
Education Act of 1965. Committee Report 102-204 to accompany S. 1150, November 12,
1991. p. 23.
44 This last condition reflects that, under the three-pronged test for determining the Pell
Grant (a student’s Pell is the least of appropriated maximum Pell minus EFC, COA minus
EFC, or tuition sensitivity), the grant may be determined by COA minus EFC. These
conditions are delineated in ED Dear Colleague letter of January 2002 presenting the 2002-
2003 Pell Grant payment and disbursement schedules (identification number is P-02-01).
Available on the web at: [http://www.ifap.ed.gov/dpcletters/p0201.html].
45 Cost estimates based on U.S. Department of Education’s Budget Service model.

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Elimination of tuition sensitivity has been advocated by those who argue that
the affected students are those most likely to be adversely influenced by any
reduction of their federal grant aid; that, as the appropriated maximum award level
increases, the provision’s reach will go well beyond California community colleges
where it is believed the impact is only being felt currently; that COA is so large at
even institutions with the lowest tuition charges that elimination of the rule will not
favor one sector over another; and that the savings being generated by its application
are minimal. Some also might contend that significantly strengthening the linkage
to tuition could increase the incentive for schools with low tuition to raise those
tuition levels.
Efforts are also likely to be made to retain or modify the current rule. The
general arguments favoring retaining some degree of sensitivity in the size of the Pell
Grant to students’ charges generally focus on the prospect that such provisions can
help to support choice by low-income students among higher- and lower-priced
institutions. Further, price sensitivity in the grant may keep the grant from steering
the lowest income students to the lowest priced institutions. Finally, advocates may
posit that under some forms of tuition sensitivity financial resources will be freed up
to enable increases in the appropriated maximum award without increases in the
appropriation.
Academic Merit
The Pell Grant program does not currently have any eligibility requirement
based on academic merit. In a period of increasing federal interest in improving
student outcomes at all levels of education and holding recipients of federal funds
accountable for academic improvement, the Congress may consider merit-based
proposals for the Pell Grant program during the HEA reauthorization.
At present, students have to maintain satisfactory progress in order to continue
to receive a Pell Grant. Satisfactory progress is defined by participating institutions
and is often viewed as a minimal academic standard. Proposals to strengthen the
academic standards supported by the program or introduce academic merit to the
program may take the form of raising the academic performance requirements that
students must meet in order to receive a Pell Grant after the initial year of eligibility;
providing additional Pell Grant assistance to students who demonstrate high levels
of academic performance; precluding the use of Pell Grant funding to support any
form of remedial education;46 or limiting the number of years in which Pell Grant
assistance can be received to accelerate program completion.
Issues raised by such proposals include concern about their disproportionate
impact on needy students who must rely on the Pell Grant to meet college costs. As
a consequence, attention may be directed to the relationship between Pell-linked
academic accountability, if any, and other accountability provisions that the Congress
46 Currently, a student may receive federal financial assistance for up to a year’s worth of
remedial education. A student cannot receive aid if he or she is enrolled in a program
composed solely of remedial work, or if the remedial course work is required for admission
to an eligible program.

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might consider for the HEA and the higher education community in general. Further,
if the current program is retained but new funding is directed to needy students
meeting academic merit requirements, concerns may be raised about the impact on
funding for the basic Pell Grant.47
47 The Congress has chosen not to fund the Academic Achievement Incentive Scholarships,
authorized by the Higher Education Amendments of 1998, which would have doubled the
amount of Pell assistance provided to incoming higher education students who graduated
in the top 10% of their high school class.

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